In an update ahead of its half-year results on 1 August, the group flags robust interim revenue growth of 8% on a constant currency basis, with a particularly strong performance from the Thermal Ceramics business, which specialises in heat insulation products, including insulating fibre and insulating firebricks.
The group has been through a period of heavy restructuring that has left it much more heavily focused on higher growth, higher margin products and fast growing economies, with further support provided by a shift in manufacturing to low cost economies. The overhaul is continuing to deliver very encouraging improvement in operating profit margin, which rose to more than 11% in the first half versus 6.3% in the same period last year.
Underlying profit margin, meanwhile, is expected to be over 12% before restructuring and one-off costs compared to 10.6% last time, with all divisions in positive territory.
The update shows clearly that the group is continuing to perform strongly on a constant currency basis. Dollar weakness, however, will undermine half year sterling revenue around £20m and underlying operating profit by £4m.
At the divisional level, Carbon, which produces carbon-base products including body armour; graphite powder for the synthetic diamond sector and seals and bearing, had a good start to 2007 year, with half year revenue and operating profit margins ahead both of last time and 2006 full year run rates. Sales performance was particularly strong in the Americas and in Asia, particularly China and Taiwan.
The Technical Ceramics is expected to show only limited revenue growth for the half year, the result one major product line with a large US customer coming to the end of its lifecycle in 2006. That aside, the division, focused on ceramics products for applications ranging from medical implants to aerospace components, saw underlying markets remain strong in Europe and Asia, and healthy in the USA. Its order is book is up and new business pipeline continues to show promise.
Thermal Ceramics sparkled as it experienced further strong revenue growth thanks in large measure to continuing strong performance by the European businesses, which have benefited from major orders for aluminium, petrochemical and iron & steel projects for delivery into the Middle East, Indian and Asian markets. Successful product price rises coupled with some easing in energy and raw material cost increase helped support improvement in profit margin.
The strong first half sales performance by the division is expected to moderate in the second but its order books remains strong and outlook bright.
Molten Metals Systems, supplier of foundry crucibles and furnaces, saw trading conditions remain stable, with gross margins falling slightly on deteriorating exchange rates on exports from European manufacturing plant. Operating margin improved though, aided by cost efficiencies. Plans to establish a Chinese manufacturing plant, expected to come on stream in 2008, are 'well advanced', and should help the division increase its share of the growing market for foundry products in Asia.
Net ongoing group restructuring costs associated with rationalising its manufacturing base and drive down fixed cost base are expected to total around £5-6m for the year.
Morgan Crucible continues to pursue bolt-on acquisitions, supported by balance sheet strength - at year 2006 net debt stood at just £34m. It assures that if it is unable to find suitable acquisitions at the right price, it will look at further returns to improve balance sheet efficiency.
Overall, a very confident update that reflects the continuing successful impact of the heavy realigning and restructuring of the business. With underlying trading strong, and prospects remaining bright, the market was overly perturbed by the currency hit.
Morgan Crucible Company (The) PLC shares rose 6.75p or 2.3% to 299.5p this morning, giving a forward 2007 PER of 15.4, falling to 13.6 in 2008. The prospective yield is 2%.
