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Morgan Advanced Materials

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Full-year results for the period ended 31 December 2019

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� million unless otherwise stated �	� 2019	� 2018	As reported change	Organic constant- currency¹ change
Headline results Revenue	� 1,049.5	� 1,033.9	1.5%	0.8%
Group headline operating profit¹	134.2	124.8	7.5%	4.3%
Group headline operating profit margin¹	12.8%	12.1%	�	�
Headline EPS¹	28.0p	26.7p	4.9%	�
Total dividend per share	11.0p	11.0p	�	�
Cash generated from continuing operations	164.8	131.3	�	�
Free cash flow before acquisitions, disposals and dividends¹	59.2 �	48.5 �	�	�
�	�	�	�	�
Statutory results	�	�	�	�
Operating profit	126.1	107.3	�	�
Profit before tax	109.7	94.9	�	�
Continuing EPS²	25.2p	20.0p	�	�
Continuing and discontinued EPS²	25.7p	16.2p	�	�

1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 40, reconciliations of the statutory results to the adjusted measures can be found on pages 11 to 14. Throughout this report these non-GAAP measures are clearly identified by an asterisk (*) where they appear in text.

2. EPS is presented on a 'continuing' and a combined 'continuing and discontinued' basis for statutory reporting. Further details are provided in note 8 to the consolidated financial statements.

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Group highlights

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�� A year of further strategic and financial progress.

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�� Revenue growth of 0.8% on an organic constant-currency* basis - our third year of successive organic growth.

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��Strong growth in our semiconductor and electronics, chemical and petrochemical, healthcare and aerospace segments more than offset declines in industrial and automotive markets.

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��Group headline operating profit margin* of 12.8%, an improvement of 70bps from organic revenue growth* and the ongoing benefit of our efficiency actions.

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�� Headline EPS* growth of 4.9% reflecting improvement in operating profit.

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�� Free cash flow* improved by �10.7 million to �59.2 million, with improved working capital performance.

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�� Further reductions in leverage continued the strong trajectory of the last three years.

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

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'I am pleased with the further strategic and financial progress we have made in 2019, with our strategy continuing to deliver, enhancing our growth and profitability. In our third successive year of organic growth, revenue and headline operating profit* grew 0.8% and 4.3% respectively in a challenging environment. We expanded our headline operating profit margin* to 12.8% reflecting good operational cost control and the benefit from organic revenue* growth in our faster growing market segments.'

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Our purpose

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At Morgan 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.

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

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Using advanced materials we deliver on our purpose through the products that we make, and the way that we make them - we 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.

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Our strategy

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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.

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The Group has four execution priorities underpinning our strategic execution, we have made good progress against those priorities in 2019:

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1. Extend 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.

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We are now investing �10 million more per year in research and development than we were in 2015. These are investments for the long-term to develop new materials, processes and products that improve the technical differentiation of our Group.

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Some of these new products and processes are now starting to mature and we expect them to contribute between �5 - �10 million incremental revenue to the business in 2020. We have new developments coming through in each of our businesses targeting faster growing market segments including semiconductors, thermal management solutions, electric vehicles, renewables, medical feedthroughs and electrification.

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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.

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The Group is striving to build a distinctive capability in customer focus, and the sales effectiveness programme has been creating the foundations for this over the last three years. In 2019, we continued to rollout many of the initiatives developed during the prior year, including customer segmentation, sales skills training and new incentives.

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Across all our major businesses we now have our customers segmented allowing us to improve the way we support our customers and helping us to increase customer satisfaction through better service. We have improved the capability of our sales teams through sales capability and product training, differentiated according to our different commercial roles, delivered to the majority of the commercial organisation. We deployed new incentives to 90% of the eligible sales employee population in 2019, with the remainder rolling out in January 2020.

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Additionally, this year we have put considerable focus into improving the Group's customer relationship management (CRM) tool and defining and embedding clearer sales processes to help us manage sales more consistently.

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

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Building on previous years, we have brought our Leadership Behaviours to life for more of our employees: whether they take part in our behaviour-based performance management process, attend one of our new development programmes or through regular conversations they have with their line manager, employees feel more engaged by a culture which has behaviour at its core. �

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In 2019 we launched our leadership programmes, these feature a mix of face-to-face, online and project working over a 14-month timeframe. In addition, we expanded training for first line managers and supervisors and this will continue to evolve and roll out across the Group in 2020.

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We now have 1,200 employees using our new performance management process and this will extend to 2,300 in 2020. We have introduced an assessment process aligned to the Leadership Behaviours for all senior recruitment.

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We now hold more regular talent conversations across the organisation, and the conversations go deeper into the organisation. Ultimately, this helps us identify those with a greater potential, and helps increase our focus on diversity in all forms. These talent conversations also help us place the right people on our development programmes and reinforce our Leadership Behaviours.

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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.

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We are improving operational efficiency and on-time delivery performance through the deployment of lean tools and the associated visual management and daily meeting cadence, through automation, targeted continuous improvement projects and through procurement projects.

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Improved operational performance is driving margin expansion and helping to offset inflationary pressure. In 2020 we will continue looking to drive further efficiency savings across the business and improve responsiveness for our customers.

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Outlook

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In 2020 we are expecting similar market conditions to 2019, with weak industrial and automotive markets persisting and geo-political uncertainties remaining. However, we expect growth in our faster growing market segments to more than offset these market weaknesses.

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Beyond the underlying trends in the business, we have headwinds from foreign exchange translation and the completion of our previously announced exit from the Electro-ceramics site in the US.

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We expect to continue to make further strategic progress with the continuation of our sales effectiveness programme, improving operational efficiency and driving a number of key new product developments forward.

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Based on our current assessment of business trends and orders, we expect Group organic constant-currency revenue* growth for the full year to be in the range of flat to modest growth, with the first half slightly below this trend, due to the impact of the coronavirus (see page 7).

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Enquiries

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

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Results presentation today

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There will be an analyst and investor presentation at 08:30 (UK time) today at The London Stock Exchange,

10 Paternoster Square, London, EC4M 7LS.

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A live video webcast and slide presentation of this event will be available on www.morganadvancedmaterials.com� We recommend you register by 08:15 (UK time).

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Basis of preparation

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Non-GAAP measures

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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.

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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 40, reconciliations of the statutory results to the adjusted measures can be found on pages 11 to 14.

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Operating review

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�	Revenue			Operating profit¹			Margin %¹
�	2019	�	2018	2019	�	2018	2019	�	2018	�
�	�m	�	�m	�m	�	�m	%	�	%	�
Thermal Ceramics	418.4	�	433.6	52.2	�	52.9	12.5%	�	12.2%	�
Molten Metal Systems	49.1	�	48.6	5.9	�	6.6	12.0%	�	13.6%	�
Thermal Products division	467.5	�	482.2	58.1	�	59.5	12.4%	�	12.3%	�
Electrical Carbon	164.2	�	166.8	21.9	�	19.4	13.3%	�	11.6%	�
Seals and Bearings	144.3	�	132.7	26.4	�	23.7	18.3%	�	17.9%	�
Technical Ceramics	273.5	�	252.2	33.7	�	28.1	12.3%	�	11.1%	�
Carbon and Technical Ceramics division	582.0	�	551.7	82.0	�	71.2	14.1%	�	12.9%	�
Divisional total	1,049.5	�	1,033.9	140.1	�	130.7	13.3%	�	12.6%	�
Corporate costs	�	�	�	(5.9)	�	(5.9)	�	�	�	�
Group headline operating profit¹		�	�	134.2	�	124.8	12.8%	�	12.1%	�
Amortisation of intangible assets				(8.1)	�	(8.0)	�	�	�	�
Operating profit before specific adjusting items				126.1	�	116.8	12.0%	�	11.3%	�
Specific adjusting items included in operating profit²				-	�	(9.5)	�	�	�	�
Operating profit		�	�	126.1	�	107.3	12.0%	�	10.4%	�
Net financing costs	�	�	�	(16.9)	�	(13.2)	�	�	�	�
Share of profit of associate (net of income tax)				0.5	�	0.8	�	�	�	�
Profit before taxation		�	�	109.7	�	94.9	�	�	�	�

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1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 40, reconciliations of the statutory results to the adjusted measures can be found on pages 11 to 14.

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

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Thermal Products division

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Revenue for Thermal Products for the year was �467.5 million, representing a decrease of 3.0% compared with �482.2 million in 2018. On an organic constant-currency* basis, year-on-year revenue decreased by 2.4%. Divisional headline operating profit* for Thermal Products was �58.1 million (2018: �59.5 million) with a divisional headline operating profit* margin of 12.4% (2018: 12.3%).

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Revenue for Thermal Ceramics for the year was �418.4 million, representing a decrease of 3.5% compared with �433.6 million in 2018. On an organic constant-currency* basis, year-on-year revenue decreased by 2.7%. Demand from major automotive industry customers was lower in 2019 due to the decline in gasoline powered automotive sales in North America and the decline in the diesel automotive industry in Europe.�There was also a downturn in the European industrial market. Strong investment in the chemical and petrochemical industry drove volume growth in Asia.

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Thermal Ceramics 2019 headline operating profit* was �52.2 million (2018: �52.9 million) with a headline operating profit margin* of 12.5% (2018: 12.2%). Margin improvement was driven by prior year plant closure in Brazil and operational efficiency offsetting the impact of volume decline.

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Revenue for Molten Metals Systems for the year was �49.1 million, representing an increase of 1.0% compared with �48.6 million in 2018. On an organic constant-currency* basis, year-on-year revenue increased by 0.6%. Growth was driven by crucibles growth primarily in the North American and Asian aluminium end-markets, with precious metal market segment flat.

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Molten Metal Systems 2019 headline operating profit* was �5.9 million (2018: �6.6 million) with a headline operating profit margin* of 12.0% (2018: 13.6%). During 2019, margins declined due to one-off restructuring costs in the first half and the annualised impact from prior year investment in research and development and sales effectiveness. The second half margin at 13.1% improved on the first half at 10.9%.�

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Carbon and Technical Ceramics division

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Revenue for the Carbon and Technical Ceramics division for the year was �582.0 million, representing an increase of 5.5% compared with �551.7 million in 2018. On an organic constant-currency* basis, year-on-year revenue increased 3.5%. Divisional headline operating profit* for the Carbon and Technical Ceramics division was �82.0 million (2018: �71.2 million) with a divisional headline operating profit margin* of 14.1% (2018: 12.9%).

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Revenue for the Electrical Carbon global business unit in 2019 was �164.2 million, representing a decrease of 1.6% compared with �166.8 million in 2018. On an organic constant-currency* basis, year-on-year revenue declined by 2.4%. Growth in the semiconductor and electronics end-market segments was offset by the year-on-year decline driven primarily by economic weakness in a number of segments in our core industrial markets.

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Electrical Carbon headline operating profit* was �21.9 million (2018: �19.4 million) with a headline operating profit margin* of 13.3% (2018: 11.6%). Despite the revenue decline, headline operating profit margins* were expanded through strong operational efficiency actions.

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Revenue for the Seals and Bearings global business unit in 2019 was �144.3 million, representing an increase of 8.7% compared with �132.7 million in 2018. On an organic constant-currency* basis year-on-year revenue increased by 6.5%. The business growth was driven by the healthcare and petrochemical market segments, and by a continuation of contract awards in ceramic armour (2019: �35 million; 2018: �24 million). This was partially offset by a decline in the European market.

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Seals and Bearings headline operating profit* was �26.4 million (2018: �23.7 million) with a headline operating profit margin* of 18.3% (2018: 17.9%). Margins improved with the benefit of increased volume. There has been a strong focus on the completion of process improvement projects and this yielded savings which have more than offset cost inflation. Investments in business infrastructure, sales effectiveness, and research and development are positioning the business in support of its growth strategy.

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Revenue for the Technical Ceramics global business unit in 2019 was �273.5 million, an increase of 8.4% compared with �252.2 million in 2018. On an organic constant-currency* basis, year-on-year revenue increased by 5.7% primarily driven by increased demand for ceramic cores in the aerospace market and supply of ceramic parts into the semiconductor, medical and renewable energy markets. This demand growth was partially offset by continued slow-down in the industrial gas turbine market.

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Technical Ceramics headline operating profit* was �33.7 million (2018: �28.1 million) with a headline operating profit margin* of 12.3% (2018: 11.1%). Margins expanded with the benefit of higher volume and efficiency (�2.5 million) and the implementation of the new lease accounting standard IFRS 16 (�1.6 million).

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Group financial review

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Group revenue was �1,049.5 million (2018: �1,033.9 million), an increase of 1.5% on a reported basis compared with 2018, driven by improvements in the underlying business and foreign exchange tailwinds. On an organic constant-currency* basis revenue increased by 0.8%.

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Group headline operating profit* was �134.2 million (2018: �124.8 million). Headline operating profit margin* was 12.8%, compared to 12.1% for 2018.

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Operating profit was �126.1 million (2018: �107.3 million) and profit before tax was �109.7 million (2018: �94.9 million).

The Group amortisation charge was �8.1�million (2018: �8.0 million).

The net finance charge was �16.9 million (2018: �13.2 million) comprising net bank interest and similar charges of �9.3 million (2018: �8.5 million), net interest on IAS 19 pension obligations of �4.6 million (2018: �4.7 million), and the interest expense on lease liabilities of �3.0 million (2018: �nil).

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Looking forward to 2020, 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 the net interest expense on lease liabilities of �3.5 million. �

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The Group tax charge, excluding specific adjusting items, was �29.9 million (2018: �29.0 million). The effective tax rate, excluding specific adjusting items, was 27.3% (2018: 27.8%). Note 6 to the consolidated financial statements, on pages 28 to 29, provides additional information on the Group's tax charge.

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Looking forward to 2020, 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.

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Headline earnings per share* was 28.0 pence (2018: 26.7 pence) and basic earnings per share from continuing operations was 25.2 pence (2018: 20.0 pence). Details of these calculations can be found in note 8 to the consolidated financial statements on page 31.

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Update on the impact of the coronavirus

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Whilst we cannot be certain how long this situation will last, based on the delayed startup of our production facilities since the lunar new year break, we currently anticipate that this will have an adverse impact on 2020 revenues of around �7.0 million and on headline operating profit* of around �3.5 million, with the impact in the first half of the year. China represents c.10% Group revenue annually.

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The coronavirus has been spreading to countries outside of China, including to Italy and South Korean. Our plant in the in the affected area of Northern Italy, we expect to be closed for two weeks.

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We are extremely grateful for the incredible effort of our teams and our immediate thoughts are with the people directly impacted by this global health emergency. We fully support the efforts being taken to contain the virus and we are working in close conjunction with local authorities and partners.

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Specific adjusting items

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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.

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Details of specific adjusting items arising during the year and the comparative period are given in note 4 to the consolidated financial statements. Specific adjusting items in relation to discontinued operations are disclosed in note 7 to the consolidated financial statements.

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�	2019 �m	2018 �m
Specific adjusting items	�	�
Net pension past service credit	-	5.7
Business closure and exit costs	(0.7)	(15.2)
Release of provisions related to previous business exits and disposals	0.7	-
Total specific adjusting items	-	(9.5)
Income tax charge from specific adjusting items	-	(1.7)
Total specific adjusting items after income tax	-	(11.2)

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In 2019 specific adjusting items were net �nil (2018: post-tax charge of �11.2 million) and comprised the following:

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Business closure and exit costs:

China, Technical Ceramics

In 2019, the Group completed the exit of the ceramic core operations within China, initiated in 2018. The Group recognised �0.7 million of costs in relation to this exit relating to staff redundancies and legal and professional fees.

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US Electro-ceramics update, Technical Ceramics

In 2017 the Group divested its UK Electro-ceramics business, which was part of the Technical Ceramics operating segment. 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, once the delivery of the last time orders from customers had been completed. This is currently anticipated to be in the second half of 2020. Costs associated with the closure of the site were provided for in 2017.

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In 2019, the US Electro-ceramics business generated an operating profit contribution of �4.7 million on revenues of �9.2 million.

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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.

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Foreign currency impact

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

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�	2019		2018
GBP to:	Closing rate	Average rate	Closing rate	Average rate
US dollar	1.33	1.28	1.28	1.33
Euro	1.18	1.14	1.11	1.13

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For illustrative purposes, the table below provides details of the impact on 2019 revenue and Group headline operating profit* if the actual reported results, calculated using 2019 average exchange rates were restated for GBP weakening by 10 cents against US dollar in isolation and 10 cents against the Euro in isolation:

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Increase in 2019 revenue/headline operating profit¹ if:

Revenue

�

�m

Headline operating profit¹

�m

GBP weakens by 10c against the US dollar in isolation

39.7

6.3

GBP weakens by 10c against the Euro in isolation

19.9

2.9

1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 40, reconciliations of the statutory results to the adjusted measures can be found on pages 11 to 14.

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Retranslating the 2019 full year results at the January 2020 closing exchange rates would lead to revenue of �1,017.3 million and headline operating profit* of �128.0 million.

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Cash flow

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�	2019 �m	�2018 �m
Cash generated from continuing operations	164.8	131.3
Net capital expenditure	(54.9)	(53.1)
Net interest	(12.3)	(8.4)
Tax paid	(28.8)	(20.9)
Lease payments	(9.6)	(0.4)
Free cash flow before acquisitions, disposals and dividends¹	59.2	48.5
Dividends paid to external plc shareholders	(31.3)	(31.4)
Net cash flows from other investing and financing activities	(12.1)	(5.2)
Net cash flows from divestments and discontinued operations	1.1	(1.2)
Exchange movement and other non-cash movements	6.1	(9.8)
Opening net debt¹ excluding lease liabilities	(179.8)	(180.7)
Closing net debt¹ excluding lease liabilities	(156.8)	(179.8)
� �Closing lease liabilities	(64.3)	(0.2)
Closing net debt¹	(221.1)	(180.0)

1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 40, reconciliations of the statutory results to the adjusted measures can be found on pages 11 to 14.

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Cash generated from continuing operations was �164.8 million (2018: �131.3 million), an improvement on 2018.

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Free cash flow before acquisitions, disposals and dividends* was �59.2 million (2018: �48.5 million).

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Net debt* at the year-end was �221.1 million (2018: �180.0 million), representing a net debt* to EBITDA* ratio of 1.3x (2018: 1.2x).

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Net debt* excluding lease liabilities was �156.8 million (2018: �179.8 million), representing a net debt* to EBITDA* ratio excluding lease liabilities of 1.0x (2018: 1.2x).

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Defined benefit pension plans

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The Group pension deficit has decreased by��33.6 million since last year end to �156.8�million on an IAS 19 (revised) basis, as employer contributions and investment gains more than offset the impact of lower discount rates:�

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�� The UK Schemes deficit decreased by �38.6 million to �101.5 million (2018: �140.1 million), (discount rate 2019: 2.06%; 2018: 2.74%).

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�� The US Schemes deficit increased by �1.8 million to �10.6 million (2018: �8.8 million), (discount rate 2019: 3.21%; 2018: 4.34%).

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�� The European Schemes deficit increased by �2.7 million to �39.6 million (2018: �36.9 million), (discount rate 2019: 0.90%; 2018: 1.70%).

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�� The Rest of World Schemes deficit increased by �0.5 million to �5.1 million (2018: �4.6 million), (discount rate 2019: 2.20%; 2018: 2.60%).

Note 14 to the consolidated financial statements, on pages 37 to 38, provides additional information on the Group's pension schemes.

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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.

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Final dividend

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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 22 May 2020 to Ordinary shareholders on the register at the close of business on 1 May 2020.

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Together with the interim dividend of 4.0 pence per share paid on 22 November 2019, this final dividend, if approved by shareholders, brings the total distribution for the year to 11.0 pence per share (2018: 11.0 pence). A total dividend of 11.0 pence per share represents a dividend cover of headline EPS* 2.5x in 2019 (2018: 2.4x).

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The Board has held the dividend flat as it looks to rebuild dividend cover.

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Definitions and reconciliations of non-GAAP to GAAP measures

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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 5, these measures are calculated on a continuing basis.

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Headline operating profit

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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.

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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)	50.0	5.6	55.6	21.2	26.0	29.2	76.4	(5.9)	126.1
Add back specific adjusting items included in operating profit	-	-	-	-	-	-	-	-	-
Add back amortisation of intangible assets	2.2	0.3	2.5	0.7	0.4	4.5	5.6	-	8.1
Group and divisional headline operating profit	52.2	5.9	58.1	21.9	26.4	33.7	82.0	(5.9)	134.2

1.� Corporate costs consist of central head office costs.

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2018	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)	36.9	6.3	43.2	18.7	23.3	22.3	64.3	(0.2)	107.3
Add back specific adjusting items included in operating profit	13.8	-	13.8	-	-	1.4	1.4	(5.7)	9.5
Add back amortisation of intangible assets	2.2	0.3	2.5	0.7	0.4	4.4	5.5	-	8.0
Group and divisional headline operating profit	52.9	6.6	59.5	19.4	23.7	28.1	71.2	(5.9)	124.8

1.� Corporate costs consist of central head office costs.

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Organic growth

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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.

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Commentary on the underlying business performance is included as part of the Operational review on pages 5 to 7.

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Year-on-year movements in segment revenue

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� �	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
�	�	�	�	�	�	�	�	�
2018 revenue	433.6	48.6	482.2	166.8	132.7	252.2	551.7	1,033.9
�	�	�	�	�	�	�	�	�
Impact of foreign currency movements	(0.7)	0.2	(0.5)	1.4	2.8	6.9	11.1	10.6
Impacts of disposals	(2.9)	-	(2.9)	-	-	(0.3)	(0.3)	(3.2)
Impact of underlying business	(11.6)	0.3	(11.3)	(4.0)	8.8	14.7	19.5	8.2
Underlying %	(2.7)%	0.6%	(2.4)%	(2.4)%	6.5%	5.7%	3.5%	0.8%
�	�	�	�	�	�	�	�	�
2019 revenue	418.4	49.1	467.5	164.2	144.3	273.5	582.0	1,049.5

�

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
�	�	�	�	�	�	�	�	�	�
2018 headline operating profit	52.9	6.6	59.5	19.4	23.7	28.1	71.2	(5.9)	124.8
�	�	�	�	�	�	�	�	�	�
Impact of foreign currency movements	(0.8)	-	(0.8)	-	0.8	0.9	1.7	-	0.9
Impact of disposals and business exits	2.4	-	2.4	-	-	0.6	0.6	-	3.0
Organic constant-currency change	(2.3)	(0.7)	(3.0)	2.5	1.9	4.1	8.5	-	5.5
Organic constant-currency change %	(4.2)%	(10.6)%	(4.9)%	12.9%	7.8%	13.9%	11.6%	-	4.3%
�	�	�	�	�	�	�	�	�	�
2019 headline operating profit	52.2	5.9	58.1	21.9	26.4	33.7	82.0	(5.9)	134.2

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 basis. A reconciliation of operating profit to Group EBITDA is as follows:

�

� � �	2019 �m	2018 �m
Operating profit	126.1	107.3
Add back: specific adjusting items included in operating profit	-	9.5
Add back: depreciation - property, plant and equipment	32.3	31.3
Add back: depreciation - right-of-use assets	10.1	-
Add back: amortisation of intangible assets	8.1	8.0
Group EBITDA	176.6	156.1
Group EBITDA excluding IFRS 16 Leases impact	163.5	156.1

�

Free cash flow before acquisitions, disposals and dividends

�

Free cash flow before acquisitions, disposals and dividends is defined as cash generated from continuing 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 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:

�

� � �	2019 �m	2018 �m
Cash generated from continuing operations	164.8	131.3
Net capital expenditure	(54.9)	(53.1)
Net interest	(12.3)	(8.4)
Tax paid	(28.8)	(20.9)
Lease payments	(9.6)	(0.4)
Free cash flow before acquisitions, disposals and dividends	59.2	48.5

�

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.

�

� � �	2019 �m	2018 �m
Cash and cash equivalents	68.7	67.6
Non-current borrowings	(176.2)	(164.8)
Non-current lease liabilities	(52.6)	-
Current borrowings and bank overdrafts	(49.3)	(82.6)
Current lease liabilities	(11.7)	(0.2)
Closing net debt	(221.1)	(180.0)
Closing net debt excluding lease liabilities	(156.8)	(179.8)

�

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.

�

� � �	2019 �m	2018 �m
Operating profit before specific adjusting items	126.1	116.8
Add back: amortisation of intangible assets	8.1	8.0
Group headline operating profit	134.2	124.8
�	�	�
12-month average adjusted net assets:	�	�
Third-party working capital	181.0	169.3
Plant and equipment	194.1	180.9
Land and buildings	122.9	116.3
Right-of-use assets	50.2	-
Intangible assets	211.4	214.0
Other assets (net)	12.4	9.6
12-month average adjusted net assets	772.0	690.1
�	�	�
ROIC	17.4%	18.1%
ROIC excluding IFRS 16 Leases impact	18.2%	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.

�

A reconciliation from IFRS profit to the profit used to calculate headline earnings per share* is included in note 8 to the consolidated financial statements on page 31.

�

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 9 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 Financial Statements

for the 12 months ended 31 December 2019

�

Consolidated income statement

�

�	�	Year ended 31 December 2019			�	Year ended 31 December 2018
�	�	Results before specific adjusting items	Specific adjusting items¹	Total	�	Results before specific adjusting items	Specific adjusting items^?1	Total �
�	Note	�m	�m	�m	�	�m	�m	�m
� Revenue �	3	1,049.5	-	1,049.5	�	1,033.9	-	1,033.9
Operating costs before amortisation of intangible assets	�	(915.3)	-	(915.3)	�	(909.1)	(9.5)	(918.6)
�	�	�	�	�	�	�	�	�
Profit from operations before amortisation of intangible assets	3	134.2	-	134.2	�	124.8	(9.5)	115.3
�	�	�	�	�	�	�	�	�
Amortisation of intangible assets	�	(8.1)	-	(8.1)	�	(8.0)	-	(8.0)
�	�	�	�	�	�	�	�	�
Operating profit	3	126.1	-	126.1	�	116.8	(9.5)	107.3
�	�	�	�	�	�	�	�	�
Finance income	�	1.9	-	1.9	�	1.3	-	1.3
Finance expense	�	(18.8)	-	(18.8)	�	(14.5)	-	(14.5)
Net financing costs	5	(16.9)	-	(16.9)	�	(13.2)	-	(13.2)
�	�	�	�	�	�	�	�	�
Share of profit of associate (net of income tax)	�	0.5	-	0.5	�	0.8	-	0.8
�	�	�	�	�	�	�	�	�
Profit before taxation	�	109.7	-	109.7	�	104.4	(9.5)	94.9
�	�	�	�	�	�	�	�	�
Income tax expense	6	(29.9)	-	(29.9)	�	(29.0)	(1.7)	(30.7)
�	�	�	�	�	�	�	�	�
Profit from continuing operations	�	79.8	-	79.8	�	75.4	(11.2)	64.2
Profit/(loss) from discontinued operations	7	0.7	0.8	1.5	�	(1.4)	(9.3)	(10.7)
Profit for the period	�	80.5	0.8	81.3	�	74.0	(20.5)	53.5
�	�	�	�	�	�	�	�	�
Profit for the period attributable to:	�	�	�	�	�	�	�	�
�� Shareholders of the Company	�	72.3	0.8	73.1	�	66.8	(20.5)	46.3
�� Non-controlling interests	�	8.2	-	8.2	�	7.2	-	7.2
�	�	�	�	�	�	�	�	�
Profit for the period	�	80.5	0.8	81.3	�	74.0	(20.5)	53.5
�	�	�	�	�	�	�	�	�
Earnings per share	8	�	�	�	�	�	�	�
Continuing and discontinued operations		�	�	�	�	�	�	�
Basic earnings per share	�	�	�	25.7p	�	�	�	16.2p
Diluted earnings per share	�	�	�	25.5p	�	�	�	16.1p
�	�	�	�	�	�	�	�	�
Continuing operations	�	�	�	�	�	�	�	�
Basic earnings per share	�	�	�	25.2p	�	�	�	20.0p
Diluted earnings per share	�	�	�	25.0p	�	�	�	19.9p
�	�	�	�	�	�	�	�	�
Dividends²	�	�	�	�	�	�	�	�
Interim dividend�� - pence	�	�	�	4.00p	�	�	�	4.00p
�� - �m	�	�	�	11.4	�	�	�	11.4
�	�	�	�	�	�	�	�	�
Proposed final dividend�� - pence	�	�	�	7.00p	�	�	�	7.00p
�� - �m	�	�	�	20.0	�	�	�	20.0

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

2. The proposed final dividend is 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 31 December 2018	�	�	�	�	�	�
Profit for the period	-	-	46.3	46.3	7.2	53.5
Items that will not be reclassified subsequently to profit or loss:	�	�	�	�	�	�
Remeasurement gain on defined benefit plans	-	-	14.2	14.2	-	14.2
Tax effect of components of other comprehensive income not reclassified	-	-	(0.7)	(0.7)	-	(0.7)
�	-	-	13.5	13.5	-	13.5
Items that may be reclassified subsequently to profit or loss:	�	�	�	�	�	�
Foreign exchange translation differences	9.9	-	-	9.9	0.2	10.1
Cash flow hedges:	�	�	�	�	�	�
�� Change in fair value	-	(0.2)	-	(0.2)	-	(0.2)
�� Transferred to profit or loss	-	(0.5)	-	(0.5)	-	(0.5)
�	9.9	(0.7)	-	9.2	0.2	9.4
Total comprehensive income, net of tax	9.9	(0.7)	59.8	69.0	7.4	76.4
�	�	�	�	�	�	�
Total comprehensive income/(expense) attributable to:	�	�	�	�	�	�
�� Continuing operations	9.9	(0.7)	70.5	79.7	7.4	87.1
�� Discontinued operations	-	-	(10.7)	(10.7)	-	(10.7)
Total comprehensive income, net of tax attributable to shareholders of the Company	9.9	(0.7)	59.8	69.0	7.4	76.4
�	�	�	�	�	�	�
Year ended 31 December 2019	�	�	�	�	�	�
Profit for the period	-	-	73.1	73.1	8.2	81.3
Items that will not be reclassified subsequently to profit or loss:	�	�	�	�	�	�
Remeasurement gain on defined benefit plans	-	-	20.5	20.5	-	20.5
Tax effect of components of other comprehensive income not reclassified	-	-	2.2	2.2	-	2.2
�	-	-	22.7	22.7	-	22.7
Items that may be reclassified subsequently to profit or loss:	�	�	�	�	�	�
Foreign exchange translation differences	(15.7)	-	-	(15.7)	(2.6)	(18.3)
Cash flow hedges:	�	�	�	�	�	�
�� Change in fair value	-	0.8	-	0.8	-	0.8
�� Transferred to profit or loss	-	0.2	-	0.2	-	0.2
�	(15.7)	1.0	-	(14.7)	(2.6)	(17.3)
Total comprehensive income, net of tax	(15.7)	1.0	95.8	81.1	5.6	86.7
�	�	�	�	�	�	�
Total comprehensive income/(expense) attributable to:	�	�	�	�	�	�
�� Continuing operations	(15.7)	1.0	94.3	79.6	5.6	85.2
�� Discontinued operations	-	-	1.5	1.5	-	1.5
Total comprehensive income, net of tax attributable to shareholders of the Company	(15.7)	1.0	95.8	81.1	5.6	86.7

�

�Consolidated balance sheet

�

�	�	As at 31 December 2019	As at� 31 December 2018¹
�	Note	�m	�m
Assets	�	�	�
Property, plant and equipment	9	317.2	314.5
Right-of-use assets	10	49.1	-
Intangible assets	11	204.8	215.6
Investments	�	6.5	5.9
Other receivables	�	5.7	6.3
Deferred tax assets	�	6.0	6.9
Total non-current assets	�	589.3	549.2
Inventories	�	142.3	145.3
Derivative financial assets	13	1.5	0.6
Trade and other receivables	�	181.0	200.5
Current tax receivable	�	2.3	1.3
Cash and cash equivalents	12	68.7	67.6
Total current assets	�	395.8	415.3
Total assets	�	985.1	964.5
Liabilities	�	�	�
Borrowings	�	176.2	164.8
Lease liabilities	�	52.6	-
Employee benefits: pensions	14	156.8	190.4
Provisions	15	9.2	10.1
Non-trade payables	�	2.5	2.5
Deferred tax liabilities	�	4.9	11.0
Total non-current liabilities	�	402.2	378.8
Borrowings and bank overdrafts	�	49.3	82.6
Lease liabilities	�	11.7	0.2
Trade and other payables	�	173.3	190.5
Current tax payable	�	26.9	26.0
Provisions	15	8.9	8.6
Derivative financial liabilities	13	0.6	0.6
Total current liabilities	�	270.7	308.5
Total liabilities	�	672.9	687.3
Total net assets	�	312.2	277.2
Equity	�	�	�
Share capital	�	71.8	71.8
Share premium	�	111.7	111.7
Reserves	�	22.5	37.2
Retained earnings	�	64.7	12.1
Total equity attributable to shareholders of the Company	�	270.7	232.8
Non-controlling interests	�	41.5	44.4
Total equity	�	312.2	277.2

1. Borrowings on the comparative balance sheet has been represented to disaggregate lease liabilities and align with the current period. See note 1, note 10 and note 12 to the consolidated financial statements for more information on IFRS 16 Leases.

�

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
Balance at 1 January 2018	71.8	111.7	(7.8)	0.5	(1.0)	35.7	11.8	(27.5)	195.2	39.1	234.3
Profit for the year	-	-	-	-	-	-	-	46.3	46.3	7.2	53.5
Other comprehensive income	-	-	9.9	(0.7)	-	-	-	13.5	22.7	0.2	22.9
Transactions with owners:	�	�	�	�	�	�	�	�	�	�	�
Capital contributions by non-controlling interests	-	-	-	-	-	-	-	-	-	0.5	0.5
Transfer between reserves	-	-	-	-	-	-	(11.2)	11.2	-	-	-
Dividends	-	-	-	-	-	-	-	(31.4)	(31.4)	(2.6)	(34.0)
Equity-settled share-based payment transactions	-	-	-	-	-	-	-	2.8	2.8	-	2.8
Own shares acquired for share incentive schemes (net)	-	-	-	-	-	-	-	(2.8)	(2.8)	-	(2.8)
Balance at 31 December 2018	71.8	111.7	2.1	(0.2)	(1.0)	35.7	0.6	12.1	232.8	44.4	277.2
�	�	�	�	�	�	�	�	�	�	�	�
Balance 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 16¹	-	-	-	-	-	-	-	(12.2)	(12.2)	-	(12.2)
Adjusted balance at 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 year	-	-	-	-	-	-	-	73.1	73.1	8.2	81.3
Other comprehensive income	-	-	(15.7)	1.0	-	-	-	22.7	8.0	(2.6)	5.4
Transactions with owners:	�	�	�	�	�	�	�	�	�	�	�
Dividends	-	-	-	-	-	-	-	(31.3)	(31.3)	(8.5)	(39.8)
Equity-settled share-based payment transactions	-	-	-	-	-	-	-	2.8	2.8	-	2.8
Own shares acquired for share incentive schemes (net)	-	-	-	-	-	-	-	(2.5)	(2.5)	-	(2.5)
Balance 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

1. See note 1 to the consolidated financial statements on page 20.

�

��

Consolidated statement of cash flows

�

�	�	Year ended 31 December 2019			Year ended 31 December 2018
�	�	Continuing	Discontinued	Total	Continuing	Discontinued	Total
�	Note	�m	�m	�m	�m	�m	�m
Operating activities	�	�	�	�	�	�	�
Profit for the period	�	79.8	1.5	81.3	64.2	(10.7)	53.5
Adjustments for:	�	�	�	�	�	�	�
�� Depreciation - property, plant and equipment	�	32.3	-	32.3	31.3	0.4	31.7
�� Depreciation - right-of-use assets	�	10.1	-	10.1	-	-	-
�� Amortisation	�	8.1	-	8.1	8.0	-	8.0
�� Net financing costs	5	16.9	-	16.9	13.2	-	13.2
�� (Profit)/loss on disposal of business and business exits	4,7	-	(0.7)	(0.7)	-	1.7	1.7
�� Non-cash specific adjusting items included in operating �� profit	4,7	-	-	-	6.5	1.5	8.0
�� Share of profit from associate (net of income tax)	�	(0.5)	-	(0.5)	(0.8)	-	(0.8)
�� (Profit)/loss on sale of property, plant and equipment	�	(0.7)	-	(0.7)	0.4	-	0.4
�� Income tax expense	6	29.9	-	29.9	30.7	-	30.7
�� Equity-settled share-based payment expenses	�	2.4	-	2.4	2.8	-	2.8
Cash generated from operations before changes in working capital and provisions	�	178.3	0.8	179.1	156.3	(7.1)	149.2
(Increase)/decrease in trade and other receivables	�	8.9	0.1	9.0	(7.2)	(0.1)	(7.3)
(Increase)/decrease in inventories	�	(5.9)	-	(5.9)	(4.2)	(0.7)	(4.9)
Increase/(decrease) in trade and other payables	�	(3.1)	-	(3.1)	1.7	(1.4)	0.3
Increase/(decrease) in provisions	�	-	(0.5)	(0.5)	(2.4)	6.3	3.9
Payments to defined benefit pension plans	14	(13.4)	-	(13.4)	(12.9)	-	(12.9)
Cash generated from operations	�	164.8	0.4	165.2	131.3	(3.0)	128.3
Interest paid - borrowings and overdrafts	�	(11.2)	-	(11.2)	(9.7)	-	(9.7)
Interest paid - lease liabilities	�	(3.0)	-	(3.0)	-	-	-
Income tax paid	�	(28.8)	-	(28.8)	(20.9)	-	(20.9)
Net cash from operating activities	�	121.8	0.4	122.2	100.7	(3.0)	97.7
Investing activities	�	�	�	�	�	�	�
Purchase of property, plant and equipment and software	�	(56.4)	-	(56.4)	(53.1)	-	(53.1)
Purchase of investments	�	(1.1)	-	(1.1)	(1.0)	-	(1.0)
Disposal of investments	�	-	-	-	0.6	-	0.6
Proceeds from sale of property, plant and equipment	�	1.5	-	1.5	-	-	-
Loan made to associate	�	-	-	-	(1.0)	-	(1.0)
Loan repaid by associate	�	-	-	-	1.0	-	1.0
Interest received	�	1.9	-	1.9	1.3	-	1.3
Disposal of subsidiaries, net of cash disposed	�	-	0.7	0.7	-	1.9	1.9
Net cash from investing activities	�	(54.1)	0.7	(53.4)	(52.2)	1.9	(50.3)
Financing activities	�	�	�	�	�	�	�
Purchase of own shares for share incentive schemes	�	(3.3)	-	(3.3)	(3.2)	-	(3.2)
Proceeds from exercise of share options	�	0.8	-	0.8	0.4	-	0.4
Increase in borrowings	�	67.1	-	67.1	36.1	-	36.1
Reduction and repayment of borrowings	�	(78.4)	-	(78.4)	(28.6)	-	(28.6)
Payment of lease liabilities (2018: payment of finance lease liabilities)	�	(9.6)	-	(9.6)	(0.4)	-	(0.4)
Dividends paid to shareholders of the Company	�	(31.3)	-	(31.3)	(31.4)	-	(31.4)
Dividends paid to non-controlling interests	�	(8.5)	-	(8.5)	(2.6)	-	(2.6)
Capital contributions made by non-controlling interest partners	�	-	-	-	0.5	-	0.5
Net cash from financing activities	�	(63.2)	-	(63.2)	(29.2)	-	(29.2)
Net increase in cash and cash equivalents	�	4.5	1.1	5.6	19.3	(1.1)	18.2
Cash and cash equivalents at start of period	�	�	�	67.6	�	�	50.4
Effect of exchange rate fluctuations on cash held	�	�	�	(4.5)	�	�	(1.0)
Cash and cash equivalents at period end	12	�	�	68.7	�	�	67.6

�

Notes on consolidated financial statements

�

Note 1. Basis of preparation, changes in accounting policies and areas of significant judgment and estimate

��

The preliminary announcement for the year ended 31 December 2019 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. Except for the changes set out in the adoption of new and revised standards section, there has been no other 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 2019 or 31 December 2018. Statutory accounts for the year ended 31 December 2018 have been delivered to the registrar of companies, and those for the year ended 31 December 2019 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 2019 and 2018.

�

Change of accounting reference date�

�

Morgan Advanced Materials plc today announces it intends to change to its accounting reference date from 1 January to 31 December with immediate effect.

�

This change, which is purely administrative aligns the official accounting reference date with the date to which it prepares its Annual Report and Accounts and will not result in any change in the financial reporting cycle.

�

Use of judgements and estimates

�

In preparing these consolidated financial statements, management has made judgements, estimates and assumptions that affect the application of the Group's accounting policies and the reported amounts of assets, liabilities, income and expenses. Final outcomes results may differ from these estimates.� Estimates and underlying assumptions are reviewed on an ongoing basis.

�

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 4: 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.

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

�

Note 6: 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 14: 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 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 year ending 31 December 2019 is included in the following notes:�

�

Note 14: Pensions and other post-retirement employee benefits: key actuarial assumptions

The principal actuarial assumptions applied to pensions are shown in note 13, including a sensitivity analysis. 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.

�

In 2018, based on the results of a High Court hearing, the Group recognised a liability in relation to Guaranteed Minimum Pensions (GMPs), an initiative to remove inequalities in scheme benefits that arise from Guaranteed Minimum Pensions being unequal between men and women. Legal uncertainty remains in this area. Further details are included in note 4.

�

Note 15: 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.��

�

Adoption of new and revised accounting standards

Newly adopted standards - IFRS 16 Leases

The Group adopted IFRS 16 Leases with effect from 1 January 2019. IFRS 16 introduced a single, on-balance sheet accounting model that is similar to previous finance lease accounting. Under the standard, from 1 January 2019 the Group:

�

�� recognises right-of-use assets and lease liabilities (including those previously assessed as operating leases) on the consolidated balance sheet at the present value of future lease payments;

�� recognises depreciation relating to the right-of-use asset and interest charge on the lease liability in the consolidated income statement; and

�� separates cash payments made on the outstanding lease liability into repayment of principal (within financing activities) and interest paid (within operating activities) in the consolidated statement of cash flows.

�

Under IFRS 16, right-of-use assets are tested annually for impairment in accordance with IAS 36 Impairment of Assets, replacing the previous requirement to recognise a provision for onerous lease contracts.

�

For leases in existence at 31 December 2018, the Group applied a modified retrospective approach. Comparative periods are not restated. The modified retrospective approach has two available options, under both options the calculation of the lease liability considered future lease payments only and current discount rates.

�

In the calculation of the right-of-use assets for material land and buildings leases, the Group adopted a modified retrospective approach using historical payment data as if IFRS 16 had always existed but with the benefit of hindsight for actual events. This calculation led to an equity adjustment of �16.1 million before tax, a reduction to retained earnings.

�

In the calculation of right-of-use assets for its remaining lease portfolio (non-material land, buildings, plant and equipment), the Group used the alternative modified retrospective approach, whereby the asset is equal to the liability (with the exception of any transition balance sheet adjustments such as rent-free periods). There is no equity adjustment arising from this calculation.

�

In total, on 1 January 2019, the Group recognised right-of-use assets of �51.1 million, lease liabilities of �67.2 million and an equity adjustment of �16.1 million before tax.

�

The Group utilised the option available on transition to IFRS 16 to grandfather assessments on whether an existing contract contains a lease. From 1 January 2019, the Group applies the definition of a lease as outlined in IFRS 16, which examines whether the Group has the right to control the use of an asset in exchange for consideration. The difference in definition would not have had a material impact on the Group's financial statements on transition.

�

The Group also utilised options available under a modified retrospective approach, namely excluding leases with short remaining terms, excluding leases of low value and relying on the assessment on whether a lease is considered onerous by applying IAS 37 Provisions, Contingent Liabilities and Contingent Assets immediately before the date of initial application as an alternative to performing an impairment review.

�

The following table provides a reconciliation of the Group's reported lease liability obligations as at 31 December 2018 and the lease liabilities recognised under IFRS 16 as at 1 January 2019:

�

�	�m
�	�
Future operating lease commitments as at 31 December 2018	64.8
Recognition exemptions:	�
� For leases of low value assets	(0.4)
Reasonably certain lease extension/termination options	24.5
Operating lease commitments for which IFRS 16 has been applied	88.9
Effect of discounting at the incremental borrowing rate	(23.6)
Liabilities additionally recognised on initial application of IFRS 16 on 1 January 2019	65.3
Liabilities from finance leases as at 31 December 2018	0.2
Effect of foreign exchange rates¹	1.9
Liabilities from leases as at 1 January 2019	67.4

1. Representing the difference in foreign exchange rates between future operating lease commitments, prepared using 2018 average rates, and the opening balance sheet rates used for the initial application of IFRS 16 Leases.

�

The weighted-average incremental borrowing rate for lease liabilities recognised on 1 January 2019 was 5.14%.

�

Newly adopted standards - other

The Group has also adopted the following standards and with effect from 1 January 2019. There has been no material impact on the Group on adoption of these standards:

�

�� IFRIC 23 Uncertainty over Income Tax Treatments

�

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

�

Accounting developments and changes

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 the 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 11 to 14.

�

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 September 2024. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance and exchange rates, show the Group operating 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 UK's exit from the 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) and imports into the UK from the EU (ca. �15 million), it is not considered that this will have a significant impact overall on the Group's liquidity or operations.

�

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 2019.

�

Note 2. Disposals

�

2019

There were no disposals in the year ended 31 December 2019.

�

2018

Composites and Defence Systems:

On 20 November 2018, the Group completed the sale of its Composites and Defence Systems business with its principal site in Coventry, UK. The transaction was structured as a share sale on a debt-free and cash-free basis, for a total consideration of �2.5 million, of which �2.0 million was received on completion and �0.5 million was received on 21 January 2019, with a closing cash adjustment also received of �0.2 million.

�

The transaction was structured to leave Morgan with the economic benefit of certain assets, most notably the principal freehold property associated with the business, as well as certain liabilities relating to the exit of parts of the business. These liabilities were provided for in the interim results for the six months ended 30 June 2018.

�

In the year ended 31 December 2017, the Composite and Defence Systems business generated a �1.0 million headline operating loss* on �21.0 million of revenue.

�

The disposal and closure of the Composites and Defence Systems business reduced the Group's assets and liabilities as follows:

�

�	31 December 2018
�	�m
Trading net assets of disposal group	4.2
Transaction costs associated with the business exit and disposal	7.6
Recycling of deferred foreign exchange losses	0.2
Less total consideration received	(2.7)
�	�
Loss on disposal	9.3

�

The disposal group formed the Composites and Defence Systems operating segment, it was therefore classified as a discontinued operation under IFRS 5. Further detail is disclosed in note 7 to the consolidated financial statements.

�

�Note 3. Segment reporting

�

The Group reports as two divisions and five (2018: 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.

�

�	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 40, reconciliations of the statutory results to the adjusted measures can be found on pages 11 to 14.

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

�

�	Year ended 31 December 2018
�	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	433.6	48.6	482.2	166.8	132.7	252.2	551.7	1,033.9	-	1,033.9
�	�	�	�	�	�	�	�	�	�	�
Segment headline operating profit¹	52.9	6.6	59.5	19.4	23.7	28.1	71.2	130.7	-	130.7
Corporate costs	�	�	�	�	�	�	�	�	(5.9)	(5.9)
Group headline operating profit¹	�	�	�	�	�	�	�	�	�	124.8
Amortisation of intangible assets	(2.2)	(0.3)	(2.5)	(0.7)	(0.4)	(4.4)	(5.5)	(8.0)	-	(8.0)
Operating profit before specific adjusting items	�	�	�	�	�	�	�	�	�	116.8
Specific adjusting items included in operating profit²	(13.8)	-	(13.8)	-	-	(1.4)	(1.4)	(15.2)	5.7	(9.5)
Operating profit/(loss)	36.9	6.3	43.2	18.7	23.3	22.3	64.3	107.5	(0.2)	107.3
Finance income	�	�	�	�	�	�	�	�	�	1.3
Finance expense	�	�	�	�	�	�	�	�	�	(14.5)
Share of profit of associate (net of income tax)	�	�	�	�	�	�	�	�	�	0.8
Profit before taxation	�	�	�	�	�	�	�	�	�	94.9
�	�	�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�	�	�
Segment assets	393.1	41.2	434.3	157.6	97.6	187.2	442.4	876.7	87.8	964.5
�	�	�	�	�	�	�	�	�	�	�
Segment liabilities	83.3	8.0	91.3	32.2	21.4	42.4	96.0	187.3	500.0	687.3
�	�	�	�	�	�	�	�	�	�	�
Segment capital expenditure	15.7	2.4	18.1	11.1	8.8	15.1	35.0	53.1	-	53.1
�	�	�	�	�	�	�	�	�	�	�
Segment depreciation - property, plant and equipment	13.6	1.9	15.5	4.7	4.5	6.6	15.8	31.3	-	31.3

1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 40, reconciliations of the statutory results to the adjusted measures can be found on pages 11 to 14.

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

�

Revenue from external customers and non-current assets by geography

�

�	Revenue from external customers		Non-current assets (excluding tax and financial instruments)
Continuing operations	2019 �m	2018 �m	2019 �m	2018 �m
US	420.0	381.3	226.8	210.8
China	101.3	104.0	60.1	62.6
Germany	68.9	69.9	46.9	42.6
UK (the Group's country of domicile)	44.5	42.8	120.8	117.4
France	29.8	29.0	17.6	17.9
Other Asia, Australasia, Middle East and Africa	195.7	202.9	71.6	55.5
Other Europe	128.2	140.5	26.0	24.3
Other North America	33.6	32.4	9.4	6.3
South America	27.5	31.1	4.1	4.9
�	1,049.5	1,033.9	583.3	542.3

�

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	�	�	2019 �m	2018 �m
Industrial	�	�	472.0	492.5
Transportation	�	�	218.3	221.9
Chemical and petrochemical	�	�	106.0	96.7
Semiconductor and electronics	�	�	69.7	61.9
Energy	�	�	57.3	58.8
Security and defence	�	�	73.0	52.3
Healthcare	�	�	53.2	49.8
�	�	�	1,049.5	1,033.9

�

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

Continuing operations

2019

�m

2018

�m

2019

�m

2018

�m

2019

�m

2018

�m

2019

�m

2018

�m

2019

�m

2018

�m

2019

�m

2018

�m

2019

�m

2018

�m

�

Intercompany sales to other segments

1.0

0.1

1.1

0.2

0.3

0.6

1.2

1.4

0.4

0.2

1.9

2.2

�

Note 4. Specific adjusting items

��

�	2019	2018
Continuing operations	�m	�m
Specific adjusting items:	�	�
Net pension past service credit	-	5.7
Business closure and exit costs	(0.7)	(15.2)
Release of provisions related to business exits and disposals	0.7	-
Total specific adjusting items before income tax	-	(9.5)
Income tax charge from specific adjusting items	-	(1.7)
Total specific adjusting items after income tax	-	(11.2)

�

Specific adjusting items in relation to discontinued operations are disclosed in note 7.

�

2019

Business closure and exit costs

China, Technical Ceramics

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

�

US Electro-ceramics update, Technical Ceramics

In 2017 the Group divested its UK Electro-ceramics business, which was part of the Technical Ceramics operating segment.� 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, once the delivery of the last time orders from customers had been completed.�This is currently anticipated to be

in the second half of 2020.�Costs associated with the closure of the site were provided for in 2017.�In 2019, the US Electro-ceramics business generated an operating profit contribution of �4.7 million on revenues of �9.2 million.

�

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.

�

2018

Net pension past service credit, UK

Early and late retirement adjustment��

In 2018, the Group reviewed with the Trustees of Morgan Pension Scheme the factors applied on early and late retirement and clarified the practice regarding the calculation of pension payments with members who elected to retire other than at the normal date of retirement. This was effected via a Deed of Amendment. This change resulted in a net gain of �7.6 million in the income statement.

��

Adjustment for Guaranteed Minimum Pensions (GMPs)

On 26 October 2018, the High Court ruled that the Trustee of the Lloyds Banking Group pension schemes needed to remove the inequalities in pension scheme benefits that arise from unequal GMPs. This resulted in a charge of �1.9 million to reflect the potential cost of removing the GMP inequalities for the Group's UK defined benefit pension schemes.

�

The net impact of these pension adjustments was a credit to the income statement of �5.7 million.

��

Business closure and exit costs

Brazil, Thermal Ceramics� ��

In 2018 the Group announced its decision to close the Thermal Ceramics site in Rio de Janeiro. A �6.2 million charge was recognised. This comprised cash exit costs of �2.6 million relating to site clean-up costs, professional and legal fees and staff redundancies and impairment costs of �3.6 million relating to the impairment of property, plant and equipment and other assets. In the year ended 31 December 2018 the business generated a headline operating loss* of �2.6 million on revenues of �3.0 million.

�

China, Technical Ceramics

In 2018 the Group decided to close its ceramic cores operations in China, a part of the Technical Ceramics operating segment. A �1.4 million impairment charge was recognised relating to the impairment of plant and equipment and other assets. In the year ended 31 December 2018 the business generated a headline operating loss* of �0.9 million on revenues of �0.5 million.

�

Venezuela, Thermal Ceramics

In 2018 the Group decided to exit its Thermal Ceramics operations in Venezuela. A �7.6 million charge was recognised, of which �7.3 million related to the recycling of deferred foreign exchange translation losses in accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates and �0.3 million related to the impairment of assets. In the year ended 31 December 2018 the business had negligible revenue and headline operating profit* (�0.0 million).

�

Note 5. Finance income and expense

�

�	2019	2018
Continuing operations	�m	�m
Recognised in profit or loss	�	�
Interest on bank balances and cash deposits	1.9	1.3
Finance income	1.9	1.3
�	�	�
Interest expense on borrowings and overdrafts	(11.2)	(9.8)
Interest expense on lease liabilities	(3.0)	-
Net interest on IAS 19 obligations	(4.6)	(4.7)
Finance expense	(18.8)	(14.5)
Net financing costs recognised in profit or loss	(16.9)	(13.2)

�

� Recognised in other comprehensive income	�	�
Cash flow hedges:	�	�
�� Effective portion of changes in fair value of cash flow hedges	0.8	(0.2)
�� Transferred to profit or loss	0.2	(0.5)
Net financing costs recognised in other comprehensive income	1.0	(0.7)

�

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

�

Note 6. Taxation

�

� Continuing operations	�	�	2019 �m	2018 �m
Recognised in profit or loss	�	�	�	�
Current tax	�	�	�	�
Current year	�	�	29.3	29.9
Adjustments for prior years	�	�	0.3	(0.6)
�	�	�	29.6	29.3
Deferred tax	�	�	�	�
Current year	�	�	1.5	1.9
Adjustments for prior years	�	�	(1.2)	(0.5)
�	�	�	0.3	1.4
Total income tax expense recognised in profit or loss	�	�	29.9	30.7
� Recognised in other comprehensive income	�	�	�	�
Tax effect on components of other comprehensive income:	�	�	�	�
�� Deferred tax associated with defined benefit schemes and share schemes	�	�	(2.2)	0.7
Total tax recognised in other comprehensive income	�	�	(2.2)	0.7

�

Reconciliation of effective tax rate �	2019 �m	2019 %	2018 �m	2018 %
Profit before tax	109.7	�	94.9	�
�	�	�	�	�
Income tax using the domestic corporation tax rate	20.8	19.0	18.0	19.0
Effect of different tax rates in other jurisdictions	5.8	5.3	3.9	4.1
Local taxes including withholding tax suffered	3.9	3.6	3.7	3.9
Permanent differences	3.9	3.6	3.7	3.9
Movements related to unrecognised temporary differences	(3.6)	(3.3)	2.5	2.6
Adjustments in respect of prior years	(0.9)	(0.8)	(1.1)	(1.2)
�	29.9	27.3	30.7	32.3

�

The effective rate of tax before specific adjusting items is 27.3% (2018: 27.8%).

�

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.

�

The Group adopted IFRIC 23 Uncertainty over Income Tax Treatments with effect from 1 January 2019. There has been no material impact on the Group.

�

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 liability for the Group is approximately �2.5 million.�Based on the Group's current assessment of the circumstances under which tax would be payable, no provision has been made.

�

Note 7. Discontinued operations

�

The Group disposed of its Composites and Defence Systems business on 20 November 2018. The business represented a separate reportable segment and therefore, in accordance with IFRS 5 Non-current Assets Held For Sale and Discontinued Operations, the disposal group was classified as discontinued.

�

The results from discontinued operations, which have been disclosed in the consolidated income statement, are set out below:

�

�	Year ended 31 December 2019			�	Year ended 31 December 2018
�	Results before specific adjusting items	Specific adjusting items	Total	�	Results before specific adjusting items	Specific adjusting items	Total
�	�m	�m	�m	�	�m	�m	�m
�	�	�	�	�	�	�	�
Revenue	-	-	-	�	11.2	-	11.2
�	�	�	�	�	�	�	�
Operating income/(costs)	0.7	0.8	1.5	�	(12.6)	(9.3)	(21.9)
�	�	�	�	�	�	�	�
Profit/(loss) before taxation	0.7	0.8	1.5	�	(1.4)	(9.3)	(10.7)
�	�	�	�	�	�	�	�
Income tax expense	-	-	-	�	-	-	-
�	�	�	�	�	�	�	�
Profit/(loss) from discontinued operations	0.7	0.8	1.5	�	(1.4)	(9.3)	(10.7)
�	�	�	�	�	�	�	�
Basic profit/(loss) per share from discontinued operations	�	�	0.5p	�	�	�	(3.8)p
Diluted profit/(loss) per share from discontinued operations	�	�	0.5p	�	�	�	(3.7)p

�

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

�

In 2018, the discontinued specific adjusting items relate to the loss on disposal of assets and provisions for business exit costs, see also note 2 to these consolidated financial statements.

�

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

�

Note 8. Earnings per share

�

�	Year ended 31 December 2019			�	Year ended 31 December 2018
�	Earnings	Basic earnings per share	Diluted earnings per share	�	Earnings	Basic earnings per share	Diluted earnings per share
�	�m	pence	pence	�	�m	pence	pence
Profit for the period attributable to shareholders of the Company	73.1	25.7p	25.5p	�	46.3	16.2p	16.1p
(Profit)/loss from discontinued operations	(1.5)	(0.5)p	(0.5)p	�	10.7	3.8p	3.7p
Profit from continuing operations	71.6	25.2p	25.0p	�	57.0	20.0p	19.9p
Specific adjusting items	-	-	-	�	9.5	3.3p	3.3p
Amortisation of intangible assets	8.1	2.8p	2.8p	�	8.0	2.8p	2.8p
Tax effect of the above	-	-	-	�	1.7	0.6p	0.6p
Non-controlling interests' share of the above adjustments	-	-	-	�	-	-	-
Adjusted profit for the period from continuing operations as used in headline earnings per share¹	79.7	28.0p	27.8p	�	76.2	26.7p	26.6p

1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 40, reconciliations of the statutory results to the adjusted measures can be found on pages 11 to 14.

�

�	�	�	�	2019 millions	2018 millions
Number of shares	�	�	�	�	�
Weighted average number of Ordinary shares for the purposes of basic earnings per share¹	�	�	�	284.6	285.2
Effect of dilutive potential Ordinary shares:	�	�	�	�	�
Share options	�	�	�	1.6	1.6
Weighted average number of Ordinary shares for the purposes of diluted earnings per share	�	�	�	286.2	286.8

1. 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.

�

Note 9. Property, plant and equipment

�

�	�	Land and buildings � �m	Plant, equipment and fixtures �m	Total � � �m
Cost	�	�	�	�
Balance at 1 January 2018	�	202.9	650.5	853.4
Additions	�	10.2	39.0	49.2
Disposals	�	(0.3)	(10.1)	(10.4)
Effect of movement in foreign exchange	�	5.5	18.2	23.7
Balance at 31 December 2018	�	218.3	697.6	915.9
�	�	�	�	�
Balance at 1 January 2019	�	218.3	697.6	915.9
Additions	�	9.2	41.8	51.0
Disposals	�	(2.6)	(22.0)	(24.6)
Effect of movement in foreign exchange	�	(9.5)	(31.4)	(40.9)
Balance at 31 December 2019	�	215.4	686.0	901.4
�	�	�	�	�
Depreciation and impairment losses	�	�	�	�
Balance at 1 January 2018	�	87.0	468.6	555.6
Depreciation charge for the year	�	4.8	26.9	31.7
Impairment charge for the year	�	1.4	5.5	6.9
Disposals	�	(0.2)	(9.8)	(10.0)
Effect of movement in foreign exchange	�	2.9	14.3	17.2
Balance at 31 December 2018	�	95.9	505.5	601.4
�	�	�	�	�
Balance at 1 January 2019	�	95.9	505.5	601.4
Depreciation charge for the year	�	5.4	26.9	32.3
Reversal of impairment	�	-	(0.5)	(0.5)
Disposals	�	(1.4)	(21.6)	(23.0)
Effect of movement in foreign exchange	�	(4.2)	(21.8)	(26.0)
Balance at 31 December 2019	�	95.7	488.5	584.2
Carrying amounts	�	�	�	�
At 1 January 2018	�	115.9	181.9	297.8
At 31 December 2018	�	122.4	192.1	314.5
At 31 December 2019	�	119.7	197.5	317.2

�

In 2019, no assets were pledged as security for liabilities (2018: �0.3 million). Profit on sale of property, plant and equipment presented in the cash flow includes �0.8 million of insurance proceeds for replacement of assets.

�

Note 10. Leasing

�

The reconciliation in the movement of the Group's right-of-use assets is set out in the table below:

�

�	�	Land and buildings �m	Plant and equipment �m	Total �m
�	�	�	�	�
Balance recognised on adoption of IFRS 16 on 1 January 2019	�	40.8	10.3	51.1
Additions	�	6.4	3.1	9.5
Remeasurement	�	0.6	0.1	0.7
Depreciation charge for the year	�	(6.1)	(4.0)	(10.1)
Effect of movement in foreign exchange	�	(1.7)	(0.4)	(2.1)
Balance at 31 December 2019	�	40.0	9.1	49.1

�

The weighted average lease term is 13.2 years for land and buildings and 3.5 years for plant and equipment.

�

Amounts recognised in the consolidated income statement in respect of leasing arrangements are set out in the table below:

�

�	�	�	�	2019 �m
Depreciation expense on right-of-use assets	�	�	�	(10.1)
Interest expense on lease liabilities	�	�	�	(3.0)
Expense relating to short-term leases and leasing of low value assets	�	�	�	(0.8)
Income from leasing owned assets	�	�	�	0.3
�	�	�	�	(13.6)

�

At 31 December 2019, the Group is committed to future payments of �0.7 million for short-term leases and leasing of low value assets.

�

The total cash flows from leasing activities in the year ended 31 December 2019 was �13.1 million.

�

At 31 December 2019, the Group had entered into leases which had not yet commenced with future cash flows totaling �nil.

�

Leases where the Group is the lessor

In 2019 the total of future minimum lease income under non-cancellable leases is �0.3 million (2018: �nil).

�

�Note 11. Intangible assets

�

�	Goodwill � � �m	Customer relationships � �m	Technology and trademarks �m	Capitalised development costs �m	Computer software � �m	Total � � �m
Cost	�	�	�	�	�	�
Balance at 1 January 2018	192.0	85.1	22.0	0.8	28.1	328.0
Additions (externally purchased)	-	-	-	-	1.3	1.3
Disposals	(16.4)	(27.8)	(18.3)	-	(0.1)	(62.6)
Effect of movement in foreign exchange	3.8	3.1	-	-	0.5	7.4
Balance at 31 December 2018	179.4	60.4	3.7	0.8	29.8	274.1
�	�	�	�	�	�	�
Balance at 1 January 2019	179.4	60.4	3.7	0.8	29.8	274.1
Additions (externally purchased)	-	-	-	-	2.8	2.8
Disposals	-	-	-	-	(0.1)	(0.1)
Effect of movement in foreign exchange	(4.3)	(2.7)	(0.3)	-	(0.8)	(8.1)
Balance at 31 December 2019	175.1	57.7	3.4	0.8	31.7	268.7
�	�	�	�	�	�	�
Amortisation and impairment�losses	�	�	�	�	�	�
Balance at 1 January 2018	16.4	59.9	18.6	0.8	15.3	111.0
Amortisation charge for the year	-	4.1	0.2	-	3.7	8.0
Disposals	(16.4)	(27.8)	(18.3)	-	(0.1)	(62.6)
Effects of movement in foreign exchange	-	1.9	-	-	0.2	2.1
Balance at 31 December 2018	-	38.1	0.5	0.8	19.1	58.5
�	�	�	�	�	�	�
Balance at 1 January 2019	-	38.1	0.5	0.8	19.1	58.5
Amortisation charge for the year	-	4.3	0.2	-	3.6	8.1
Disposals	-	-	-	-	(0.1)	(0.1)
Effects of movement in foreign exchange	-	(2.0)	-	-	(0.6)	(2.6)
Balance at 31 December 2019	-	40.4	0.7	0.8	22.0	63.9
�	�	�	�	�	�	�
Carrying amounts	�	�	�	�	�	�
At 1 January 2018	175.6	25.2	3.4	-	12.8	217.0
At 31 December 2018	179.4	22.3	3.2	-	10.7	215.6
At 31 December 2019	175.1	17.3	2.7	-	9.7	204.8

�

Included in customer relationships is an asset with a net book value of �12.5 million at 31 December 2019 recognised in relation to the acquisition�of the Technical Ceramics businesses of Carpenter Technology Corporation in 2008. The remaining amortisation period on this asset�is four years.

�

�Note 12. Cash and cash equivalents

�

�	2019	2018
�	�m	�m
�	�	�
Bank balances	59.6	57.9
Cash deposits	9.1	9.7
Cash and cash equivalents	68.7	67.6
� In 2019 the Group had restricted cash of �0.6 million (2018: �nil) as a result of exchange controls in Argentina. � Reconciliation of cash and cash equivalents to net debt¹ �
�	2019	2018
�	�m	�m
Opening borrowings and lease liabilities as reported	(247.6)	(231.7)
Impact of change in accounting policy following adoption of IFRS 16¹	(67.4)	-
Adjusted opening borrowings and lease liabilities	(315.0)	(231.7)
Increase in borrowings	(67.1)	(36.1)
Reduction and repayment of borrowings	78.4	28.6
Payment of lease liabilities	9.6	0.4
Total changes from cash flows	20.9	(7.1)
New leases and lease remeasurement	(8.8)	-
Effect of movements in foreign exchange on borrowings	13.1	(8.8)
Closing borrowings and lease liabilities	(289.8)	(247.6)
Cash and cash equivalents	68.7	67.6
Closing net debt²	(221.1)	(180.0)

1. See note 1 to the consolidated financial statement on page 20.

2. Definitions of these non-GAAP measures can be found in the glossary of terms on page 40, reconciliations of the statutory results to the adjusted measures can be found on pages 11 to 14.

�

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 2018	(231.1)	(0.6)	(231.7)	50.4	(181.3)
Cash inflow	-	-	-	29.8	29.8
Borrowings and lease liability cash flow	(7.5)	0.4	(7.1)	-	(7.1)
Net interest paid	-	-	-	(8.4)	(8.4)
Net cash inflow/(outflow)	(7.5)	0.4	(7.1)	21.4	14.3
Share purchases	-	-	-	(3.2)	(3.2)
Exchange and other movements	(8.8)	-	(8.8)	(1.0)	(9.8)
At 31 December 2018	(247.4)	(0.2)	(247.6)	67.6	(180.0)
Impact of change in accounting policy following the adoption of IFRS 16²	-	(67.4)	(67.4)	-	(67.4)
Adjusted 1 January 2019	(247.4)	(67.6)	(315.0)	67.6	(247.4)
Cash inflow	-	-	-	23.1	23.1
Borrowings and lease liability cash flow	11.3	9.6	20.9	-	20.9
Net interest paid	-	-	-	(14.2)	(14.2)
Net cash inflow/(outflow)	11.3	9.6	20.9	8.9	29.8
Share purchases	-	-	-	(3.3)	(3.3)
New leases and lease remeasurement	-	(8.8)	(8.8)	-	(8.8)
Exchange and other movements	10.6	2.5	13.1	(4.5)	8.6
At 31 December 2019	(225.5)	(64.3)	(289.8)	68.7	(221.1)

1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 40, reconciliations of the statutory results to the adjusted measures can be found on pages 11 to 14.

2. See note 1 to the consolidated financial statement on page 20.
�

�

Note 13. Financial risk management

�

Fair Values

�	31 December 2019				31 December 2018
	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
Financial assets and liabilities held at amortised cost			�	�	�	�	�	�
6.26% US Dollar Senior Notes 2019	-	-	-	-	(59.0)	�-�	(59.6)	(59.6)
1.18% Euro Senior Notes 2023	(21.2)	-	(21.2)	(21.2)	(22.5)	�-�	(22.3)	(22.3)
3.17% US Dollar Senior Notes 2023	(11.4)	-	(11.3)	(11.3)	(11.8)	�-�	(11.3)	(11.3)
1.55% Euro Senior Notes 2026	(21.2)	-	(21.5)	(21.5)	(22.5)	�-�	(22.3)	(22.3)
3.37% US Dollar Senior Notes 2026	(73.5)	-	(72.1)	(72.1)	(76.4)	�-�	(70.6)	(70.6)
1.74% Euro Senior Notes 2028	(8.5)	-	(8.6)	(8.6)	(9.0)	�-�	(8.8)	(8.8)
2.89% Euro Senior Notes 2030	(21.1)	-	(22.2)	(22.2)	(22.5)	�-�	(22.5)	(22.5)
4.87% US Dollar Senior Notes 2026	(19.2)	-	(20.2)	(20.2)	-	-	-	-
Obligations under finance leases¹	-	-	-	-	(0.2)	�-�	(0.2)	(0.2)
�	(176.1)	-	(177.1)	(177.1)	(223.9)	-	(217.6)	(217.6)
�	�	�	�	�	�	�	�	�
Financial assets held at FVOCI	0.6	0.6	-	0.6	0.5	0.5	-�	0.5
Derivative financial assets held at fair value	1.5	-	1.5	-	0.6	-	0.6�	0.6
�	2.1	0.6	1.5	0.6	1.1	0.5	0.6	1.1
�	�	�	�	�	�	�	�	�
Derivative financial liabilities held at fair value	0.6	-	0.6	0.6	0.6	-	0.6	0.6

1. Comparative information represents finance leases accounted for under IAS 17, there is no requirement to calculate the fair value of IFRS 16 Leases.

�

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).

�

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

�

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.

�

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 1.1-3.9% (2018: 1.4-4.7%).

�

There have been no transfers between Level 1 and Level 2 during 2019 and 2018 and there were no Level 3 financial instruments in either 2019 or 2018.

�

Note 14. Pensions and other post-retirement employee benefits

�	31 December 2019
�	UK	US	Europe	Rest of World	Total
��	�m	�m	�m	�m	�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)
�	�	�	�	�	�
Movements in present value of defined benefit obligation	�	�	�	�	�
At 1 January 2019	(544.4)	(138.8)	(37.3)	(13.6)	(734.1)
Current service cost	-	-	(1.0)	(1.6)	(2.6)
Interest cost	(14.4)	(5.9)	(0.6)	(0.1)	(21.0)
Actuarial gain/(loss)	�	�	�	�	�
�� Experience gain/(loss) on plan obligations	9.6	(1.3)	(2.0)	(0.2)	6.1
�� Changes in financial assumptions - gain/(loss)	(46.4)	(16.6)	(3.4)	(0.4)	(66.8)
�� Changes in demographic assumptions - gain/(loss)	35.6	1.4	-	-	37.0
Benefits paid	25.4	9.3	1.8	0.7	37.2
Curtailments and settlements	-	0.2	-	-	0.2
Contributions by members	-	-	-	-	-
Exchange adjustments	-	5.7	2.5	0.9	9.1
At 31 December 2019	(534.6)	(146.0)	(40.0)	(14.3)	(734.9)
�	�	�	�	�	�
Movements in fair value of plan assets	�	�	�	�	�
At 1 January 2019	404.3	130.0	0.4	9.0	543.7
Interest on plan assets	10.8	5.4	-	0.2	16.4
Remeasurement gain/(loss)	30.8	13.6	-	(0.2)	44.2
Contributions by employer	12.6	0.9	1.8	1.7	17.0
Contributions by members	-	-	-	-	-
Administrative expenses	-	-	-	-	-
Benefits paid	(25.4)	(9.3)	(1.8)	(0.7)	(37.2)
Curtailments and settlements	-	-	-	-	-
Exchange adjustments	-	(5.2)	-	(0.8)	(6.0)
At 31 December 2019	433.1	135.4	0.4	9.2	578.1
�	�	�	�	�	�
Actual return on assets	41.6	19.0	-	-	60.6
�	�	�	�	�	�

�

�	�	�	�	31 December 2019
�	UK	US	Europe	Rest of World	Total
�	�m	�m	�m	�m	�m
Fair value of plan assets by category	�	�	�	�	�
Equities	49.1	-	-	-	49.1
Growth assets	97.1	7.2	-	-	104.3
Bonds	56.1	126.0	-	-	182.1
Liability-driven investments (LDI)	69.8	-	-	-	69.8
Matching insurance policies	160.4	-	0.4	6.8	167.6
Other	0.6	2.2	-	2.4	5.2
�	433.1	135.4	0.4	9.2	578.1

�

The Group expects to contribute �21.0 million to these arrangements in 2020.

�	31 December 2018
�	UK	US	Europe	Rest of World	Total
�	�m	�m	�m	�m	�m
Summary of net obligations��	�	�	�	�	�
Present value of unfunded defined benefit obligations	-	(7.9)	(35.9)	(2.8)	(46.6)
Present value of funded defined benefit obligations	(544.4)	(130.9)	(1.4)	(10.8)	(687.5)
Fair value of plan assets	404.3	130.0	0.4	9.0	543.7
�	(140.1)	(8.8)	(36.9)	(4.6)	(190.4)

�

�	UK	US	Europe	Rest of World
�	�	�	�	�
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
�	�	�	�	�
Principal actuarial assumptions at 31 December 2018 were:	%	%	%	%
Discount rate	2.74	4.34	1.70	2.60
Inflation (UK: RPI/CPI)	3.17/2.07%	n/a	1.70	n/a

�

Note 15. Provisions and contingent liabilities

�

� �	Closure and restructuring provisions �m	Legal and other provisions � �m	Environmental provisions � �m	Total � � �m
Balance at 31 December 2018	3.5	10.3	4.9	18.7
Provisions made during the year	0.9	1.7	3.2	5.8
Provisions used during the year	(1.6)	(0.8)	(1.1)	(3.5)
Provisions reversed during the year	(0.3)	(2.2)	-	(2.5)
Effect of movements in foreign exchange	(0.1)	(0.2)	(0.1)	(0.4)
Balance at 31 December 2019	2.4	8.8	6.9	18.1
�	�	�	�	�
Current	2.4	5.9	0.6	8.9
Non-current	-	2.9	6.3	9.2
�	2.4	8.8	6.9	18.1

�

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.

�

Subsidiary undertakings within the Group have given unsecured guarantees of �7.4 million (2018: �9.2 million) in the ordinary course of business.

�

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 has been provided for in the year 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.

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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.

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Note 16. Subsequent events

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The outbreak of the coronavirus has led to an extended shut down of our manufacturing facilities in China. Our focus has been to take actions and precautions to help ensure the safety and wellbeing of our employees. Whilst we cannot be certain how long this situation will last, based on the delayed startup of our production facilities since the lunar new year break, we currently anticipate that this will have an adverse impact on 2020 revenues of around �7.0 million and on headline operating profit* of around �3.5 million, with the impact in the first half of the year. China represents c.10% Group revenue annually.

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The coronavirus has been spreading to countries outside of China, including to Italy and South Korean. Our plant in the in the affected area of Northern Italy, we expect to be closed for two weeks.

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There were no other reportable subsequent events following the balance sheet date.

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Glossary�

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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 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 4 to the consolidated financial statements for further details

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�� 1. �See definitions and reconciliations of non-GAAP measures to GAAP measures on page 11 to 14.

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