Full-year results for the period ended 31 December 2017

£ million unless otherwise stated	2017	2016	As Reported change %	Organic Constant Currency ⁽¹⁾ change %
Headline results Revenue	1,021.5	989.2	3.3%	1.4%
Group headline operating profit⁽¹⁾	119.7	116.9	2.4%	3.5%
Group headline operating profit margin⁽¹⁾	11.7%	11.8%
Headline EPS ⁽¹⁾	22.5p	22.7p	(0.9)%
Total dividend per share	11.0p	11.0p
Free cash flow before acquisitions, disposals, dividends, and additional US pension payments⁽¹⁾	54.0	48.0

Statutory results
Operating profit	158.1	107.3
Profit before tax	135.8	87.9
Basic EPS	37.8p	18.4p

1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 33, reconciliations of the statutory results to the adjusted measures can be found on pages 9 to 13.

Group highlights

· Improving momentum in the business with organic constant-currency growth* of 2.8% in the second half of the year

· Continued progress on strategy implementation, with two divestments completed. These reduce complexity and strengthen the balance sheet, with net debt / EBITDA* at 1.2 times (FY 2016: 1.6 times)

· Increased investment of £7 million in research and development and sales capability funded by improvements in operating efficiency

· Group headline operating profit margin* at 11.7% (2016: 11.8%) with dilutive impact of divestments largely offset by underlying improvements

· Additional funding of US$36 million to the Group's US pension scheme reduced the Group's pension deficit and reduces future pension contributions

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

'I am pleased to see the return to organic growth in the year as a result of the early benefits of our strategy implementation and improving market conditions. Strategy implementation is progressing well with further investment in research and development and sales completed in the year, and capability development ongoing across the Group. We are on track to meet our goal of growing in line with our markets in 2019, and expect to grow at closer to our market rates in 2018.'

Strategy implementation firmly on track

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

1. Move to a global structure . We completed the move to a global business structure in March 2016. The change in structure has improved global co-ordination across the Group and has sharpened accountability within each of our global business units. This is an important change to enable the wider changes we need to make and we completed this without any loss of business momentum.

2. Extend our technology leadership. Our objective is to strengthen our technical teams and increase our investment in research and development to around 4% of sales (from 2.8% of sales in 2015) over the next two to three years.

We have increased our investment in technology development in 2017 to £34.3 million, representing 3.4% of sales. We have expanded the technical teams in our new Carbon Science Centre of Excellence and in our new Metals and Joining Centre of Excellence. We have also added technical resources to our Structural Ceramics Centre of Excellence to develop new products and processes for the structural ceramics business, and added engineering resources across the business to drive the growth of the business.

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

We made very good progress with our operational improvements in 2017 with a net £8.5 million of savings generated to fund reinvestment in the business in the year (against our target of £6 million). These were generated from a wide range of improvement projects across the businesses including larger lean projects looking at end-to-end waste elimination, smaller scale continuous improvement projects, procurement projects and further use of automation. We made a number of changes to strengthen our operational teams and continuous improvement capabilities during the year and we are well positioned to deliver the further £8 million of improvements we are targeting in 2018.

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

We have completed a number of changes to the structure and alignment of our sales teams following the assessments of our sales teams. We have defined roles and responsibilities clearly, and matched the skills of our sales teams more closely to their roles.

We carried out five intensive pilot projects to test new techniques and tools and to build our understanding of the best approaches for us to use across the group. Through these pilots we delivered significant improvements in local capabilities and approaches, and we also developed our understanding of the tools and techniques we should apply across the Group. We will continue with that deployment during 2018.

We also completed the design of our framework for sales incentive plans and prepared for the deployment of new sales incentives to four different sales teams in the first quarter of 2018. We will test these new approaches and make adjustments before deploying across the majority of our sales

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

We launched our new leadership behaviours to our senior leaders during the year. These are now built into our performance management process and during 2018 our leaders will be measured both on what they achieve and how they achieve it to ensure we drive the behaviours we need to support the delivery of our strategy. In addition to the work on sales incentives, we have also made a range of changes to incentive schemes for the wider leadership population to provide a clearer line of sight from the performance of the individual and the impact on their compensation. As part of this we have introduced greater balance between short-term (in-year) and long- term (multi-year) incentives. Finally, we have strengthened our leadership population, in particular with the introduction of more capability in finance, HR, operations and EHS functions.

6. Simplify the business. We have completed two divestments, Rotary Transfer Systems in Electrical Carbon and Electro-ceramics in Technical Ceramics, which have materially simplified the global business units as a result. Through these divestments we have exited businesses where we were sub-scale and where there was limited synergy with the remainder of the Group. We have sharpened the focus on the core business and reduced overhead costs. We received proceeds of £79.5 million from the sale and have used that to reduce our net debt* position, creating funds for reinvestment in the business in due course.

Enquiries


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

Results presentation today

There will be an analyst and investor presentation at 10.45 (UK time) today at The London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS.

A live video webcast and slide presentation of this event will be available on www.morganadvancedmaterials.com . We recommend you register by 10:30 (UK time).

Basis of preparation

Non-GAAP measures

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

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

Throughout this report these non-GAAP measures are clearly identified by an asterisk (*) where they appear in text, and by a footnote when they appear in tables and charts. Definitions of these non-GAAP measures can be found in the glossary of terms on page 32, reconciliations of the statutory results to the adjusted measures can be found on page 9 to 13.

Operating review

	Revenue		EBITA ⁽¹⁾		Margin %
	2017	2016	2017	2016	2017	2016
	£m	£m	£m	£m	%	%
Thermal Ceramics	426.2	413.3	56.9	55.0	13.4%	13.3%
Molten Metal Systems	46.9	43.5	7.0	6.7	14.9%	15.4%
Thermal Products Total	473.1	456.8	63.9	61.7	13.5%	13.5%
Electrical Carbon	157.1	156.2	16.7	19.7	10.6%	12.6%
Seals and Bearings	113.2	97.7	17.5	14.2	15.5%	14.5%
Technical Ceramics	257.1	248.1	28.3	26.6	11.0%	10.7%
Carbon and Technical Ceramics Total	527.4	502.0	62.5	60.5	11.9%	12.1%
Composites and Defence Systems	21.0	30.4	(1.1)	1.1	(5.2)%	3.6%
Divisional Total	1,021.5	989.2
Divisional EBITA ⁽¹⁾			125.3	123.3
Corporate costs			(5.6)	(5.4)
Group EBITA ⁽¹⁾			119.7	117.9	11.7%	11.9%
Restructuring costs and other items			-	(1.0)
Group headline operating profit ⁽¹⁾			119.7	116.9	11.7%	11.8%
Amortisation of intangible assets			(7.3)	(7.9)
Operating profit before specific adjusting items			112.4	109.0
Specific adjusting items included in operating profit²			45.7	(1.7)
Operating profit			158.1	107.3	15.5%	10.8%
Net financing costs			(22.5)	(20.0)
Share of profit of associate (net of income tax)			0.2	0.6
Profit before taxation			135.8	87.9

1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 33, reconciliations of the statutory results to the adjusted measures can be found on pages 9 to 13.

2. Details of Specific adjusting items can be found in Note 4 to the financial statements

Thermal Products

Revenue for Thermal Products for the year was £473.1 million, representing an increase of 3.6% compared with £456.8 million in 2016. On an organic constant-currency* basis, year-on-year revenue decreased by 1.4%. Divisional EBITA* for Thermal Products was £63.9 million (2016: £61.7 million) with a Divisional EBITA* margin of 13.5% (2016: 13.5%).

Revenue for Thermal Ceramics for the year was £426.2 million, representing an increase of 3.1% compared with £413.3 million in 2016. On an organic constant-currency* basis , year-on-year revenue decreased by 1.6%. Both North America and Europe declined organically reflecting the late-cycle nature of the business. Growth in Asia was primarily driven by growth in China and India.

Thermal Ceramics 2017 EBITA* was £56.9 million (2016: £55.0 million) with EBITA margin* improving to 13.4% (2016: 13.3%), with benefits resulting from operational improvements and mix impacts, from lower project activity, and increasing Superwool® sales.

Revenue for Molten Metals Systems for the year was £46.9 million, representing an increase of 7.8% compared with £43.5 million in 2016. On an organic constant-currency* basis, year-on-year revenue increased by 0.9%, with growth driven by performance in fire assay equipment and consumables resulting from the strength in the global precious metals (gold) market.

Molten Metal Systems 2017 EBITA* was £7.0 million (2016: £6.7 million) with EBITA margin* of 14.9% (2016: 15.4%), reflecting the year-on-year investment in technology and product development, partially offset by continued operational efficiency.

Carbon and Technical Ceramics

Revenue for the Carbon and Technical Ceramics Division for the year was £527.4 million, representing an increase of 5.1% compared with £502.0 million in 2016. On an organic constant-currency* basis, year-on-year revenue increased 6.2%.

Divisional EBITA* for the Carbon and Technical Ceramics Division was £62.5 million (2016: £60.5 million) with Divisional EBITA margin* of 11.9% (2016: 12.1%).

Revenue for Electrical Carbon for the year was £157.1 million, representing an increase of 0.6% compared with £156.2 million in 2016. On an organic constant-currency* basis , year-on-year revenue increased by 3.1% as the rail, wind, mining and industrial segments all reflected year-on-year growth. Regionally, growth was primarily seen in Asia from strong sales of specialty graphite products, in particular due to sales of machined graphite in Korea supporting the semiconductor industry and carbon fibre felt materials in China for solar energy applications, and also the European markets. The North American market remained flat overall.

Electrical Carbon EBITA* was £16.7 million (2016: £19.7 million) with an EBITA margin* of 10.6% (2016: 12.6%). Margin decline from the dilutive impact of the divestment of the Rotary business, and investment in sales and technology resources was partially offset by operational efficiency improvements.

Revenue for Seals and Bearings for the year was £113.2 million, representing an increase of 15.9% compared with £97.7 million in 2016. On an organic constant-currency* basis year-on-year revenue increased by 10.9%. Organic growth was driven by the water market and chemical and process industry pump seal and bearing demand. The business also experienced a stronger year for ceramic armour material in North America, with armour sales reflecting an increase of £3.6 million from 2016. The growth in these markets offset a decline in the Korean automotive market during the year.

Seals and Bearings EBITA* was £17.5 million (2016: £14.2 million) with an EBITA margin* of 15.5% (2016: 14.5%), and reflects continued good progress on operational improvements more than offsetting incremental investment in sales capability and R&D during the year.

Revenue for the Technical Ceramics global business unit was £257.1 million, an increase of 3.6% compared with £248.1 million in 2016. On an organic constant-currency* basis, year-on-year revenue increased by 6.1%, primarily driven by demand for ceramic cores in the aerospace market and supply of ceramic parts into the semiconductor market. This demand offset some of the slow-down in the demand for ceramic cores for the industrial gas turbine market in the last quarter.

Technical Ceramics EBITA* was £28.3 million (2016: £26.6 million) with an EBITA margin* of 11.0% (2016: 10.7%), the dilutive impact of the divestment of the Electro-ceramics business was offset by operational efficiency improvements and streamlining of overheads following the divestment.

Composites and Defence Systems

Revenue for Composites and Defence Systems for the year was £21.0 million, representing a decrease of 30.9% compared with £30.4 million in 2016, on a reported basis, driven primarily by a reduction in activity with the UK MoD and the completion of a Danish vehicle programme.

EBITA* for Composites and Defence Systems was £(1.1) million (2016: £1.1 million) with EBITA margin* of (5.2)% (2016: 3.6%). The EBITA* decline reflects the decline in revenue, partially offset by cost reductions in the business.

Group Financial review

Group revenue was £1,021.5 million (2016: £989.2 million), an increase of 3.3% on a reported basis compared with 2016. Improvements in the underlying business and benefits from the decline in the value of sterling against other currencies, with much of the Group's business being denominated in non-sterling currencies, more than offset the impacts of disposals. On an organic constant-currency* basis revenue increased by 1.4%.

Group headline operating profit was £119.7 million (2016: £116.9 million). Headline operating profit margin was 11.7%, compared to 11.8% for 2016.

Operating profit improved to £158.1 million (2016: £107.3 million) and profit before tax improved to £135.8 million (2016: £87.9 million). Both of these benefited from specific adjusting items of £45.7 million (2016: £(1.7) million), and year-on-year movements in exchange rates.

The net finance charge was £22.5 million (2016: £20.0 million), primarily comprising of net bank interest and similar charges of £15.8 million (2016: £13.2 million), gain from financial instruments of £0.2 million (2016: £0.3 million) and the finance charge under IAS 19 (revised), being the interest charge on pension scheme net liabilities, which was £6.9 million (2016: £7.1 million).

The Group amortisation charge for the full-year was £7.3 million (2016: £7.9 million).

The Group taxation charge, excluding specific adjusting items, was £26.9 million (2016: £26.6 million). The effective tax rate, excluding specific adjusting items, was 29.9% (2016: 29.7%).

Headline earnings per share* was 22.5 pence (2016: 22.7 pence), reflecting the improved operating profit, slightly higher financing charges, and an effective tax rate of 30% in line with recent experience. B asic earnings per share was 37.8 pence (2016: 18.4 pence).

Specific adjusting items

	2017 £m	2016 £m
Specific adjusting items
Net pension settlement credit	-	6.8
Impairment of intangible assets	-	(8.5)
Net profit on disposal of business	45.7	-
Total specific adjusting items	45.7	(1.7)
Income tax (charge) / credit from specific adjusting items	0.9	(2.8)
Income tax (charge) / credit from US Tax Cuts and Jobs Act	4.1	-
Total specific adjusting items after income tax	50.7	(4.5)

Specific adjusting items after income tax were £50.7 million (2016: £(4.5) million), and consisted of the following:

Net profit on disposal of business

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

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

The Group reflected a profit on disposal of £26.8 million associated with this transaction. A deferred tax asset of £1.5 million was recognised in connection with the closure of the US business.

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

The Group reflected a profit on disposal of £18.9 million associated with this transaction. An income tax charge of £0.6 million was recognised in respect of this disposal.

US Tax Cuts and Jobs Act

As a consequence of the enactment of H.R.1 commonly referred to as the Tax Cuts and Jobs Act in the US a credit of £4.1m was recognised. This comprised of the revaluation of tax balances to reflect the reduction in the federal tax rates offset by an income tax charge for deemed repatriation tax for overseas subsidiaries of US companies.

Cash Flow

	2017	2016
	£m	£m
Cash generated from operations	101.5	121.7
Add back cash flows from restructuring costs and other items	-	6.6
Cash flow from operations ⁽¹⁾	101.5	128.3
Net capital expenditure	(34.4)	(38.4)
Net interest paid	(16.6)	(13.1)
Tax paid	(24.5)	(22.2)
Restructuring costs and other items	-	(6.6)
Free cash flow before acquisitions, disposals and dividends ⁽¹⁾	26.0	48.0
Dividends paid to external plc shareholders	(31.4)	(31.4)
Net cash flows from other investing and financing activities	58.4	(15.6)
Exchange movement	8.2	(27.5)
Movement in net debt⁽¹⁾ in period	61.2	(26.5)
Opening net debt⁽¹⁾	(242.5)	(216.0)
Closing net debt ⁽¹⁾	(181.3)	(242.5)

1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 33, reconciliations of the statutory results to the adjusted

measures can be found on pages 9 to 13.

Cash flow from operations was £101.5 million (2016: £128.3 million), lower year-on-year due to the additional US pension payment of £28.0 million.

Free cash flow before acquisitions and dividends was £26.0 million (2016: £48.0 million).

Net debt* at the year-end was £181.3 million (2016: £242.5 million), representing a net debt* to EBITDA* ratio of 1.2x (2016: 1.6x).

Defined benefit pension plans

The Group pension deficit has decreased by £53.1 million since last year-end to £218.0 million from £271.1 million on an IAS 19 (revised basis) due to a significant increase in Company contributions and investment returns being higher than expected.

· The UK schemes deficit decreased by £14.5 million to £166.0 million (2016: increase of £63.1 million), as employer contributions and investment returns more than offset changes in assumptions (including a fall in the discount rate from 2.62% to 2.38%).

· The USA schemes deficit decreased by £37.9 million to £11.1 million (2015: decrease of £6.1 million), primarily as a result of an additional, accelerated employer contribution in December 2017 of £28.0 million (more than offsetting a fall in the discount rate from 4.16% to 3.65%).

· The European schemes deficit decreased by £0.8 million to £36.7 million (2016: increase of £9.2 million), largely due to the disposal of the Rotary business of Morgan Rekofa, principally in Germany (the discount rate remained constant at 1.60%).

· The Rest of World schemes deficit increased by £0.1 million to £4.2 million (2016: increase of £2.4 million), resulting from the increase in the discount rate from 2.90% to 3.20%.

Foreign exchange

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

	2017		2016
GBP to:	Closing rate	Average rate	Closing rate	Average rate
US dollar	1.35	1.29	1.23	1.35
Euro	1.13	1.14	1.17	1.22

For illustrative purposes, the table below provides details of the impact on 2017 revenue and Group EBITA* if the actual reported results, calculated using 2017 average exchange rates were restated for GBP weakening by 10 cents against USD in isolation and 10 cents against the Euro in isolation:

Increase in 2017 revenue/Group EBITA⁽ ¹⁾ if:	Revenue £m	Group EBITA ⁽¹⁾ £m
GBP weakens by 10c against the US dollar in isolation	35.2	4.9
GBP weakens by 10c against the Euro in isolation	20.9	3.7
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 33, reconciliations of the statutory results to the adjusted measures can be found on pages 9 to 13.

Retranslating the 2017 full year results at the January 2018 closing exchange rates would lead to revenue of £969.7 million and headline operating profit of £112.3 million.

Final dividend

The Board is recommending a final dividend, subject to shareholder approval, of 7.0 pence per share on the Ordinary share capital of the Group, payable on 25 May 2018 to Ordinary shareholders on the register at the close of business on 4 May 2018. Together with the interim dividend of 4.0 pence per share paid on 24 November 2017, this final dividend, if approved by shareholders, brings the total distribution for the year to 11.0 pence per share (2016: 11.0 pence).

A total dividend of 11.0 pence per share represents a dividend cover of headline EPS* 2.0x in 2017 (2016: 2.1x).

The Board has held the dividend flat during 2017 as it looks to rebuild dividend cover in the medium to long term.

Definitions and reconciliations of non-GAAP to GAAP measures

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

Headline profit and earnings measures

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

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

2017	Thermal Ceramics £m	Molten Metal Systems £m	Thermal Products Division £m	Electrical Carbon £m	Seals and Bearings £m	Technical Ceramics £m	Carbon and Technical Ceramics Division £m	Composites and Defence Systems £m	Segment total £m	Corporate costs ⁽¹⁾ £m	Group £m
Operating profit/(loss)	55.1	6.8	61.9	16.2	17.2	23.8	57.2	(1.1)	118.0	40.1	158.1
Add back specific adjusting items included in operating profit	-	-	-	-	-	-	-	-	-	(45.7)	(45.7)
Add back amortisation of intangible assets	1.8	0.2	2.0	0.5	0.3	4.5	5.3	-	7.3	-	7.3
Group headline operating profit											119.7
Add back restructuring costs and other items	-	-	-	-	-	-	-	-	-	-	-
Group EBITA											119.7
Corporate costs ⁽¹⁾										5.6	5.6
Divisional EBITA /global business unit EBITA	56.9	7.0	63.9	16.7	17.5	28.3	62.5	(1.1)	125.3

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

2016	Thermal Ceramics £m	Molten Metal Systems £m	Thermal Products Division £m	Electrical Carbon £m	Seals and Bearings £m	Technical Ceramics £m	Carbon and Technical Ceramics Division £m	Composites and Defence Systems £m	Segment total £m	Corporate costs ⁽¹⁾ £m	Group £m
Operating profit/(loss)	53.6	6.6	60.2	19.2	14.0	22.4	55.6	(8.7)	107.1	0.2	107.3
Add back specific adjusting items included in operating profit	-	-	-	-	-	-	-	8.5	8.5	(6.8)	1.7
Add back amortisation of intangible assets	1.5	0.1	1.6	0.4	0.3	4.2	4.9	1.4	7.9	-	7.9
Group headline operating profit											116.9
Add back restructuring costs and other items	(0.1)	-	(0.1)	0.1	(0.1)	-	-	(0.1)	(0.2)	1.2	1.0
Group EBITA											117.9
Corporate costs ⁽¹⁾										5.4	5.4
Divisional EBITA /global business unit EBITA	55.0	6.7	61.7	19.7	14.2	26.6	60.5	1.1	123.3

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

Group Organic Growth

Group organic growth is the growth of the business excluding the impacts of acquisitions, divestments and foreign currency impacts. This measure is used as it allows revenue and EBITA to be compared on a like-for-like basis.

Commentary on the underlying business performance is included as part of the Operational review on pages 5 to 6.

Year-on-year movements in Segment Revenue

	Thermal Ceramics	Molten Metal Systems	Thermal Products Division	Electrical Carbon	Seals and Bearings	Technical Ceramics	Carbon and Technical Ceramics Division	Composites and Defence Systems	Segment Total
	2016 versus 2017	2016 versus 2017	2016 versus 2017	2016 versus 2017	2016 versus 2017	2016 versus 2017	2016 versus 2017	2016 versus 2017	2016 versus 2017
	£m	£m	£m	£m	£m	£m	£m	£m	£m

2016 Revenue	413.3	43.5	456.8	156.2	97.7	248.1	502.0	30.4	989.2

Impact of foreign currency movements	19.9	3.0	22.9	8.4	4.4	11.0	23.8	0.1	46.8
Impacts of disposals	-	-	-	(12.2)	-	(16.8)	(29.0)	-	(29.0)
Impact of underlying business	(7.0)	0.4	(6.6)	4.7	11.1	14.8	30.6	(9.5)	14.6
Underlying %	(1.6)%	0.9%	(1.4)%	3.1%	10.9%	6.1%	6.2%	(31.2%)	1.4%

2017 Revenue	426.2	46.9	473.1	157.1	113.2	257.1	527.4	21.0	1,021.5
Memo: 2017 - 2018 impact of divestments				(4.6)		(5.5)	(10.1)		(10.1)

Year-on-year movements in Segment and Group EBITA

	Thermal Ceramics	Molten Metal Systems	Thermal Products Division	Electrical Carbon	Seals and Bearings	Technical Ceramics	Carbon and Technical Ceramics Division	Composites and Defence Systems	Segment Total	Corporate Costs	Group
	2016 versus 2017	2016 versus 2017	2016 versus 2017	2016 versus 2017	2016 versus 2017	2016 versus 2017	2016 versus 2017	2016 versus 2017	2016 versus 2017	2016 versus 2017	2016 versus 2017
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m

2016 Segment & Group EBITA	55.0	6.7	61.7	19.7	14.2	26.6	60.5	1.1	123.3	(6.4)	116.9

Impact of foreign currency movements	2.5	0.6	3.0	1.5	0.8	1.4	3.7	-	6.8	-	6.8
Impacts of disposals	-	-	-	(3.5)	-	(4.6)	(8.1)	-	(8.1)	-	(8.1)
Impact of underlying business	(0.6)	(0.3)	(0.9)	(1.0)	2.5	4.9	6.4	(2.2)	3.3	0.8	4.1
Underlying %	(1.0)%	(4.1)%	(1.4)%	(5.6)%	16.7%	20.9%	11.4%	-	3.7%	-	3.5%

2017 Segment & Group EBITA	56.9	7.0	63.9	16.7	17.5	28.3	62.5	(1.1)	125.3	(5.6)	119.7
Memo: 2017 - 2018 impact of divestments				(1.3)		(1.2)	(2.5)		(2.5)		(2.5)

Group EBITDA

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

	2017 £m	2016 £m
Operating Profit	158.1	107.3
Add back: specific adjusting items included in operating profit	(45.7)	1.7
Add back: restructuring costs and other items	-	1.0
Add back: depreciation	30.6	29.5
Add back: amortisation of intangible assets	7.3	7.9
Group EBITDA	150.3	147.4

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

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

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

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

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

	2017 £m	2016 £m
Cash generated from operations	101.5	121.7
Add back: cash flows from restructuring costs and other items	-	6.6
Cash flow from operations	101.5	128.3
Net capital expenditure	(34.4)	(38.4)
Net interest paid	(16.6)	(13.1)
Tax paid	(24.5)	(22.2)
Restructuring costs and other items	-	(6.6)
Free cash flow before acquisitions, disposals and dividends	26.0	48.0
Free cash flow before acquisitions, dividends and one-off US pension payment	54.0	48.0

1. In 2017 cash generated from operations includes a one off payment to the US pension scheme of £28.0 million. Free cash flow is presented

both before and after this payment.

Net debt

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

	2017 £m	2016 £m
Cash and cash equivalents	50.4	122.4
Non-current interest-bearing loans and borrowings	(192.7)	(204.0)
Current interest-bearing loans and borrowings and bank overdrafts	(39.0)	(160.9)
Net debt	(181.3)	(242.5)

Return on invested capital

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

	2017 £m	2016 £m
Operating profit	158.1	107.3
Add back: specific adjusting items included in operating profit	(45.7)	1.7
Add back: amortisation of intangible assets	7.3	7.9
Group headline operating profit (12-month rolling)	119.7	116.9

12-month average adjusted net assets:
Third-party working capital	172.4	168.2
Property, plant and equipment	176.6	175.7
Land and buildings	115.3	105.5
Intangible assets	222.4	240.8
Other assets (net)	16.4	9.2
12-month average adjusted net assets	703.1	699.4

ROIC	17.0%	16.7%

Headline earnings per share

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

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

Constant-currency revenue and Group headline operating profit

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

Consolidated Income Statement

		Year ended 31 December 2017			Year ended 31 December 2016
		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

Revenue	3	1,021.5	-	1,021.5	989.2	-	989.2
Operating costs before restructuring costs, other one-off items and amortisation / impairment of intangible assets		(901.8)	-	(901.8)	(871.3)	-	(871.3)

Profit from operations before restructuring costs, other one-off items and amortisation / impairment of intangible assets		119.7	-	119.7	117.9	-	117.9

Retructuring costs and other one-off items:	4
Restructuring costs		-	-	-	(1.5)	-	(1.5)
Net pension settlement credit		-	-	-	-	6.8	6.8
Business exit costs		-	45.7	45.7	-	-	-
Gain on disposal of properties		-	-	-	0.5	-	0.5
Profit from operations before amortisation / impairment of intangible assets	3	119.7	45.7	165.4	116.9	6.8	123.7

Amortisation of intangible assets		(7.3)	-	(7.3)	(7.9)	-	(7.9)
Impairment of intangible assets	4	-	-	-	-	(8.5)	(8.5)

Operating profit	3	112.4	45.7	158.1	109.0	(1.7)	107.3

Finance income		1.8	-	1.8	2.3	-	2.3
Finance expense		(24.3)	-	(24.3)	(22.3)	-	(22.3)
Net financing costs	5	(22.5)	-	(22.5)	(20.0)	-	(20.0)

Share of profit of associate (net of income tax)		0.2	-	0.2	0.6	-	0.6

Profit before taxation		90.1	45.7	135.8	89.6	(1.7)	87.9

Income tax expense	6	(26.9)	5.0	(21.9)	(26.6)	(2.8)	(29.4)

Profit for the period		63.2	50.7	113.9	63.0	(4.5)	58.5

Profit for the period attributable to:
Owners of the parent		56.9	50.7	107.6	56.8	(4.5)	52.3
Non-controlling interests		6.3	-	6.3	6.2	-	6.2

Profit for the period		63.2	50.7	113.9	63.0	(4.5)	58.5

Earning per share from continuing operations	7
Basic				37.8p			18.4p
Diluted				37.5p			18.3p

Dividends²
Proposed interim dividend - pence				4.0p			4.0p
- £m				11.4			11.4

Approved final dividend - pence				7.0p			7.0p
- £m				20.0			20.0

1. Details of 'Specific adjusting items' are given in note 4 to the financial statements.

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

Consolidated Statement of Comprehensive Income

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

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

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

Year ended 31 December 2016
Profit for the period	-	-	52.3	52.3	6.2	58.5
Items that will not be reclassified subsequently to profit or loss:
Remeasurement loss on defined benefit plans	-	-	(68.1)	(68.1)	-	(68.1)
Tax effect of components of other comprehensive income not reclassified	-	-	0.6	0.6	-	0.6
	-	-	(67.5)	(67.5)	-	(67.5)
Items that may not be reclassified subsequently to profit or loss:
Foreign exchange transation differences	37.4	-	-	37.4	5.5	42.9
Net loss on hedge of net investment in foreign subsidiaries	(17.7)	-	-	(17.7)		(17.7)
Cash flow hedges:
Change in fair value	-	(3.7)	-	(3.7)	-	(3.7)
Transferred to profit or loss	-	0.8	-	0.8	-	0.8
	19.7	(2.9)	-	16.8	5.5	22.3

Total Comprehensive income, net of tax	19.7	(2.9)	(15.2)	1.6	11.7	13.3

Consolidated Balance Sheet

	Note	Year ended 31 December 2017	Year ended 31 December 2016
		£m	£m
Assets
Property, plant and equipment		297.8	303.7
Intangible assets		217.0	240.4
Investments		6.3	6.0
Other receivables		5.4	4.7
Deferred tax assets		9.1	6.1
Derivitive financial assets		0.3	-
Total non-current assets		535.9	560.9

Inventories		141.8	148.2
Derivative financial assets	9	0.7	2.1
Trade and other receivables		194.2	205.7
Current tax receivable		6.7	-
Cash and cash equivalents	8	50.4	122.4
Total current assets		393.8	478.4
Total assets		929.7	1,039.3

Liabilities
Interest-bearing loans and borrowings		192.7	204.0
Employee benefits	11	218.0	271.1
Provisions		6.1	2.3
Derivative financial liabilities	9	3.4	1.8
Non-trade payables		-	0.3
Deferred tax liabilities		10.5	8.3
Total non-current liabilities		430.7	487.8

Interest-bearing loans and borrowings and bank overdrafts		39.0	160.9
Trade and other payables		193.7	192.5
Current tax payable		23.0	16.6
Provisions		8.4	5.8
Derivitative financial liabilities	9	0.6	11.0
Total current liabilities		264.7	386.8
Total liabilities		695.4	874.6
Total net assets		234.3	164.7

Equity
Share capital		71.8	71.8
Share premium		111.7	111.7
Reserves		39.2	46.8
Retained earnings		(27.5)	(109.5)
Total equity attributable to equity holders of parent Company		195.2	120.8
Non-controlling interests		39.1	43.9
Total equity		234.3	164.7

Consolidated Statement of Changes in Equity

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

Balance at 1 January 2016	71.8	111.7	(16.5)	0.4	(1.0)	35.7	11.4	(63.7)	149.8	36.6	186.4
Profit for the period	-	-	-	-	-	-	-	52.3	52.3	6.2	58.5
Other comprehensive income	-	-	19.7	(2.9)	-	-	-	(67.5)	(50.7)	5.5	(45.2)
Transactions with owners:
Dividends	-	-	-	-	-	-	-	(31.2)	(31.2)	(4.4)	(35.6)
Equity-settled share-based payment transactions	-	-	-	-	-	-	-	0.8	0.8	-	0.8
Adjustment arising from change in non-controlling interest	-	-	-	-	-	-	-	(0.2)	(0.2)	-	(0.2)
Balance at 31 December 2016	71.8	111.7	3.2	(2.5)	(1.0)	35.7	11.4	(109.5)	120.8	43.9	164.7

Balance at 1 January 2017	71.8	111.7	3.2	(2.5)	(1.0)	35.7	11.4	(109.5)	120.8	43.9	164.7
Profit for the period	-	-	-	-	-	-	-	107.6	107.6	6.3	113.9
Other comprehensive income	-	-	(11.0)	3.0	-	-	-	8.2	0.2	(1.3)	(4.4)
Transactions with owners:
Change in ownership of controlled interest without a change in control	-	-	-	-	-	-	-	(3.3)	(3.3)	-	(3.3)
Transfer between reserves	-	-	-	-	-	-	(0.4)	(0.4)	-	-	-
Dividends	-	-	-	-	-	-	-	(31.4)	(31.4)	(9.8)	(41.2)
Equity-settled share-based payment transactions	-	-	-	-	-	-	-	1.7	1.7	-	1.7
Own shares acquired for share incentive schemes	-	-	-	-	-	-	-	(0.4)	(0.4)	-	(0.4)
Balance at 31 December 2017	71.8	111.7	(7.8)	0.5	(1.0)	35.7	11.8	(27.5)	195.2	39.1	234.3

Consolidated Statement of Cash Flows

	Note	Year ended 31 December 2017	Year ended 31 December 2016
		£m	£m
Operating activities
Profit for the period		113.9	58.5
Adjustments for:
Depreciation		30.6	29.5
Amortisation	3	7.3	7.9
Net financing costs	5	22.5	20.0
Profit on disposal of business	4	(45.7)	-
Share of profit from associate (net of income tax)		(0.2)	(0.6)
Profit on sale of property, plant and equipment		0.1	(0.4)
Income tax expense	6	21.9	29.4
Non-cash specific adjusting items included in operating profit	4	-	1.1
Equity-settled share-based payment expenses		1.7	0.8
Cash generated from operations before changes in working capital and provisions		152.1	146.2

(Increase)/decrease in trade and other receivables		(0.3)	(6.1)
(Increase)/decrease in inventories		(4.7)	1.4
Increase/(decrease) in trade and other payables		6.3	(0.1)
Increase /(decrease) in provisions		(3.0)	(5.2)
Payments to defined benefit pension plans		(48.9)	(14.5)
Cash generated from operations		101.5	121.7

Interest paid		(17.6)	(15.3)
Income tax paid		(24.5)	(22.2)
Net cash from operating activities		59.4	84.2

Investing activities
Purchase of property, plant and equipment		(34.4)	(39.5)
Forward contracts used in net investment hedging		(7.7)	(12.3)
Purchase of investments		(1.6)	(1.0)
Proceeds from sale of property, plant and equipment		1.3	1.1
Loan repaid by associate		-	2.1
Interest received		1.0	2.2
Disposal of subsidiaries, net of cash disposed		78.1	-
Purchase of the stake held by non-controlling interest		(1.5)
Net cash from investing activities		35.2	(47.4)

Financing activities
Proceeds from exercise of share options		(0.4)	(0.2)
Increase/(decrease) in borrowings	8	(114.1)	63.4
Payment of finance lease liabilities	8	(0.3)	(0.3)
Dividends paid - to external plc shareholders		(31.4)	(31.4)
Proceeds from unclaimed dividends		-	0.2
Dividends paid to non-controlling interests		(9.8)	(4.4)
Net cash from financing activities		(156.0)	27.3

Net increase/(decrease) in cash and cash equivalents		(61.4)	64.1
Cash and cash equivalents at start of period		122.4	49.8
Effect of exchange rate fluctuations on cash held		(10.6)	8.5
Cash and cash equivalents at period end⁽¹⁾	8	50.4	122.4

1. A reconciliation of cash and cash equivalents to net borrowings is shown in note 8.

Notes to the Consolidated Financial Statements

1. Basis of preparation

The preliminary announcement for the year ended 31 December 2017 has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and as issued by the International Accounting Standards Board. There has been no significant impact arising from new accounting policies adopted in the year.

The financial information set out in this report does not constitute the Company's statutory accounts for the years ended 31 December 2017 or 31 December 2016. Statutory accounts for the year ended 31 December 2016 have been delivered to the registrar of companies, and those for the year ended 31 December 2017 will be delivered in due course.

The auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498(2) or (3) of the Companies Act 2006 in respect of the accounts for 2017 and 2016.

Going Concern

The Group meets its day-to-day working capital requirements through local banking arrangements underpinned by the Group's £200 million unsecured multi-currency revolving credit facility maturing October 2019. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance and exchange rates, show the Group operating comfortably within its debt financial covenants for the next 12 months.

The current economic climate continues to have an impact on the Group, its customers and suppliers. The Board fully recognises the challenges that lie ahead but, after making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for a period of 18 months from the date of the Annual Report and Accounts. Accordingly, they continue to adopt the going concern basis in preparing the consolidated statements for the year ended 31 December 2017.

Impacts of new accounting standards

IFRS 15 Revenue from Contracts with Customers is effective for periods beginning on or after 1 January 2018 and introduces a new revenue recognition model that requires the transaction price receivable from customers to be allocated between the Group's performance obligations under contracts on a relative stand-alone selling price basis.

The Group has systematically reviewed its customer contracts and its data capture systems capability across the six global business units to assess the impact of the new Standard and ensure compliance.

Based on the Group's review, it is anticipated that there are no significant impacts to the Group as a result of the new Standard. Under IFRS 15 certain arrangements will be presented as reductions in revenue or certain reimbursements from customers currently presented in cost of sales will be presented as revenue. There will be some changes in timing of recognition, however these are not expected to materially impact the profits of the Group. The Group has chosen to apply the Retrospective method to the adoption of the new standard.

The impacts at the Group level based on our preliminary assessment are presented below:

	Revenue as reported					Revenue restated for IFRS 15 impacts (preliminary assessment)
	Six months to 30 June	Six months to 31 December		Total 2017		Six Months to 30 June	Six months to 31 December	Total 2017
	£m	£m		£m		£m	£m	£m

Third party revenue - total Group	518.9	502.6		1,021.5		518.8	503.6	1,022.4
Operating profit - total Group	61.6	58.1	119.7		61.2		58.5	119.7

Non-GAAP measures

Where non-GAAP measures have been referenced these have been identified by an asterisk (*).

2. Disposals

Electro-ceramics:

On 31 March 2017, the Group completed the sale of its UK Electro-ceramics business, comprising the two sites at Ruabon and Southampton. The transaction was structured as a sale of the business, assets and goodwill for a consideration of £47 million on a cash-free, debt-free basis, paid in cash on completion and subject to customary working capital adjustments.

In the year ended 31 December 2016, UK Electro-ceramics generated an operating profit of £6.2 million on revenues of £22.7 million. Gross assets at 31 December 2016 were £6.7 million.

The Group also announced the closure of its US Electro-ceramics business, which formed the remainder of the Group's Electro-ceramics business.

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

	31 March 2017
	£m
Trading net assets of disposal group	7.4
Goodwill of disposal group	5.8
Transaction costs associated with the disposal	6.9

Total consideration	46.9

Gain on disposal	26.8

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

Global Rotary Transfer Systems Business:

On 31 March 2017, the Group completed the sale of its global Rotary Transfer Systems. The business is principally located at two manufacturing sites; Antweiler, Germany and Chalon, France. The sale valued the business at €40.0 million on a cash-free, debt-free basis, with consideration paid in cash on completion, subject to customary closing working capital adjustments.

In the year to 31 December 2016, the Rotary business generated £3.2 million of operating profit on £15.5 million of sales. Gross assets at 31 December 2016 were £5.9 million.

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

	31 March 2017
	£m
Trading net assets of disposal group	3.5
Goodwill of disposal group	7.1
Transaction costs associated with the disposal	3.1

Total consideration	32.6

Gain on disposal	18.9

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

2016

During 2016 the Group disposed of its remaining 28.77% shareholding in Assam Carbon Products Limited for nil consideration. This shareholding was held at nil value and, as a result, there is no profit or loss on disposal. There were no other acquisitions or disposals during 2016.

3. Segment information

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

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

	Thermal Ceramics	Molten Metal Systems	Thermal Products Division	Electrical Carbon	Seals and Bearings	Technical Ceramics	Carbon and Technical Ceramics Division	Composites and Defence Systems	Segment totals	Corporate costs	Group
	Year ended 31 December 2017	Year ended 31 December 2017	Year ended 31 December 2017	Year ended 31 December 2017	Year ended 31 December 2017	Year ended 31 December 2017	Year ended 31 December 2017	Year ended 31 December 2017	Year ended 31 December 2017	Year ended 31 December 2017	Year ended 31 December 2017
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m

Revenue from external customers	426.2	46.9	473.1	157.1	113.2	257.1	527.4	21.0	1,021.5	-	1,021.5

Divisional EBITA²	56.9	7.0	63.9	16.7	17.5	28.3	62.5	(1.1)	125.3		125.3
Corporate costs										(5.6)	(5.6)
Group EBITA²											119.7
Restructuring costs and other items	-	-	-	-	-	-	-	-	-	-	-
Group headline operating profit²											119.7
Amortisation of intangible assets	(1.8)	(0.2)	(2.0)	(0.5)	(0.3)	(4.5)	(5.3)		(7.3)	-	(7.3)
Operating profit before specific adjusting items											112.4
Specific adjusting items included in operating profit ¹	-	-	-	-	-	-	-	-	-	45.7	45.7
Operating profit/(loss)	55.1	6.8	61.9	16.2	17.2	23.8	57.2	(1.1)	118.0	40.1	158.1
Finance income											1.8
Finance expense											(24.3)
Share of profit of associate (net of income tax)											0.2
Profit before taxation											135.8


Segment assets	392.1	40.0	432.1	147.1	86.7	178.0	411.8	9.8	853.7	76.1	929.7

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

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

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

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

2. Definitions of these non-GAAP measures can be found in the glossary of terms on page 33, reconciliations of the statutory results to the adjusted measures can be found on pages 9 to 13.


	Thermal Ceramics	Molten Metal Systems	Thermal Products Division	Electrical Carbon	Seals and Bearings	Technical Ceramics	Carbon and Technical Ceramics Division	Composites and Defence Systems	Segment totals	Corporate costs	Group
	Year ended 31 December 2016	Year ended 31 December 2016	Year ended 31 December 2016	Year ended 31 December 2016	Year ended 31 December 2016	Year ended 31 December 2016	Year ended 31 December 2016	Year ended 31 December 2016	Year ended 31 December 2016	Year ended 31 December 2016	Year ended 31 December 2016
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m

Revenue from external customers	413.3	43.5	456.8	156.2	97.7	248.1	502.0	30.4	989.2	-	989.2

Divisional EBITA²	55.0	6.7	61.7	19.7	14.2	26.6	60.5	1.1	123.3	-	123.3
Corporate costs	-	-	-	-	-	-	-	-	-	(5.4)	(5.4)
Group EBITA²											117.9
Restructuring costs and other items	0.1	-	0.1	(0.1)	0.1	-	-	0.1	0.2	(1.2)	(1.0)
Group headline operating profit²											116.9
Amortisation of intangible assets	(1.5)	(0.1)	(1.6)	(0.4)	(0.3)	(4.2)	(4.9)	(1.4)	(7.9)	-	(7.9)
Operating profit before specific adjusting items											109.0
Specific adjusting items included in operating profit ¹	-	-	-	-	-	-	-	(8.5)	(8.5)	6.8	(1.7)
Operating profit/(loss)	53.6	6.6	60.2	19.2	14.0	22.4	55.6	(8.7)	107.1	0.2	107.3
Finance income											2.3
Finance expense											(22.3)
Loss on disposal of business											-
Share of profit of associate (net of income tax)											0.6
Profit before taxation											87.9


Segment assets	417.8	42.2	460.0	154.9	86.1	188.1	429.1	15.8	904.9	134.4	1,039.3

Segment liabilities	88.5	7.5	96.0	30.0	18.2	37.0	85.2	7.9	189.1	685.5	874.6

Segment capital expenditure	17.7	2.1	19.8	8.3	4.4	6.5	19.2	0.5	39.5	-	39.5

Segment depreciation	10.8	1.7	12.5	4.9	4.3	7.3	16.5	0.5	29.5	-	29.5

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

2. Definitions of these non-GAAP measures can be found in the glossary of terms on page 33, reconciliations of the statutory results to the adjusted measures can be found on pages 9 to 13.

Segment revenue by geography

	Revenue from external customers		Non-current assets (excluding tax and financial instruments)
	2017 £m	2016 £m	2017 £m	2016? £m
USA	369.5	342.5	198.0	215.0
China	92.8	82.9	64.5	66.1
Germany	70.0	74.5	42.0	50.5
UK (the Group's country of domicile)	57.7	67.6	117.1	120.6
France	29.1	31.2	17.0	14.9
Other Asia, Australasia, Middle East and Africa	193.0	186.2	49.3	50.8
Other Europe	141.7	140.8	23.5	21.3
Other North America	33.7	31.6	5.6	5.6
South America	34.0	31.9	9.5	10.0
	1,021.5	989.2	526.5	554.8

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 greater than 10% of revenue.

Segment revenue by end market

	2017 £m	2016 £m
Industrial	491.1	449.2
Transportation	222.9	214.3
Petrochemical	85.5	84.2
Energy	63.2	66.2
Security and defence	51.4	62.6
Electronics	57.2	57.2
Healthcare	50.2	55.5
	1,021.5	989.2

Intercompany sales to other segments

Thermal

Ceramics

Molten Metal

Systems

Thermal Products

Division

Electrical

Carbon

Seals and

Bearings

Technical

Ceramics

Carbon and

Technical

Ceramics

Division

Composites

and Defence

Systems

2017

£m

2016

£m

2017

£m

2016

£m

2017

£m

2016

£m

2017

£m

2016

£m

2017

£m

2016

£m

2017

£m

2016

£m

2017

£m

2016

£m

2017

£m

2016

£m

Intercompany sales to other segments

0.5

0.1

0.6

0.2

1.3

1.0

1.4

0.4

0.2

2.9

1.6

4. Specific adjusting items

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

	Year ended 31 December 2017	Year ended 31 December 2016
	£m	£m
Specific adjusting items:
Net pension settlement credit	-	6.8
Impairment of intangible assets	-	(8.5)
Net profit on disposal of business	45.7	-
Total specific adjusting items before income tax	45.7	(1.7)
Income tax (charge)/credit from specific adjusting items	0.9	(2.8)
Income tax (charge)/credit resulting from US tax reform rate change and mandatory repatriation charge	4.1	-
Total specific adjusting items after income tax	50.7	(4.5)

2017:

Net profit on disposal of business:

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

The Group reflected a profit on disposal of £26.8 million associated with this transaction. A deferred tax asset of £1.5 million was recognised in connection with the closure of the US business.

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

The Group reflected a profit on disposal of £18.9 million associated with this transaction. An income tax charge of £0.6 million was recognised in respect of this disposal.

US Tax Cuts and Jobs Act:

As a consequence of the enactment of H.R.1 commonly referred to as the Tax Cuts and Jobs Act in the US a credit of £4.1 million was recognised. This comprised of the revaluation of tax balances to reflect the reduction in the federal tax rates offset by an income tax charge for mandatory repatriation tax for overseas subsidiaries of US companies.

2016:

Net pension settlement credit

The Group has completed the final termination and payment of all earned benefits for one of its North American defined benefit plans.

The Group has also completed a one-time lump-sum cash out payment to certain former, deferred and vested employees of the Morgan US Employees' Retirement Plan in settlement of the benefits promised by the Group.

As a result of these changes the Group has recognised a net pension settlement credit of £6.8 million, after deduction of transaction costs. An income tax charge of £2.8 million was recognised in respect of the net pension settlement credit.

I mpairment of intangible assets

As a result of the continued reduction in demand in the defence market, a review of the carrying value of the remaining intangible assets of Composites and Defence Systems resulted in an impairment charge of £8.5 million, relating to a full impairment of the Composites and Defence Systems technology intangible asset. This impairment was calculated by looking at the fair value of the assets less cost of disposal.

5. Net finance and income expense

	Year ended 31 December 2017	Year ended 31 December 2016
	£m	£m
Recognised in profit or loss
Amounts derived from financial instruments	0.2	0.3
Interest income on bank deposits measured at amortised cost	1.6	2.0
Finance income	1.8	2.3

Interest expense on financial liabilities measured at amortised cost	(17.4)	(15.2)
Net interest on IAS 19 obligations	(6.9)	(7.1)
Finance expense	(24.3)	(22.3)
Net financing costs recognised in profit or loss	(22.5)	(20.0)

Recognised directly in equity
Cash flow hedges:
Effective portion of changes in fair value of cash flow hedges	2.6	(3.7)
Transferred to profit or loss	0.4	0.8

Effective portion of change in fair value of net investment hedge	-	(17.7)
Foreign currency translation differences for foreign operations	(11.0)	37.4
	(8.0)	16.8

6. Taxation - Income tax expense

Taxation - Income tax expense

Recognised in the Income statement

	Year ended 31 December 2017 £m	Year ended 31 December 2016 £m
Current tax
Current year	23.5	27.8
Adjustments for prior years	0.1	(3.3)
	23.6	24.5
Deferred tax
Current year	(1.7)	1.6
Adjustments for prior years	-	3.3
	(1.7)	4.9

Total income tax expense in income statement	21.9	29.4

Reconciliation of effective tax rate

	2017 £m	2017 %	2016 £m	2016 %
Profit before tax	135.8		87.9

Income tax using the domestic corporation tax rate	26.1	19.2	17.6	20.0
Effect of different tax rates in other jurisdictions	8.2	6.0	8.8	10.0
Local taxes including withholding tax suffered	4.5	3.3	3.3	3.7
Impact of US Tax Cuts and Jobs Act	(4.1)	(3.0)
Permanent differences	0.8	0.6	1.5	1.7
Non taxable disposals	(2.9)	(2.1)
Utilisation of UK unrecognised capital losses on disposal of UK Electro Ceramics business	(6.2)	(4.6)
Movements related to unrecognised temporary differences	(3.9)	(2.9)	(1.5)	(1.7)
Adjustments in respect of prior years	0.1	0.1	-	-
Other	(0.7)	(0.5)	(0.3)	(0.3)
	21.9	16.1	29.4	33.4

Income tax recognised directly in equity
Tax effect on components of other comprehensive income:
Deferred tax associated with defined benefit schemes and share schemes	1.8		(0.6)
Total tax recognised directly in equity	1.8		(0.6)

The effective rate of tax before specific adjusting items is 29.9% (2016: 29.7%).

7. Earnings per share

The calculation of basic/diluted earnings per share from continuing operations at 31 December 2017 was based on the net profit attributable to equity shareholders of £107.6 million (2016: £52.3 million, 2015: £33.9 million), and a weighted average number of shares outstanding during the year of 285.0 million (2016: 284.9 million, 2015: 285.1 million). The calculation of the weighted average number of shares excludes the shares held by The Morgan General Employee Benefit Trust, on which the dividends are waived.

Headline earnings per ordinary 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 that it gives a better indication of headline performance.

The diluted earnings per share calculation takes into account the dilutive effect of share incentives. The diluted, weighted average number of shares is 286.7 million (2016: 285.1 million). Diluted earnings per share is 37.5 pence (2016: 18.3 pence).

	Year ended 31 December 2017	Year ended 31 December 2016
	£m	£m

Profit for the period attributable to equity shareholders	107.6	52.3
Specific adjusting items	(45.7)	1.7
Amortisation of intangible assets	7.3	7.9
Tax effect of the above	(5.0)	2.8
Non-controlling interests' share of the above adjustments	-	-
Adjusted profit for the period	64.2	64.7


	Year ended 31 December 2017	Year ended 31 December 2016
	Pence	Pence

Earnings per Ordinary share	37.8p	18.4p
Specific adjusting items	(16.0)p	0.6p
Amortisation of intangible assets	2.5p	2.7p
Tax effect of the above	(1.8)p	1.0p
Non-controlling interests' share of the above adjustments	-	-
Headline earnings per share⁽¹⁾	22.5p	22.7p

1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 33, reconciliations of the statutory results to the adjusted measures can be

found on pages 9 to 13.

8. Cash and cash equivalents reconciled to net debt

	Year ended 31 December 2017	Year ended 31 December 2016
	£m	£m

Bank balances	44.7	61.4
Cash deposits	5.7	61.0
Cash and cash equivalents	50.4	122.4

Reconciliation of cash and cash equivalents to net debt⁽¹⁾
	Year ended December 2017	Year ended 30 December 2016
	£m	£m

Opening borrowings	(364.9)	(265.8)
(Increase)/decrease in borrowings	114.1	(63.4)
Payment of finance lease liabilities	0.3	0.3
Effect of movements in foreign exchange on borrowings	18.8	(36.0)
Closing borrowings	(231.7)	(364.9)
Cash and cash equivalents	50.4	122.4
Closing net debt⁽¹⁾	(181.3)	(242.5)

1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 33, reconciliations of the statutory results to the adjusted measures can be

found on pages 9 to 13.

9. Financial risk management

Fair Values

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

	Year ended 31 December 2017		Year ended 31 December 2016
	Carrying Amount	Fair value	Carrying Amount	Fair value
	£m	£m	£m	£m

Financial assets and liabilities at amortised cost
4.32% Euro Senior Notes 2017	-	-	(17.3)	(17.5)
6.12% US Dollar Senior Notes 2017	-	-	(142.1)	(146.3)
6.26% US Dollar Senior Notes 2019	(55.6)	(57.9)	(60.8)	(65.4)
1.18% Euro Senior Notes 2023	(22.2)	(21.8)	(21.3)	(21.0)
3.17% US Dollar Senior Notes 2023	(11.2)	(10.7)	(12.2)	(11.7)
1.55% Euro Senior Notes 2026	(22.3)	(21.5)	(21.4)	(20.8)
3.37% US Dollar Senior Notes 2026	(72.1)	(67.4)	(79.0)	(73.1)
1.74% Euro Senior Notes 2028	(8.9)	(8.5)	(8.6)	(8.3)
Bank and other loans	(38.8)	(38.8)	(1.3)	(1.3)
Obligations under finance leases	(0.6)	(0.6)	(0.9)	(0.9)
Trade and other payables	(97.9)	(97.9)	(100.5)	(100.5)
Loans and receivables	174.7	174.7	184.5	184.5
Cash and cash equivalents	50.4	50.4	122.4	122.4
	(104.5)	(100.0)	(158.5)	(159.9)

Available-for-sale financial instruments
Available-for-sale financial assets	0.9	0.9	0.5	0.5

Derivatives and other items at fair value
Forward exchange contracts used for hedging	0.4	0.4	(2.0)	(2.0)
Cross currency swaps	-	-	(7.2)	(7.2)
	(103.2)	(98.7)	(167.2)	(168.6)

The 4.32% Senior notes were repaid on 30 June 2017, the 6.12% Senior notes were repaid in December 2017.

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

Equity securities

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

Derivatives

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

Interest-bearing loans and 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 loans and borrowings are 1.6-4.2% (2016: 1.1-4.2%) and finance leases 4.2% (2016: 4.1%).

Finance lease liabilities

The fair value is estimated as the present value of future cash flows, discounted at market interest rates for homogeneous lease agreements. The estimated fair values reflect changes in interest rates.

Trade and other receivables/payables

For receivables/payables with a remaining life of less than one year, the notional amount is deemed to reflect the fair value. All other receivables/payables are discounted to determine the fair value.

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

The Group has disclosed the fair value of cash and cash equivalents, current loans and receivables and current payables at their carrying amount, given their notional amount is deemed to be their fair value.

Fair value hierarchy

The table below analyses financial instruments carried at fair value, by valuation method. 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 (ie as prices) or indirectly (ie derived from prices)

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

	Year ended 31 December 2017			Year ended 31 December 2016
	Level 1	Level 2	Level 1	Level 1	Level 2	Total
	£m	£m	£m	£m	£m	£m

Available-for-sale financial assets	0.9	-	0.9	0.5	-	0.5
Derivative financial assets	-	1.0	1.0	-	2.1	2.1
	0.9	1.0	1.9	0.5	2.1	2.6

Derivative financial liabilities	-	0.6	0.6	-	11.3	11.3


The table below analyses financial instruments disclosed at fair value, by valuation method:

	Year ended 31 December 2017			Year ended 31 December 2016
	Level 1	Level 2	Total	Level 1	Level 2	Total
	£m	£m	£m	£m	£m	£m

4.32% Euro Senior Notes 2017	-	-	-	-	(17.5)	(17.5)
6.12% US Dollar Senior Notes 2017	-	-	-	-	(146.3)	(146.3)
6.26% US Dollar Senior Notes 2019	-	(57.9)	(57.9)	-	(65.4)	(65.4)
1.18% Euro Senior Notes 2023	-	(21.8)	(21.8)	-	(21.0)	(21.0)
3.17% US Dollar Senior Notes 2023	-	(10.7)	(10.7)	-	(11.7)	(11.7)
1.55% Euro Senior Notes 2026	-	(21.5)	(21.5)	-	(20.8)	(20.8)
3.37% US Dollar Senior Notes 2026	-	(67.4)	(67.4)	-	(73.1)	(73.1)
1.74% Euro Senior Notes 2028	-	(8.5)	(8.5)	-	(8.3)	(8.3)
Obligations under finance leases	-	(0.6)	(0.6)	-	(0.9)	(0.9)
	-	(188.4)	(188.4)	-	(365.0)	(365.0)

There have been no transfers between level 1 and level 2 during 2017 and 2016 and there were no level 3 financial instruments in either 2017 or 2016.

10. Employee benefits

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

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

Movements in present value of defined benefit obligation
At 1 January 2017	(588.7)	(155.9)	(37.9)	(12.3)	(794.8)
Current service cost	(2.0)	(0.1)	(0.7)	(1.7)	(4.5)
Interest cost	(14.9)	(6.0)	(0.6)	(0.2)	(21.7)
Actuarial gains/(losses)
Experience gains/(losses) on plan obligations	(3.0)	(1.0)	0.5	0.4	(3.1)
Changes in financial assumptions - gain/(loss)	(16.8)	(7.7)	0.1	0.1	(24.3)
Changes in demographic assumptions - gain/(loss)	9.2	1.3	-	-	10.5
Benefits paid	23.0	8.9	1.3	1.0	34.2
Contributions by members	(0.5)	-	-	-	(0.5)
Past service costs / (credits)	-	-	-	-	-
Curtailments and settlements	-	-	-	-	-
Acquisitions/Disposals	-	-	1.6	-	1.6
Exchange adjustments	-	13.8	(1.5)	-	12.3
At 31 December 2017	(593.7)	(146.7)	(37.2)	(12.7)	(790.3)

Movements in fair value of plan assets
At 1 January 2017	408.2	106.9	0.4	8.2	523.7
Interest on plan assets	10.4	4.2	0.1	0.1	14.8
Actuarial gains/(losses)	19.8	7.5	0.1	(0.5)	26.9
Contributions by employer	12.1	37.0	1.2	1.5	51.8
Contributions by members	0.5	-	-	-	0.5
Administration expenses	(0.3)	-	-	-	(0.3)
Benefits paid	(23.0)	(8.9)	(1.3)	(1.0)	(34.2)
Curtailments and settlements	-	-	-	-	-
Acquisitions/Disposals	-	-	-	-	-
Exchange adjustments	-	(11.1)	-	0.2	(10.9)
At 31 December 2017	427.7	135.6	0.5	8.5	572.3
Actual return on assets	30.2	11.7	0.2	(0.4)	41.7

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

The Group expects to contribute £16.3 million to its pension schemes in 2018.

The fair values of the assets were as follows:

	31 December 2017 UK	31 December 2017 USA	31 December 2017 Europe	31 December 2017 Rest of World	31 December 2017 Total
	£m	£m	£m	£m	£m

Equities and growth assets	157.7	6.8	-	-	164.5
Bonds and LDI	87.3	124.0	-	-	211.3
Matching insurance policies	181.3	-	0.5	6.0	187.8
Other	1.4	4.8	-	2.5	8.7
Total	427.7	135.6	0.5	8.5	572.3

	31 December 2016 UK	31 December 2016 USA	31 December 2016 Europe	31 December 2016 Rest of World	31 December 2016 Total
	£m	£m	£m	£m	£m
Pension plans and employee benefits

Present value of unfunded defined benefit obligations	-	(9.4)	(35.9)	(2.5)	(47.8)
Present value of funded defined benefit obligations	(588.7)	(146.5)	(2.0)	(9.8)	(747.0)
Fair value of plan assets	408.2	106.9	0.4	8.2	523.7
Net obligations	(180.5)	(49.0)	(37.5)	(4.1)	(271.1)

Principal actuarial assumptions at 31 December 2016 were:	%	%	%	%
Discount rate	2.62	4.16	1.60	2.90
Inflation (UK: RPI/CPI)	3.20/2.10	n/a	1.70	n/a

Glossary

Cash flow from operations*	Cash generated from operations before cash flows from restructuring costs and other items. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13.
Constant currency	Constant currency revenue and Group headline operating profit are derived by translating the prior year results at current year average exchange rates. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13.
Corporate costs	Corporate costs consist of the costs of the central head office.
Free cash flow before acquisitions and dividends*	Cash generated from operations less net capital expenditure, net interest paid and tax paid. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13.
Group earnings before interest, tax and amortisation (EBITA) *	EBITA is defined as Group operating profit before specific adjusting items and amortisation of intangible assets. Segment - Divisional and global business unit - EBITA is stated before unallocated corporate costs. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13.
Group earnings before interest, tax, depreciation and amortisation (EBITDA)*	EBITDA is defined as operating profit before specific adjusting items, amortisation of intangible assets, restructuring costs and other items, and depreciation. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13.
Group headline operating profit*	Operating profit adjusted to exclude specific adjusting items and amortisation of intangible assets. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13.
Headline earnings per share (EPS)*	Headline earnings per share is defined as operating profit adjusted to exclude specific adjusting items and amortisation of intangible assets, plus share of profit of associate less net financing costs, income tax expense and non-controlling interests, divided by the weighted average number of ordinary shares during the period. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13.
Net debt*	Interest-bearings loans and borrowings and bank overdrafts less cash and cash equivalents. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13.
Group Organic	The Group results excluding acquisition and disposal impacts at constant currency.
Restructuring costs and other items	Include the costs of restructuring activity and gain on disposal of property. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13.
Return on invested capital (ROIC)*	Group headline operating profit (operating profit excluding specific adjusting items and amortisation of intangible assets) divided by the 12-month average adjusted net assets (excludes long term employee benefits, deferred tax assets and liabilities, current tax payable, provisions, cash and cash equivalents and interest-bearing loans and borrowings. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13.
Revenue growth	Revenue growth is defined as current year revenue translated using current year average exchange rates divided by prior year revenue translated using prior year average exchange rates.
Specific adjusting items	See note 4 to the financial statements for further details