Morgan Advanced gets off to strong start for 2018

Morgan Advanced Materials said it has decided to make an exit from the composite and defence systems business as it got off to a stronger start to 2018, with sales growth accelerating in the first quarter.

Sales for the first three months to March 2018 were 6.5% higher than the same period last year on an organic constant currency basis. Management said this growth rate was "higher than we anticipate for the full year" due to a weak start in 2017.

The exit from the composite and defence systems came after the division's recent declining trend continued, having lost money last year as sales slumped 31% lower following a reduction in activity with the UK Ministry of Defence and the completion of a Danish vehicle programme. Morgan is already in "very early stage" talks about selling off certain product lines, and plans to close the remainder of the business lines, but stressed there was no certainty that any divestments will be made.

Cash exit costs from closing the business are forecast to be around £6m, which directors hope to partially offset by any proceeds from the divestment and the sale of certain fixed assets of the business.

Looking at the continuing businesses, growth was driven by a 9% increase in sales on an organic constant currency basis from the carbon and technical ceramics division, which last year contributed just over half of group sales, with the first quarter seeing "above-trend growth" in seals & bearings driven by ceramic armour sales, "good growth" in electrical carbon, and "modest growth" in technical ceramics.

Thermal products, the other main division, increased sales 6.2%, with growth in Asia and Europe.

Headline operating profit margins for the full year are expected to be "slightly ahead of the prior year," the company said, pointing to benefits from pricing, efficiency savings and volumes that are being partially offset by planned reinvestment in research and development and sales resources, as well as the dilutive impact of the divestments completed in 2017.