Morgan Advanced Materials H1 Results: Growth Improves but One-Off Revenue Flatters Profit

Morgan Advanced Materials delivered first-half trading in line with expectations, with revenue, adjusted operating profit and adjusted earnings all moving higher.

However, the headline improvement needs careful reading. An £8.9 million contractual payment from a semiconductor customer was recognised earlier than expected and will not repeat in the second half.

That makes the underlying trajectory, cash conversion and progress on the Thermal Products review more important than the headline growth rates alone.

Investors can read the original company announcement for the full financial statements.

Morgan Advanced Materials' key figures

Metric	H1 2026	Restated H1 2025	Change
Revenue	£518.1 million	£502.5 million	3.1%
Organic constant-currency revenue growth	4.8%	Not disclosed	-
Adjusted operating profit	£57.8 million	£54.8 million	5.5%
Adjusted operating margin	11.2%	10.9%	30 basis points
Statutory operating profit	£39.1 million	£41.6 million	-6.0%
Adjusted earnings per share	10.7p	9.9p	8.1%
Basic earnings per share from continuing operations	4.5p	5.6p	-19.6%
Free cash flow	£3.5 million	£4.6 million	-23.9%
Net debt	£253.1 million	£249.1 million	1.6%
Net debt to EBITDA, excluding leases	2.0 times	1.8 times	Not meaningful
Interim dividend	5.4p	5.4p	Unchanged

Organic constant-currency growth strips out acquisitions, disposals and currency movements to provide a cleaner view of underlying trading.

On that basis, revenue increased by 4.8%. Excluding the semiconductor contract's phasing benefit, growth was 3.0%.

The £8.9 million issue investors should understand

Performance Carbon recognised £8.9 million of income under a take-or-pay agreement during the first half. A take-or-pay contract requires a customer to pay for an agreed commitment even if the products are not taken as originally scheduled.

Morgan had expected to supply the products during the second half, but the customer settled its contractual commitments in full during H1.

This benefited revenue, adjusted operating profit, margin and net debt. It contributed 160 basis points to the reported group margin and will not repeat in H2.

This does not make the income invalid, but it does affect the timing and quality of the reported improvement. Investors should therefore avoid treating the 11.2% first-half margin as a straightforward underlying run rate.

Management expects the second-half adjusted operating margin to be broadly in line with the first half after excluding this benefit, while also warning of a foreign exchange headwind.

Adjusted profit rose, but statutory profit fell

Adjusted operating profit increased by 5.5% to £57.8 million, while adjusted earnings per share rose by 8.1% to 10.7p.

The statutory picture was weaker. Operating profit fell 6.0% to £39.1 million, while basic earnings per share from continuing operations declined 19.6% to 4.5p.

The main difference was £18.4 million of specific adjusting items, up from £12.7 million. These included:

• £4.7 million of restructuring charges
• £4.7 million of restructuring-related impairments
• £11.5 million associated with the global enterprise resource planning system
• A £2.5 million fair-value gain on shares received as consideration for the Molten Metal Systems disposal

An enterprise resource planning system, usually shortened to ERP, brings core business processes such as finance, procurement and operations onto a common technology platform.

The spending may support longer-term efficiency, but it remains a real cost and explains why adjusted and statutory performance moved in opposite directions.

Technical Ceramics led the divisional performance

Technical Ceramics was the strongest division. Revenue increased by 7.8% organically at constant currency to £183.7 million, supported by Aerospace and Defence and increased Energy demand.

Its adjusted operating profit rose to £23.8 million, with margin improving from 11.7% to 13.0%.

Performance Carbon generated revenue of £158.3 million and an adjusted margin of 17.1%. However, organic revenue fell 1.8% when the semiconductor phasing benefit was excluded. Aerospace performed well, but lower demand for body armour weighed on Defence.

Thermal Products remained the weak spot. Revenue was broadly flat on a reported basis at £176.1 million, while adjusted operating profit fell to £11.3 million from £13.5 million. Margin declined from 7.7% to 6.4%, reflecting operational issues at a large US site.

Morgan says a structured turnaround is under way, with early progress against operational milestones. Sustainable margin improvement is expected from 2027 onwards.

Cash generation and leverage need watching

Cash generated from continuing operations fell sharply from £70.3 million to £43.3 million. The main driver was a £23.5 million working-capital outflow, which management described as normal first-half phasing.

Free cash flow was only £3.5 million, down from £4.6 million. Net debt increased to £253.1 million, taking net debt to EBITDA to 2.0 times from 1.8 times.

This sits above Morgan's medium-term leverage range of 1.0 to 1.5 times, although the framework allows leverage of up to 2.0 times following an acquisition.

Management expects leverage to improve to 1.7 times during H2 as free cash flow normalises and anticipated Molten Metal Systems disposal proceeds are realised. Available liquidity appears comfortable, with £347.7 million of undrawn facility headroom at the period end.

The combination of low first-half free cash flow and elevated leverage is nevertheless one of the clearer areas for investors to monitor.

Simplification plan remains on track

Morgan's multi-year simplification programme is now materially complete and is expected to deliver £27 million of annualised savings by the end of 2026. Total cash implementation costs are forecast at £45 million.

The group is also rolling out its global ERP system, with 13 sites now live, and has begun major turnaround programmes covering sites representing more than 20% of group revenue.

These initiatives are central to the company's target of reaching a 12% adjusted operating margin in 2028, followed by sustainable margins of 12% to 14% beyond that point.

For context, the company previously announced a strategic review of the Thermal Products division. The review is progressing, with options including a potential disposal, but no further decision or timetable was disclosed.

Dividend maintained as outlook stays cautious

The interim dividend has been maintained at 5.4p per share. It is due to be paid on 17 November 2026 to shareholders on the register at the close of trading on 23 October. The shares are scheduled to trade ex-dividend on 22 October.

For the full year, Morgan expects organic constant-currency revenue growth of around 2%. The company remains mindful of geopolitical and macroeconomic uncertainty, particularly in European Industrial markets.

The positives are improving adjusted earnings, strong Technical Ceramics performance, growth in Energy and Aerospace, and progress on cost savings.

The cautions are equally visible: first-half profit was flattered by income that will not repeat, statutory earnings declined, cash generation weakened and leverage reached 2.0 times. Thermal Products also continues to struggle operationally while its strategic future remains unresolved.

The next test is whether Morgan can deliver comparable second-half margins without the £8.9 million benefit, while converting more profit into cash and reducing debt as promised.