Carclo Regulatory News (CAR)

Carclo plc

Annual Report and Accounts

Year ended 31 March 2019

Registered company number 196249

Note: the page numbers referred to in the text of this announcement refer to the page numbers within the Annual Report rather than within this release.

Index

In Summary

Carclo plc is a public company whose shares are quoted on the Main Market of the London Stock Exchange.

The Group is a global manufacturer of fine tolerance injection moulded plastic parts mainly for the medical, automotive lighting and optics markets,

The highlights for the year to 31 March 2019 ("2019") are summarised below -

·; 2019 was a challenging year for the Group, with a significant deterioration in the profitability of the LED Technologies division more than offsetting encouraging performances in Technical Plastics and Aerospace

·; Revenue decreased by 1.0% to £144.9m (2018: £146.2m)

·; Proforma unaudited adjusted operating profit reduced by £2.4m to £8.4m, with underlying operating profit down £9.5m to £1.3m

·; After exceptional items of £13.9m and the unaudited proforma exceptional price concession of £7.1m, following the exit of the Group's mid-volume automotive business, the statutory operating loss was £12.6m (2018: profit of £9.9m) with statutory loss before tax being £14.7m (2018: profit of £8.2m)

·; Proforma unaudited adjusted profit before tax reduced by £2.7m to £6.4m, with underlying loss before tax of £0.7m

*proforma unaudited adjusted profit is defined as profit before all exceptional items and the proforma unaudited exceptional price concession on exit from the mid-volume automotive business.

**underlying profit is defined as profit before all exceptional items, excluding the proforma exceptional price concession on exit from the mid-volume business.

A reconciliation to statutory figures is given on page 120.

Forward looking statements

Certain statements made in these report & accounts are forward looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual events to differ materially from any expected future events or results referred to in these forward-looking statements.

Alternative performance measures

Alternative performance measures are defined in the glossary on page 26. A reconciliation to statutory figures is included on page 127. The Directors believe that alternative performance measures provide a more useful comparison of business trends and performance. The terms 'underlying' and 'proforma unaudited adjusted' are not defined under IFRS and may not be comparable with similarly titled measures used by other companies.

After the year end, the strategic decision was taken to exit from the mid volume automotive business. As part of this exit process, one-off price concessions totalling £7.1m were given on certain mid-volume contracts. An additional performance measure, "proforma unaudited adjusted profit" is given which is defined as profit before exceptional items and before the proforma unaudited exceptional price concession on exit from the mid-volume automotive business. The Directors believe that disclosure of this additional performance measure is useful to aid understanding of the performance of the business excluding this impact of the strategic decision taken to exit from this sector.

Chairman's Statement

Overview

The year to 31 March 2019 ("2019") was an extremely challenging one for Carclo, and this remains the case today.

The operating and financial performance at Wipac, the main business in the LED Technologies Division ("LED"), deteriorated through the year, driven by a significant number of new programme launches.

The Group's other operations made good progress during the year, with the Carclo Technical Plastics Division ("CTP") and the smaller Aerospace Division ("Aerospace") both seeing year-on-year improvements in underlying operating profits.

Overall, Group proforma1 unaudited adjusted profit before tax decreased by £2.7m to £6.4m (2018: £9.1m) and net debt increased to £38.5m (2018: £31.5m). The statutory loss before tax was £14.7m (2018: profit £8.2m). Underlying2 loss before tax was £0.7m (2018: profit £9.1m).

A turnaround plan for Wipac, involving customer support and operational self-help, was implemented after the year-end, on 1 July 2019, with the aim of returning Wipac to a position of profitability and cash generation over the following eighteen months. A number of approaches were received from parties interested in the potential acquisition of Wipac and the Board is actively pursuing its sale. Discussions remain ongoing, but there remains no certainty that a sale of Wipac will occur. In the event that no disposal occurs, the Board will need to assess the options for this business.

Against this background, Carclo's sole lender has agreed to extend the Group's existing banking facilities until January 2021. An agreement has also been reached with the Pension Trustee as to the level of the Group's contributions to the pension scheme over the same period. Longer-term banking facilities, together with a formal pension deficit reduction plan, will now need to be put in place over the coming months.

Looking forward, the Board is focused on developing a business that generates sufficient cash, on an ongoing basis, to meet the needs of all of its stakeholders. The CTP Division, principally operating in the growing medical diagnostics market, and the smaller niche market Aerospace Division both provide a solid foundation to build on for the future. This leaves delivering a near-term solution for Wipac as key to the future of the Carclo Group.

1 Proforma unaudited adjusted profit is defined as profit before all exceptional items and the proforma unaudited exceptional price concession on exit from the mid-volume automotive business.

2 Underlying profit is defined as profit before all exceptional items, excluding the proforma unaudited exceptional price concession on exit from the mid-volume business.

Strategy

The Group's historic strategy of growing CTP, principally through focusing on the medical market, and growing the LED Technologies Division, principally by moving the Wipac business from low to mid-volume vehicles, was successful in that new programmes were awarded, and revenue grew relatively strongly, in both Divisions. However, this success resulted in significant capital expenditure being incurred in footprint expansion, plant and machinery and, in the case of Wipac, also in significant investment in the design and development of new mid-volume automotive lighting programmes.

As a consequence of this investment, together with the outstanding debt incurred in prior years from the Group's failed investments in CIT Technology and CDS (Carclo Diagnostic Solutions), the Group reached a position where it was approaching the limit of available funds under its existing borrowing facilities. This situation was then exacerbated by the newly awarded programmes being launched into an operationally weak environment.

In CTP this resulted in lower than anticipated performance in 2018 and H1 2019. Pleasingly management changes, including the appointment of a new Divisional CEO, and a focus on operational excellence and cash generation are now having an impact. The results for H2 2019 were significantly ahead of H1 and prospects for year-on-year improvement in 2020 are encouraging. Specific strategic successes and actions in CTP over the past year include: a reduction in the Czech footprint, to enhance profitability; good progress being made in the operational turnaround at the main facility in North America, including the recent development of a dedicated assembly hall; the Indian facility becoming accredited to medical standards and receiving its first medical programme; the Chinese operation extending its medical customer base; and the UK facility successfully bringing into production a large high-quality medical programme which has resulted in a further award from the same customer after the year end.

Wipac is the main business in the LED Technologies Division and it is here that the effects of the historic strategic decisions and operational weakness have had the greatest impact. During the 2019 financial year, Wipac sought to launch a number of low-volume high-end automotive lighting programmes in close succession whilst, at the same time, working on three significant mid-volume programmes, one of which required a greenfield factory to be set up in North America. This volume of activity combined with cash constraints, significant operational weakness and a lack in depth of human capital unfortunately saw business performance deteriorate rapidly. Significant resources were then required to keep customers supplied with product, and able to manufacture vehicles, which resulted in significant losses being incurred by the business. It was likely that the situation would only get worse if Wipac continued on the path of seeking to deliver the mid-volume programmes as it had neither the cash nor human capital to be successful. Accordingly, in consultation with its customers, the decision was jointly taken to exit these three programmes and for Wipac to then refocus its business on the low-volume high-end automotive market where it had for many years been financially successful. At the time of writing, this exit programme is nearing completion, with the realisation of certain related assets resulting in the level of Group net debt improving during the past few months.

For the good of the Group, a near-term and permanent solution for Wipac needs to be delivered as its current cash requirements cannot be met by the Group beyond the short term. Increased temporary levels of customer support are helping to meet the cashflow needs of the Wipac business while a disposal of the Wipac operation is actively pursued.

Whilst the Aerospace Division continued to perform well through the period, principally as the result of its niche markets and strong hands-on leadership, it was in danger of being adversely impacted by the lack of cash for investment. Its needs are modest and looking forward the management team are now being encouraged to seek growth opportunities even where they require investment. The Division is strongly cash generative and it can readily fund the levels of investment required from its own resources.

Dividend

Given the financial performance and position of the Group, the Board is not recommending the payment of a dividend for the 2019 financial year (2018: nil). The payment of dividends will only recommence when the Group's finances are on a more stable and stronger footing and no dividend is envisaged to be paid in respect of the current year.

Governance

Details of the Board's governance actions are set out in the Governance section of this report. As part of the Board's programme over the past 18 months it has visited: two of the North American facilities, including a day focused on Group strategy with the three Divisional CEOs participating; and both the UK CTP facility and Wipac where factory visits and presentations from local management were received. In the same period, I have personally visited all of the Group's operations bar two. An improved senior management succession planning process was introduced in the year and the Senior Independent Director ("SID"), Peter Slabbert, led a full evaluation of the Board towards the end of the period. In the current challenging circumstances, the frequency of Board meetings and calls has increased significantly, and I would like to thank all the directors and the company secretary for fully embracing the increased workload.

In this regard, the Board was also fully involved during Summer 2018 in dealing with the interest of Consort Medical plc in acquiring the Carclo Group. The Board fully engaged with Consort but after presentations and discussions, Consort decided not to pursue their interest any further as they determined, as the Board had anticipated at the outset of the process, that Carclo did not make a good strategic fit for their business.

Board Changes

There were a number of changes to the Board during the 2019 financial year: Joe Oatley joined in July 2018 as a Non-Executive Director and Sarah Matthews-DeMers in July 2018 as Group Finance Director. I then took over from Mike Derbyshire as Chairman at the conclusion of the AGM on 19 July 2018.

In January 2019, following disappointing results from Wipac, the Group CEO, Chris Malley stepped down from the Board and I became Executive Chairman on an interim basis, whilst a Group CEO was recruited.

In July 2019, Sarah Matthews-DeMers informed the Board that she would be leaving the Group towards the end of October to take up the CFO role at AB Dynamics plc. In her short time with the Group, Sarah has worked tirelessly on behalf of the Company and has made a strong positive impression with everybody she has met. The Board wishes her well for the future. Ed Watkinson was appointed as Group Chief Finance Officer designate on 30 September 2019 and took over on Sarah's departure. It is currently planned that Ed will fill the Group Chief Finance Officer role on an interim basis and will not, at least initially, join the Board.

Antony Collins, who has been fulfilling the role of Chief Restructuring Officer since he joined the Group at the end of May 2019, has been appointed as the Group Chief Executive and joined the Board with effect from 1 October 2019. At this time, I ceased to act in an Executive capacity and returned to a Non-executive Chairman role. It is currently planned that Antony will fill the Group Chief Executive Officer role on an interim basis whilst the ongoing restructuring of the Group is completed and a platform from which to set the long-term strategy is established.

Recognition should also be given to Chris Malley and Mike Derbyshire, for their respective six- and twelve-years' service on the Board, and to Richard Ottaway who stepped up to act as Interim Group Finance Director prior to Sarah joining the Group.

Employees

The past year has seen the CTP and Aerospace businesses making encouraging operational and financial improvements for which the Board would like to thank all their employees. In addition, the Board fully recognises the hard work and commitment of many of Wipac's employees, operating in often difficult circumstances during the year.

Going Concern

The accounts for 2019 have been prepared on a going concern basis, with existing bank facilities having been extended until January 2021 and agreement having been reached with the Pension Trustee for the level of company contributions to the pension scheme over the same period. The forecast projections for the Group's performance over this fifteen-month period have been reviewed by the Directors and the Board has concluded that, whilst there is a material uncertainty that may cast significant doubt upon the ability to continue as a going concern, subject to the successful disposal of the Wipac business in the near-term or, in the absence of this, to appropriate actions being taken to protect the Group from Wipac's underlying losses and subject to the ongoing support of the Group's lending bank, the Group should be able to continue in operation and meet its liabilities as they fall due over the period considered.

Outlook

CTP continues to make solid cash generative progress and the results for the Division, for the financial year to 31 March 2020 ("2020"), are expected to be ahead of those for 2019. Aerospace, operating in a niche but limited growth market, is anticipated to again deliver healthily profitable results in 2020, albeit at a slightly lower margin than in 2019. However, the outlook for the year for the Wipac business is uncertain and its near-term future is dependent upon continued support from customers and the success of the ongoing sale process. Pleasingly, since the year end, the Group's net debt has reduced due to receipt of payments for Wipac design and development programmes and the cash generation of the CTP and Aerospace divisions. The Board believes it is taking the right actions to establish a solid platform from which the Group can build on the strengths of the CTP and Aerospace businesses, but the Group's financing position remains a risk whilst this restructuring is ongoing.

Mark RollinsChairman31 October 2019

Principal Activities, Business Model and Strategic KPIs

Principal Activities

Carclo plc is a public company whose shares are quoted on the Main Market of the London Stock Exchange.

Carclo has two main operating Divisions that manufacture injection moulded components and systems for its international customer base. Carclo Technical Plastics Division is focused on supporting the growing global medical device market and supplies consumables and products for this sector from multiple international manufacturing sites. CTP is operating in growing but competitive markets and aims to be seen by its customers to be innovative, fast moving and more flexible than, mainly larger, competitors. LED Division designs and manufactures assembled lighting systems and components mainly for the premium, luxury and supercar automotive sector.

The Aerospace Division is a leading supplier of aviation control cables in Europe.

The Group's strategy is to deliver cash generative growth from its existing growing markets.

Business Model

Our business model is to develop a cash generative business with sustainable growth in operating profits through the implementation of innovative and efficient solutions for our customers to ensure that they see real benefits accruing from working in partnership with us.

Customer Interactions

We serve customers across multiple geographies and various industries and we continually monitor both their formal and informal feedback and attempt to respond accordingly. Our customers look to us for innovation in our design and manufacturing processes.

Customer Satisfaction

In all cases our customers have selected us over our competitors, and we recognise that this decision is based on their faith in our ability to meet or exceed their expectations. Each of our businesses monitor all aspects of our customer performance and this is continually fed back to our employees. Following recent operational issues in Wipac, we are working very closely with its customers, with the common goal of limiting the impact of Wipac's operational issues on both customers and the wider Carclo group.

Global Footprint

Our business operates across six different countries to support our global customers. We ensure that we operate ethically in all of our locations respecting local regulations and we develop a culture of best practice in operational management, customer responsiveness as well as ensuring that our approach to health and safety is consistent in all of our operations.

Responsive Culture

We operate with a flat and decentralised management structure in order to make fast and responsive decisions to the benefit of our customers, employees and ultimately for the Group as a whole. We expect our management teams to operate in an entrepreneurial manner and reward them based on their own local business performance.

Strategic KPIs

To enable our performance to be tracked against our growth strategy, we have historically focused on the following key performance indicators ("KPIs"). In light of the revised focus on the CTP and Aerospace Divisions since the year end, we will be defining a new set of KPIs appropriate to the ongoing business.

KPIs for the year ended 31 March 2019:

Revenue Growth

[tables/graphics removed - see Annual Report]

Definition and method of calculation

Revenue growth measures the change in revenue against the prior year.

Explanation of importance

Helps to monitor our success in growing the business.

Underlying Operating Profit Margin

[tables/graphics removed - see Annual Report]

Definition and method of calculation

Underlying operating profit margin measures the underlying operating profit as a percentage of revenue.

Explanation of importance

Helps to monitor our success in turning sales into profits.

Return on Capital Employed

[tables/graphics removed - see Annual Report]

Definition and method of calculation

Return on capital employed measures the underlying operating profit as a percentage of average capital employed calculated as the average of the opening equity plus net debt and closing equity plus net debt. 2018 includes the impact of the acquisitions of Precision Tool and Die and FLTC (Europe) a.s. which were made in 2017. The underlying operating profit of and the investment in CIT Technology, Carclo Diagnostic Solutions and Platform Diagnostics have been excluded from this measure in all periods presented following the Group's decision to invest no further in these businesses and in order to give a meaningful benchmark for future comparison. This measure has replaced the previous return on investment calculation as it is believed it is clearer and easier to understand.

Explanation of importance

Helps to monitor our success in generating profits from the capital employed in the business.

Operating Review

While the business made progress in the Carclo Technical Plastics and Aerospace Divisions, trading results were significantly below the Board's expectations and the prior year due to significant operational issues in the LED Technologies Division.

Group revenue decreased by 1.0% to £144.9m (2018: £146.2m). Proforma3 unaudited adjusted operating profit was down £2.4m to £8.4m (2018: £10.8m) and proforma unaudited adjusted earnings before interest, tax, depreciation and amortisation ('EBITDA') fell £1.8m to £14.0m. Underlying4 operating profit was down £9.5m to £1.3m (2018: £10.8m).

The statutory operating loss was £12.6m (2018 profit: £9.9m) with statutory loss before tax of £14.7m (2018: profit of £8.2m).

Divisional review

Carclo Technical Plastics ('CTP')

In CTP, solid progress was made in the second half of the year with the planned operational improvement programme delivering encouraging results, albeit at a slower rate than anticipated. As a result, full year underlying operating profits for this Division were slightly up on the prior year at £6.8m (2018: £6.7m) with the second half much improved over the first. Statutory operating profit was £6.5m (2018: £6.6m).

Revenue grew by 1% to £90.8m (2018: £89.7m) as a result of the ramp up of a number of new programmes in the UK and improved sales in the US and India, offset by currency movements. Underlying operating margin increased from 7.4% to 7.5%, improving significantly in the second half, reaching 9.2% for that period, as the labour shortages and programme delays experienced in the first half of the year were resolved.

3 Proforma adjusted profit is defined as profit before all exceptional items and the proforma unaudited exceptional price concession on exit from the mid-volume automotive business.

4 Underlying profit is defined as profit before all exceptional items, excluding the proforma unaudited exceptional price concession on exit from the mid-volume business.

Our US business continued to experience operational challenges through the first half of the year due to direct labour shortages. A significant investment in employee welfare has been made and while labour turnover remains higher than we would like, the position has stabilised. Changes to shift patterns along with new recruitment procedures and improved training led to improvements in the second half. We appointed a new US Operations Director and a Continuous Improvement Director at our main Pennsylvania operation, with this new management team focused on operational and other efficiency improvements under our previously highlighted operational improvements programme.

In the UK, margins have improved as new production programmes have commenced, using the additional capacity at the Mitcham facility which was put in place last year.

In India, the mainly non-medical business has seen healthy growth with a better mix of higher margin products. We recently obtained approval to supply medical work from this facility, in line with our strategy of focusing on this market, and have now been awarded the first medical programme.

Our facility in China experienced some issues with de-stocking in the local market; however, overall margins have been maintained through efficiency and commercial efforts. To date there has been no significant impact of the US trade tariffs although we continue to monitor this closely. Recent new customer wins bode well for the long-term prospects of the business.

Our Czech business has addressed the labour shortages experienced in the prior year and has benefited from a new medical production programme which commenced during the second half. As one of our non-medical programmes was scheduled to finish shortly after the year end, in October we announced plans to reduce the footprint of this facility to further improve the site's future profitability. We expect to generate annual cost savings of £0.2m, with a payback of c.2 years on restructuring costs of c.£0.4m, the majority of which are non-cash. This supports our strategy of increasing our focus on medical work within the division.

Outlook

Operating margins in CTP are expected to continue to improve year on year in 2020 as volumes in new contracts ramp up and further commercial and operational improvements are delivered. We have implemented a number of price increases, efficiency improvements and cost savings across the division, the benefits of which are expected to positively impact margins in the coming year.

LED Technologies

Revenue fell by £3.3m or 6.5% to £47.3m (2018: £50.6m). Production revenues increased by 24% while design, development and tooling revenues decreased by 41% after the exit of the mid-volume business.

Proforma unaudited adjusted operating profit fell to £3.2m (2018: £6.4m) while the equivalent operating margin reduced from 12.7% to 6.9% as a result of the operational issues associated with many new programmes being launched into a weak production environment. Following the year end, the decision was taken to exit the mid-volume automotive business which was accompanied by agreed one-off price concessions with customers. Following this decision, the Division has recognized the effects of these price concessions as an additional loss in 2019 of £7.1m, which contributed to an underlying operating loss of £3.9m (2018: profit £6.4m).

Statutory operating loss for the LED Technologies Division was £13.3m (2018 profit: £6.4m).

Wipac, the main operating business in the Group's LED Technologies Division, had been very successful in winning low-volume automotive lighting programmes together with more recent wins in the mid-volume range. As reported at the half year, an unprecedented number of these low-volume programmes were launched into production during the year into what became clear was an unstable manufacturing environment and the business initially struggled to meet customer requirements. Unfortunately, this situation worsened in the third quarter as the short term operational growing pains continued longer than anticipated with demand continuing to grow. The consequences of this have been significant with adverse operational variances, expedited freight deliveries and poor customer service leading to additional unplanned costs and to delays in new programme awards.

Previously, the business's strategic objective was to move into mid-volume vehicle programmes. The first of these mid-volume programmes moved into production during the year; two more were scheduled for early in the next financial year. During the year Wipac was also nominated to supply lighting for two new mid-volume electric vehicles. One of these programmes required a new manufacturing facility to be set up in the US with significant capital investment and working capital requirements.

This move required significant investment in a number of areas in advance of the anticipated revenue growth, including investment in engineering and support services, and additional warehousing and office space, which in turn led to an increase in overheads. Customers in this segment of the market generally pay for design, development and tooling in arrears. With the increased complexity of larger projects, there were a number of delays and issues with validation of the production tooling leading to a significant build in working capital.

The business was stretched beyond its current operational capabilities and following the year end, Wipac operating losses increased significantly, with the business continuing to struggle to meet increasing customer demand. As a result, the Board took the strategic decision to refocus the operation on its historic low-volume high-end vehicle markets where it had previously been financially successful. Following discussions with customers, it was agreed that alternative suppliers would be found for the new US programme and two of the other mid-volume programmes, whilst two of the smaller mid-volume contracts would be retained.

As well as managing the smooth exit of certain programmes, focus has been placed on significantly reducing the Group's future cash requirements for working capital and capital expenditure, with a detailed plan put in place to turn around the financial and operational performance of the ongoing Wipac business. The plan has two major elements to it: customer support and operational self-help. The Wipac business is currently incurring significant losses and increased levels of temporary customer support are helping to meet its short-term cashflow needs.

Discussions with customers for earlier than planned reimbursement of amounts incurred by Wipac for the design and development of future production programmes were successful, with a total of £19.0m received in cash since the year end. This money was used to pay overdue suppliers and to reduce the level of Group net debt.

The carrying value of the LED Division has been reviewed in light of the operational issues and an impairment loss of £8.5m has been recognised, being £1.1m as full impairment of the goodwill relating to LED, £7.1m against LED tangible fixed assets and £0.3m against LED intangible assets

Outlook

The Group received a number of approaches from parties, both trade and financial, interested in the potential acquisition of Wipac. Discussions with these parties are ongoing but there is no certainty that a sale of Wipac will occur. Since the year end, the Wipac business has been classified as held for sale. It is currently receiving significant financial support from its customers pending a sale of the business. In the event that no sale occurs, the Board will need to assess the future options for this business.

Aerospace

Revenue increased by £0.7m to £6.7m (2018: £6.0m) and underlying operating profit increased 74% to £1.3m (2018: £0.7m), as a result of cost control and a beneficial sales mix.

Spares demand has stabilised and some new programmes have moved into serial production during the year.

This business continues to be both profitable and cash generative, with ongoing investment requirements being funded by the business itself.

Outlook

The prospects for this business remain encouraging, although 2020 is expected to deliver slightly lower margins due to greater investment in human capital to ensure sustained future performance.

Key Performance Indicators ('KPIs')

Historically our three primary KPIs have focused on Return on Capital Employed, revenue growth and operating margin and these are detailed on page 13. In light of the revised focus on the CTP and Aerospace Divisions since the year end, we will be defining a new set of KPIs appropriate to the ongoing business.

Alongside these KPIs we have a range of other important internal KPIs which cover health and safety performance, Overall Equipment Effectiveness ('OEE'), employee retention, customer satisfaction, delivery performance and cash collection.

Finance Review

Trading performance

Revenue decreased 1% to £144.9m (2018: £146.2m) with CTP up 1%, LED Technologies down 7% and Aerospace up 13%.

Proforma5 unaudited adjusted operating profit decreased to £8.4m (2018: £10.8m) and proforma unaudited adjusted earnings before interest, taxation, depreciation and amortisation declined to £14.0m (2018: £15.8m). This represents a return on sales (defined as EBITDA divided by revenue) of 10% (2018: 11%). Underlying6 operating profit was £1.3m (2018: £10.8m)

CTP and Aerospace underlying operating profits grew by 3% and 74% respectively, however the operational issues experienced in Wipac resulted in a 49% decrease in proforma unaudited adjusted operating profits over the prior year for the LED Division.

After net interest of £2.1m (2018: £1.7m), proforma unaudited adjusted profit before tax was £6.4m (2018: £9.1m).

Net bank interest increased £0.2m to £1.1m, reflecting the Group's higher average debt during the year as a result of the working capital build in advance of the launch of a number of new medium volume contracts in LED Technologies. The pension finance charge remained constant at £0.8m.

The Group proforma unaudited adjusted tax charge totalled £1.2m (2018: £1.9m), a proforma unaudited adjusted effective tax rate of 19.2% (2018: 20.6%). The effective tax rate is higher than the current UK corporation tax rate because a large proportion of the Group's profits are generated in the US and India where the corporation tax rates are higher than the UK.

Basic proforma unaudited adjusted earnings per share were 7.0p (2018: 9.8p).

As set out in Note 7, the exceptional price concession of £7.1m related to the strategic decision to exit from the mid-volume automotive business. Exceptional items totalled £13.9m of which £8.5m relates to impairment of the LED Technologies Division which has been written down to its recoverable amount. The remainder relates to one-off items in relation to the operational issues at Wipac, including stock write-offs, impairment charges and consultants' costs. In addition, exceptional costs were incurred in respect of the restructuring of the Czech facility, Board changes, other recruitment and redundancy costs and pensions GMP equalisation.

Statutory operating loss from continuing operations was £12.6m (2018: £9.9m profit), and after statutory finance expenses of £2.1m (2018: £1.7m), statutory loss before tax was £14.7m (2018: £8.2m profit), giving a statutory loss per share of 25.4p (2018: 11.6p earnings). The statutory tax charge was £4.0m, compared with a tax credit in 2018 of £0.3m, as the prior year benefited from a reduction in deferred tax liabilities from the introduction of lower tax rates in the US. A reconciliation of statutory to underlying non-GAAP financial measures is provided on page 127.

5 Proforma unaudited adjusted profit is defined as profit before all exceptional items and after adding back the proforma unaudited exceptional price concessions on exit from the mid-volume automotive business.

6 Underlying profit is defined as profit before all exceptional items, excluding the proforma unaudited exceptional price concession on exit from the mid-volume business.

 Net debt

Net debt at the end of the year was £38.5m (2018: net debt of £31.5m). Operating activities generated cash of £1.8m (2018: £3.5m) as the move into mid-volume production resulted in a working capital build of £2.9m, mainly in relation to design, development and tooling programmes in the LED Technologies Division.

In the year, the Group invested £7.0m (2018: £9.1m) in property, plant and equipment, and software, mainly in relation to plant and machinery to support new programme wins in the CTP Division. This represented 126% of the total Group depreciation charge.

Pension contributions totalled £1.7m (2018: £1.9m), being £1.2m of deficit recovery payments and £0.5m in relation to scheme administration costs.

At the year end, total UK bank facilities were £47.0m of which £30.0m related to a revolving credit facility and £17.0m to an overdraft facility. £44.0m was drawn at the year end. The medium-term multi-currency revolving credit facility which was due to expire in March 2020 has been extended post year-end to 31 January 2021. £2m of the overdraft facility expired on 1 July 2019, as tooling payments were received from customers, with the overdraft facility reduced by a further £5m, to £10m, in September 2019 due to the reduction in net debt as a result of the cash received from Wipac's customers for design and development programmes.

Under the bank facility agreement, the Group's bank holds security in the form of guarantees from certain Group companies and fixed and floating charges over the current assets of the Group's three main UK trading subsidiaries.

The two main covenants in the facility agreement are underlying interest cover and the ratio of net debt to underlying EBITDA. The interest cover covenant was met at 31 March 2019. The net debt covenant was deferred to July 2019 and has subsequently been waived as part of the facility extension but had the covenant been tested at 31 March 2019, net debt would have been 2.74 times proforma unaudited adjusted EBITDA (which is aligned to how the covenants will be tested going forwards) against the covenant of 2.75 times. As part of the extension of the revolving credit facility, two new covenants have been included from 30 September 2019 in relation to guarantor revenue and guarantor EBITDA and existing covenants have been reset in line with the updated forecasts.

Pensions

The deficit on the Group's pension scheme, which has been closed to future accrual, moved from a deficit of £29.8m at 31 March 2018 to a deficit of £49.1m at 31 March 2019. The movement resulted from an increase in liabilities as the AA corporate bond rate has fallen and longevity has increased as a result of an updated mortality study, as well as the requirement to account for guaranteed minimum pension ('GMP') benefit equalisation. This was partially offset by strong performance from our return-seeking assets and liability-driven investment.

In October 2018, the High Court handed down a judgement involving the Lloyds Banking Group's defined benefit pension schemes. The judgement concluded that pension schemes should be amended to equalise pension benefits for men and women in relation to guaranteed minimum pension benefits. The impact on the Group's scheme has been to increase liabilities by 1.68% or £3.6m which has been classified as an exceptional item in the income statement.

During 2019, the Group paid total contributions of £1.7m (2018: £1.9m), including scheme administration costs of £0.5m and £1.2m deficit recovery contributions.

The last triennial actuarial valuation as at 31 March 2015 showed the scheme to be 80.3% funded on a continuing basis.

The next triennial valuation as at 31 March 2018 was due to be finalised by 30 June 2019 but discussions regarding the assumptions and the level of contributions are still ongoing. A revised schedule of contributions has been agreed as follows:

2020: £2.0m including expenses

2021: £2.3m for 10 months to 31 January 2021, including expenses.

These are to be paid in monthly instalments. Contributions for the period after 31 January 2021 will be agreed as part of finalising the actuarial valuation.

Treasury

The Group faces currency exposure on its overseas subsidiaries and on its foreign currency transactions.

Each business hedges significant transactional exposure using forward foreign exchange contracts for any exposure over £20,000. The Group reports trading results of overseas subsidiaries based on average rates of exchange compared with sterling over the year. This income statement translation exposure is not hedged as this is an accounting rather than cash exposure and as a result the income statement is exposed to movements in the US dollar, Euro, Czech Koruna and Indian Rupee. Based on the 2019 results, a 10% increase in the value of sterling against these currencies would have increased reported loss before tax by £1.5m.

The Group is exposed to interest rate fluctuations and with net debt of £38.5m, a 1% movement in interest rates would impact the interest costs by £0.6m.

Dividend

Given the level of net debt, no dividend payment was made during the year and none is proposed. The Board intends to recommence dividend payments only when it becomes confident that a sustainable and regular dividend can be introduced.

Alternative Performance Measures

In the analysis of the Group's financial performance and position, operating results and cash flows, alternative performance measures are presented to provide readers with additional information. The principal measures presented are underlying measures of earnings including underlying operating profit, underlying profit before tax, underlying profit after tax, underlying EBITDA and underlying earnings per share.

The annual report includes both statutory and adjusted non-GAAP financial measures, the latter of which the Directors believe better reflect the underlying performance of the business and provides a more meaningful comparison of how the business is managed and measured on a day-to-day basis. The Group's alternative performance measures and KPIs are aligned to the Group's strategy and together are used to measure the performance of the business and form the basis of the performance measures for remuneration. Underlying results exclude certain items because if included, these items could distort the understanding of the performance for the year and the comparability between the periods. A reconciliation of the Group's non-GAAP financial measures is shown on page 127.

After the year end, the strategic decision was taken to exit from the mid volume automotive business. As part of this exit process, one-off price concessions totalling £7.1m were given on certain mid-volume contracts. An additional performance measure, "proforma unaudited adjusted profit" is given which is defined as profit before exceptional items and before the proforma unaudited exceptional price concession on exit from the mid-volume automotive business. The Directors believe that disclosure of this additional performance measure is useful to aid understanding of the performance of the business excluding the impact of the strategic decision taken to exit from this sector.

We provide comparatives alongside all current year figures. The terms 'underlying' and 'proforma unaudited adjusted' are not defined under IFRS and may not be comparable with similarly titled measures used by other companies.

All profit and earnings per share figures in this annual report relate to underlying business performance (as defined above) unless otherwise stated. A reconciliation of underlying measures to statutory measures is provided below:

The adjustments comprise:

(1) The taxation adjustment comprises the write down in the UK deferred tax asset of £2.9m and (£0.1m) of other items.

Directors' review of the principal risks faced by the Group

The Board is responsible for determining the nature and extent of the risks it is willing to take in delivering the Group's strategy. The Board undertakes risk management to improve understanding of the actual and potential risks to our business as well as its resilience, performance, sustainability and success, to enable it to assess and respond to new opportunities as they arise and to provide fair and balanced information to shareholders and potential shareholders.

The Board has carried out an assessment of the principal risks facing Carclo plc, including those that would threaten its business model, future performance, solvency or liquidity. This report details these risks and explains how they are being managed or mitigated.

The Board is responsible for creating the framework for the Group's risk management to operate effectively. This risk management framework includes risk assessment, response, communication and governance. The Board is also responsible for ensuring that appropriate and proportionate resources are allocated to risk management activities.

When assessing risk, the Board considers both external (arising from the environment in which we operate) and internal factors (arising from the nature of our business and its internal controls and processes.)

Management takes ownership of the specific risks with the likely causes and effects recorded within the risk register. These are maintained and challenged at site level. The risks are scored based on likelihood and severity to enable the significant risks to be readily identified and the appropriateness of mitigations considered. The risk registers are reviewed, challenged and debated to keep them up to date and relevant to our strategy. Risks are escalated as appropriate.

During the year all the key risks identified by the sites were evaluated with the fifteen highest scoring risks reviewed in detail at the Finance & Risk Management Committee. This Committee then proposed the risks that it considered key to the running of the business for evaluation at the Main Board meeting.

The Board carried out a review of effectiveness which concluded that, whilst the risk management process had been in place during the year and was operating as documented, it had failed to highlight the risk factors that led to the significant operational and financing issues in the LED Technologies Division.

The effectiveness of the process is under review. A standing risk schedule will now be included in the Board meeting papers which details the key risks currently identified alongside their mitigations and status of actions. This also includes emerging risks as identified at Group Steering Committee, Finance & Risk Management Committee and Board meetings and instances of incurred losses against identified risks to enable assessment of the appropriateness of the mitigations.

The efficiency and effectiveness of existing internal controls will continually be challenged to improve the risk management framework.

The responsibilities of the Audit Committee are explained on pages 38 and 39. These responsibilities include the reviewing of the Group's risk management systems. These are primarily designed to mitigate risk down to an acceptable level, rather than completely eliminate the risk, and the review can provide only reasonable and not absolute assurance of effective operation, compliance with laws and regulations and against material misstatement or loss.

The Group's management is responsible for the identification, assessment, management and monitoring of risk and for developing, operating and monitoring the system of internal control. The Audit Committee receives reports from management on the effectiveness of those systems it has established.

Listed below are the most significant risks that may affect our business, although there are other risks that may occur and impact the Group's performance.

Funding and banking covenants

Medium term committed bank facilities have been agreed which include a number of financial covenants which are normal for facilities of this type. The facilities were due for renewal in March 2020 but have been extended to 31 January 2021.

The net debt to EBITDA covenant test due on 31 March 2019 was deferred by the bank to July 2019, but had it been tested, the ratio would have been 2.74x compared with the required 2.75x. The covenant tests for the period after the year-end have been renegotiated with the bank as part of the facility extension and are expected to be met, although with limited headroom.

The Group also had a UK overdraft facility of £17m of which £13.7m was drawn at the year-end. This facility reduced to £15m in July 2019 and to £10m in September 2019 as tooling receipts were collected from customers. This, by its nature, can be withdrawn at any time and whilst HSBC has indicated their continued support, further discussion of the risk of funding withdrawal is given in the Directors' Report.

Operational execution risk

Poor operational performance could lead to increased costs, reduction in margins, late deliveries and customer service issues, putting pressure on results and cash flows. Good progress has been made in the Technical Plastics Division with management changes and a focus on operational excellence and cash generation having an impact. The Wipac operational improvement measures implemented after the year end have also started to have some limited effect, although Wipac still remains reliant on customer support for its funding needs.

Along with the strengthened management team, improved operational KPIs have now been put in place in CTP which enable better monitoring and early identification of potential issues.

Reliance on major customers

The proportion of revenues generated from the top five customers in the year was 47.3% (2018 - 48.3%). One medical customer accounted for 17.2% of revenues (2018 - 17.6%) and one supercar customer accounted for 13.1% of revenues (2018 - 16.2%). No other customer accounted for more than 10.0% of revenues in the year or prior year. Following any disposal of Wipac, the significance of the medical customer will increase.

Our policy has been to focus on major customers who are blue-chip multi-nationals operating in the medical, electronics, automotive and aerospace markets. Focusing on these key customers brings significant opportunities to develop in low cost regions and enhance the customers' products through our own technologies.

The position of having a small customer base can be attributed to a number of factors, including efforts being concentrated on gaining and building relationships with major companies. Globalisation and customer acquisition policy has also meant that across the Group we are increasingly dealing with different trading arms of the same global entity. We have made acquisitions in recent years to assist in expanding our major customer base.

One risk of relying on a small customer base is the potential impact to the Group of losing either current or future business as a result of our underperformance. We aim to mitigate this risk by a focus on customer service and operational performance.

There does remain an associated risk in the potential loss of such customers either through competitive pressures, relocation or insolvency. Such risks are mitigated through being able to offer world-class quality and costs, flexibility in manufacturing location and, in the case of insolvency, through the application of credit insurance across the Group.

The level of bad debts experienced in the year under review, and the prior year, were negligible.

Reliance on major projects

Carclo is reliant on the timing of and completion of longer-term tooling and manufacturing contracts as awarded by our customers. Whilst Carclo has a strong track record of securing these contracts - delays can affect the timing of profit recognition (in respect of which financial year it relates to) and related cashflows. In the automotive business, higher volume customers typically pay for the cost of design and development work over the initial production schedules, giving rise to a significant investment in working capital. This risk would decrease significantly following any disposal of Wipac.

We attempt to mitigate these risks by working closely with our customers and suppliers, and also by growing the percentage of product sales as a proportion of total sales, enabling us to place less reliance on tooling programmes.

Management bandwidth

From January to September 2019, the Group was operating without a permanent Chief Executive, with the Chairman, Mark Rollins, acting as an Executive Chairman and the Group Finance Director, Sarah Matthews-DeMers taking on the remaining tasks. To supplement the resource and experience available, in May 2019 the Group appointed a Chief Restructuring Officer, Antony Collins, who has now been appointed as the interim Group Chief Executive and joined the Board with effect from 1 October 2019. As announced on 25 September 2019, following the resignation of Sarah Matthews-DeMers, Ed Watkinson has been appointed Group Finance Officer Designate. The Group is also supported by its advisers.

Pensions

Carclo's UK defined benefit pension scheme is mature and is large compared with the size of Carclo. The scheme is backed by substantial assets amounting to £166.3m at 31 March 2019 (2018 - £170.1m).

The triennial actuarial pension valuation as at 31 March 2018 is now overdue, with the recent challenges faced by the Group as a result of the ongoing operational problems at Wipac, likely to lead to the pension trustees adopting a more conservative set of future actuarial assumptions. The pension deficit, and hence the required annual deficit recovery payments are therefore expected to increase once the valuation is finalised. Whilst the current expectation, through discussions with the Pension Trustee, is that the Group will be able to fund these increased contributions, their level has not yet been finalised and the risk therefore remains that the contributions might be in excess of the Group's funding capacity. An agreement has been received with the trustees to limit the contributions until January 2021 at £225,000 per month, including expenses.

Agreement of an affordable schedule of contributions for the period after January 2021 is critical to the Group's ability to continue to operate within its available bank facilities.

Small adjustments to the assumptions used to calculate the pension liability, or significant swings in bond yields or stock markets, can have a large impact in absolute terms on the net assets of the Company and Group. A decrease in the discount rate by 0.25% per annum (i.e. 2.40% to 2.15%) would increase the scheme liabilities by 3.60% i.e. £7.8m. An increase in the rate of inflation by 0.25% per annum (i.e. 2.20% to 2.45%) would increase the scheme liabilities by 2.00% i.e. £4.3m. An increase in life expectancy of 1 year would increase the scheme liabilities by 3.8% i.e. £8.2m.

The impact of the pension deficit on the level of distributable reserves is monitored on an on-going basis. Monitoring improves planning for any potential adverse swings and helps the Group to assess the likely impact on distributable reserves. The development of an investment strategy that seeks to mitigate risk (utilising diversified growth funds and liability driven investments) has restricted volatility to some degree.

In addition, the Group and the trustees continue to explore liability management possibilities (including Enhanced Transfer Values) with assistance from our advisers. These are designed to allow certain members to leave the scheme which reduces the uncertainty for the Group.

In addition, the Group has in recent years offered eligible pensioners the option to switch from a pension with indexed linked pension increases to a higher fixed pension with no future increases.

Further details can be found in note 22 of the report and accounts.

Global economy

It is inevitable that for a global entity such as Carclo international events outside of our control will leave us potentially exposed to volatility and insecurity both in respect of our own business and the customers served by the Group and this raises the risk profile for all businesses.

Carclo has high operational gearing and a large risk currently faced by the Group remains a sharp reduction in demand should global economic output reduce. Carclo serves a number of markets, such as medical and supercar markets, which have remained mostly detached from general consumer activity and as such have, to date, been comparatively unaffected by the uncertainty in global demand. However, should these markets be impacted then Carclo has a proven track record of acting swiftly to rebalance the supply base with demand.

Growth is inevitably impacted by a number of factors outside our control, such as the impact of the oil price on the energy market and the volatility in markets. Our focus on major blue-chip multinationals together with appropriate contingency planning, helps to mitigate the impact on the business of such changes and events.

Political uncertainty including 'Brexit'

Political uncertainty such as the impact of Brexit and other overseas trade issues such as US trade tariffs can naturally affect decisions by our customers to invest and therefore impact on our trading.

We have a central team in place to review and assess the impact as more information becomes available and we are engaging with trade associations which are in contact with government.

Whilst we continue to monitor and review competitive intelligence, we continue to focus on cost efficiency opportunities and on further differentiating our business by developing new growth plans and developing our ability to provide a stronger product for our customers.

Ultimately Carclo will be able to continue to trade with member states and the Group will take guidance on any new trading regulations when the UK exits the European Union. As the Group operates in some countries which are outside of Europe and the EU this should help lessen any impact or disruption caused by an exit. In addition, approximately two thirds of Carclo's UK based businesses' revenues are derived from the UK, which further lessens the impact of the risk.

Discussions have been held with a number of customers in relation to stock builds in advance of Brexit and impact on the supply chain. Plans are also being discussed to supply some of the UK entity's European customers from our plant in the Czech Republic.

IT security breach / system failures

Hacking and data security are an increasing concern for businesses. In Carclo's case it being a listed company, introduces real risk. We trust our IT systems to process a significant number of transactions each day. These systems contain highly confidential information about our customers, employees and shareholders. Breaches of IT security may result in unauthorised access to or loss of confidential information.

An IT security breach may lead to loss of business, reputational damage, litigation and regulatory investigation and penalties.

A breakdown or system failure may lead to major disruption for the businesses within the Group especially if network access is lost. The impact could have significant operational and financial ramifications if connection is unable to be restored quickly.

Carclo uses a security password protected firewall to help minimise the risk of fraudsters hacking into the system and maintains up to date antivirus solutions. In addition, IT management perform regular risk reviews to help keep data secure. In an ever-changing environment this serves to protect the information that we are entrusted with.

The business has a defined Disaster Recovery ("DR") procedure assisted by a third-party support company. DR tests are performed annually, and a successful test was performed in February 2019. As part of a rolling programme for IT improvements, a proof of concept solution is being built that will reduce our dependency on tape backups and improve response time should a DR event occur. Once proven this solution will replace the requirement for the third-party support company and shorten a DR events downtime. The same DR solution will improve business continuity for the finance system. Working with our communications partners we are replacing our MPLS network over the coming year to improve network resilience and increase network bandwidth.

Viability Statement

The Board has assessed the viability of the Group over a fifteen-month period taking account of the Group's current position and the potential impact of the principal risks as documented above.

A robust assessment of the principal risks facing the business was conducted including those that would threaten its business model, future performance, solvency or liquidity, along with a detailed review of the budget for the year ending 31 March 2020 and the forecasts for the year ending 31 March 2021.

As discussed in the going concern assessment, there are a number of contingent events that have the potential to impact the Group's operations and available funding. With this in mind, the Board has concluded that it is appropriate to perform the Group's viability assessment over the period to January 2021 which is in line with date to which the Group has a committed facility agreed with the bank and agreed contributions to the pension scheme. The Board has then considered whether it is aware of any specific relevant factors beyond the fifteen-month horizon and concluded that there are none except for those disclosed below.

The Board has undertaken a detailed review of the Group's current financial position and considered a number of risks including:

·; Reduction in available funding and ability to meet banking covenants

·; Operational underperformance

·; Reliance on major customers and major projects

·; Ability to fund ongoing pension contributions

·; Deterioration in the current macroeconomic environment, foreign exchange rates and uncertainty due to Brexit

The risks and their mitigations are described above on pages 19 to 22.

The assumptions on which the forecast is based include:

·; Disposal of Wipac

·; Suppliers continue to offer normal credit terms

·; Customers continue to pay invoices to terms

·; New sales programmes ramp up as forecast

·; Capital investment projects complete on time and on budget

The longer-term future of the Group is dependent on:

·; Availability of adequate bank funding post January 2021

·; Agreement of affordable pension contributions post January 2021

Financial sensitivity modelling was undertaken to assess the impact of these risks on the Group's forecasts, including the impact on the business model, future performance, solvency and liquidity over the period. As disclosed in the discussion of the going concern assessment on pages 30 and 31, the impact of a material reduction in cash flows from any of the above scenarios could impact on the Group's ability to meet banking covenants and operate within the available bank facility in the short term. In addition, the Group will need to agree adequate bank facilities and affordable pension contributions once the current bank and pension agreements expire in January 2021.

The Board has concluded that there is a material uncertainty related to events or conditions that may cast significant doubt on the entity's ability to continue as a going concern and that it may therefore be unable to realise its assets and discharge its liabilities in the normal course of business. However, subject to the successful disposal of the Wipac business in the near-term or, in the absence of this, to appropriate actions being taken to protect the Group from Wipac's underlying losses and subject to the ongoing support of the Group's lending bank, the Group should be able to continue in operation and meet its liabilities as they fall due over the period considered.

Social Responsibility Report

The Board considers that it is paramount that the Group maintains the highest ethical and professional standards throughout all its undertakings and that social responsibility should remain a key tenet of operations and decision making. It understands the importance of managing the impact that the business can have on employees, customers, suppliers and other stakeholders and feels this impact should be regularly reviewed to maintain constant improvement, which in turn supports the long-term performance and sustainability of the business.

Our focus is to embed the management of these areas into our business operations, both managing risk and delivering opportunities that can have a positive influence on our business.

During the year there have been no prosecutions, fines or enforcement action as a result of non-compliance with safety, health or environmental legislation.

Social Responsibility Committee

We have established a Group Social Responsibility Committee. This Committee, which is chaired by the Group finance director and includes the Group company secretary and responsible employees from subsidiaries, drives the Group's actions in the fields of global social responsibility, health and safety, bribery and corruption, environmental and climate change policies, charitable support, equality and human and labour rights, whistleblowing and supply chain labour standards. The Committee has been allocated a budget by the Group for use in charitable pursuits.

Employees

The Group places considerable value on the involvement of its employees and has continued to keep them informed on matters affecting them as employees and on various financial and economic factors affecting the performance of the Group.

The Group regularly updates its employment policies and all employees have been issued with a staff handbook to keep them up to date with information relating to their employment.

The Group operates and is committed to a global policy of equality that provides a working environment that maintains a culture of respect and reflects the diversity of our employees. It is absolutely committed to offering equal opportunities to all people regardless of their sex, nationality, ethnicity, language, age, status, sexual orientation, religion or disability.

We believe that all employees should be able to work safely in a healthy workplace without fear of any form of discrimination, bullying or harassment.

We believe that the Group should demonstrate a fair gender mix across all levels of our business. At 31 March 2019 29% of our employees identified as female (2018 - 29%). The proportion of women in senior management positions amounted to 10% (2018 - 10%).

Our diversity encompasses differences in ethnicity, gender, language, age, sexual orientation, religion, socio-economic status, physical and mental ability, thinking style, experience and education. We believe that the wide array of perspectives that result from such diversity promotes innovation and business success. We operate an equal opportunities policy and provide a healthy environment which will encourage good and productive working relationships within the organisation.

Development

We continue to invest in the development of all our employees, through both an informal and formal route. Assessment of individual training needs is a key element of the annual appraisal process.

We regularly recruit apprentices. Commitment to our apprenticeship programme continues globally with apprentices spread over 5 countries and a number of different disciplines.

Ethical policy

Following the enactment of the Bribery Act 2010, we have codified our Ethical Policy confirming our commitment to not tolerating bribery, corruption or other unethical behaviour on the part of any of our businesses in any part of the world. Compliance with the act has been a priority for the Group and the policy provides guidance and instruction to employees and training has been performed in all areas of the business to ensure that it is complied with.

Environmental policy

It is the Group's policy to seek continually to eliminate and, where this is not practicable, to minimise negative environmental impacts from the pursuit of its various business interests whilst continuing to produce high quality products to its customers' requirements.

It is the Group's policy to comply with all statutory environmental legislation as a minimum and to aim to improve upon the standards set by the local regulatory authorities. To this end, each subsidiary is audited by the Group's outsourced health, safety and environment manager to:

·; benchmark performances across the Group;

·; help sites identify and prioritise issues for improvement;

·; ensure legal compliance.

The results of audits are communicated directly to the Group steering committee and to all subsidiary boards and appropriate action is taken.

It is the Group's policy to foster an informed and responsible approach to all environmental concerns and it encourages the involvement of employees, customers and suppliers. Regulatory authorities are consulted and informed at all appropriate times.

The Group continues to support long term strategies to minimise, reuse and recycle packaging through its membership of Valpak, a not for profit organisation through which a large number of businesses work together to recover and recycle packaging.

Health and safety

A comprehensive health and safety policy is in place to ensure a safe working environment at all times with a plan to ensure that all facilities in all countries meet the requirements of the most exacting location. The health and safety policy also demonstrates our additional responsibility to customers, suppliers and contractors and we maintain communication of the policy at all levels throughout the Group.

Global social responsibility

Carclo is a global company, which drives for sustainable growth in partnership with local communities and we take our responsibilities towards those communities to maintain an ethical supply chain seriously. With full control over our manufacturing facilities in low cost regions we commit to be a responsible supplier and ensure that we at least meet local social expectations.

Community involvement

We encourage our businesses to support their local communities through charitable support and education initiatives. We are committed to developing future talent and fully support apprentice schemes and graduate employment.

We fully support the Indian government's Corporate Social Responsibility ("CSR") scheme via our facility in Bangalore. In recent years we have funded the planning, design and construction of a multi-use building in a local village, bio-toilets at 3 schools, classroom buildings and a dormitory building at a further 2 schools. This year after analysing the requirements of the local villages it was determined that the waste management system needed improving. As a result, we have paid for and installed decomposer equipment to reduce the waste management of 7 local villages by processing the wet waste collected from the houses.

Greenhouse gas emissions

The Group is required to report its annual greenhouse gas ("GHG") emissions pursuant to the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013 ("Regulations"). We have collated data during the year to 31 March 2019 and are reporting emissions for this period to coincide with the Group's financial reporting period.

The tables below set out the Group's global emissions in tonnes of carbon dioxide equivalent (tCO2e) for the year under review:

GHG emissions data for reporting year 1st April 2018 to 31 March 2019

Year on year comparison - location-based methodology

We have reported on all the emission sources required under the Companies Act 2006 (Strategic Reports and Directors' Reports) Regulations 2013. These sources fall within our consolidated financial statements. We do not have responsibility for any emission sources that are not included in our consolidated statement.

The method we have used to calculate GHG emissions is the GHG Protocol Corporate Accounting and Reporting Standard (revised edition), together with the latest emission factors from recognised public sources including, but not limited to, Defra, the International Energy Agency, the US Energy Information Administration, the US Environmental Protection Agency and the Intergovernmental panel on Climate Change.

An operational control methodology has been used to identify material emissions sources. Data has been collated from source documentation or, where this has been impracticable, using estimates. Calculations of emissions for the period have been made using third-party, specialist software and have undergone third-party quality assurance.

To enable meaningful comparison of GHG emissions across periods an intensity ratio has been determined based on Group revenues. Strategic Report signed on behalf of the Board

Mark RollinsChairman31 October 2019

Glossary

Directors and Advisers

Chairman's Introduction to Corporate Governance

The statement of corporate governance practices set out on pages 34 to 56, including the reports of Board Committees, and information incorporated by reference, constitutes the Corporate Governance Report of Carclo plc.

DEAR SHAREHOLDER

On behalf of the Board, I am pleased to present Carclo plc's Corporate Governance Report for the year ended 31 March 2019. This report seeks to provide shareholders and stakeholders with a clear understanding of how we discharge our governance duties and apply the principles of good governance set down in the UK Corporate Governance Code ('the Code').

Since joining the Board in 2018, I have observed the Board's desire to maintain appropriate standards of corporate governance throughout the Group. The Board is fully supportive of the principles laid down in the Code and continues to review its systems, policies and procedures that support the Group's sustainability and governance practices.

We acknowledge that good governance is fundamental to the success of the Group and it is woven into the strategy and decision-making processes throughout the business. The tone from the top is cascaded from the Board to the Executive Team and out to the business. The composition of the Board is routinely assessed to ensure that we have a diverse balance of skills, experience and knowledge required to achieve our strategic goals. Board succession planning is an important element of our corporate governance regime and procedures are in place to attract, assess and develop Board and Executive Team talent. The Board embraces widening diversity in terms of background, ethnicity, age, experience, gender and perspective and it ensures that all appointments are made on merit alone.

As in prior years, an internal evaluation of the Board and each of its Committees has been undertaken. The conclusions from the evaluation confirmed that the Board continues to function effectively as a whole and in Committee, and that all Directors properly discharge their duties. The Board also identified areas to focus on improvement in the coming year. In line with best practice, consideration is being given to undertaking next year's evaluation using an external consultant.

As in previous years all directors are proposed for election or re-election at each Annual General Meeting of the Company.

We remain cognisant of the strong relationship between ethics and governance and the role the Board plays in demonstrating ethical leadership. Further information on ethics is contained in our Social Responsibility report on pages 24 and 25.

From January 2019 to September 2019, I operated as an Executive Chairman until Antony Collins was appointed as interim Chief Executive on 1 October 2019. Consequently, I am grateful for the actions of Peter Slabbert as the Senior Independent Non-Executive Director in guiding the Board and providing constructive challenge to management ensuring an open culture of debate that contributes to creating and preserving value for our shareholders.

Our Corporate Governance Report is set out on pages 34 to 56 and incorporates the Audit Committee Report on pages 38 and 39, the Nomination Committee Report on page 40 and the Directors' Remuneration Report on pages 41 to 56.

This section of the Annual Report sets out how we manage the Group and comply with the provisions of the Code. Our Statement of Compliance with the UK Corporate Governance Code is set out on page 41.

Whilst the Group has functioned for the past few years without in-house specialist company secretarial skills, I am pleased to report that an experienced and dedicated Group Company Secretary was appointed on 2 October 2019 and I look forward to working with her over the next 12-18 months to take Carclo's corporate governance standards to a higher level during this time.

M RollinsChairman31 October 2019

Directors' Report

The Directors' report is required to be produced by law. Pages 30 to 33 inclusive (together with the sections of the Annual Report incorporated into these pages by reference) constitute a Directors' report that has been drawn up and presented in accordance with applicable law. The Directors' report also includes certain disclosures that the Company is required to make by the Financial Conduct Authority's Disclosure Guidance and Transparency Rules and Listing Rules.

Strategic report

The Strategic report required by the Companies Act 2006 can be found on pages 11 to 25. This report, together with the Chairman's statement on pages 6 to 9, sets out the Company's business model and strategy, contains a review of the business and describes the development and performance of the Group's business during the financial year and its position at the end of the year. It also contains on pages 19 to 22 a description of the principal risks and uncertainties facing the Group.

FCA's Disclosure Guidance and Transparency Rules

For the purposes of the Financial Conduct Authority's Disclosure Guidance and Transparency Rules (DTR 4.1.5R (2) and DTR 4.1.8R), this Directors' report, the Strategic report on pages 11 to 25 and the Chairman's statement on pages 6 to 9 together comprise the 'management report'.

Statement of corporate governance

The Statement of corporate governance on pages 34 to 37 provides the corporate governance statement required by the Financial Conduct Authority's Disclosure Guidance and Transparency Rules (DTR 7.2.1). The Statement of corporate governance forms part of this Directors' report and is incorporated into it by cross-reference.

Going concern

Net debt at 31 March 2019 was £38.5m, increasing from £31.5m at 31 March 2018. The increase was driven by capital investment and the profile of cash receipts from customers for ongoing design, development and tooling programmes and by the significant increase in production volumes in the LED Technologies division which absorbed working capital.

After the year end, net debt levels improved following the decision to exit three mid-volume programmes at Wipac as monies were received from customers in respect of the work done on the design, development and tooling for these programmes. By the end of August 2019, net debt, prepared on the same basis as at 31 March 2019, had fallen to £26.2m.

The Directors have prepared base and sensitised cash flow forecasts for a period in excess of eighteen months from the date of their approval of these financial statements. The Directors have also considered the debt facilities available to the Group which are disclosed in note 20 to the financial statements and comprise an overdraft of £15m and a £30m revolving credit facility maturing in January 2021, a period of fifteen months from the date of this report. The revolving credit facility, which at October 2019 is fully drawn, was due to mature in March 2020 but the term has been extended to January 2021. The overdraft facility was reduced to £10m at the end of September 2019, with headroom forecast to be at a sufficient level after this reduction in facility.

The net debt to underlying EBITDA banking covenant test at 31 March 2019 was deferred by the bank in advance of the year end. Had the covenant been tested net debt would have been 2.74 times proforma unaudited adjusted EBITDA (which is aligned to how the covenants will be tested going forwards) against a covenant of 2.75 times. Under the base case, the Group's financing is forecast to remain within the available facilities and covenants for at least the twelve-month forecast period.

The Board has considered two scenarios: a disposal of Wipac and retention of the business whilst the current level of significant customer support remains.

There are a number of uncertainties in relation to a disposal in relation to disposal proceeds and timing. In the event a disposal is not achieved the Board will pursue alternative options to protect the Group from the ongoing underlying losses of Wipac.

Whilst the business is retained, there are a number of assumptions that have been made in the forecast including:

·; Wipac customer support

Continued operation of Wipac depends on significant support from customers in the form of price surcharges and contributions towards tooling improvements and other operational improvement programmes. It also involves customers bearing their own emergency freight charges. All customers have signed up to this plan, although this is subject to review on a weekly basis and should any support be withdrawn, or should any customers choose to take production contracts elsewhere, this will have a material impact on Wipac's ability to continue in operation.

·; No contingent liabilities, including warranty claims, giving rise to a material cash outflow

No significant claims for exiting from the mid-volume programmes or in relation to the operational issues have been received. In addition, remaining customers have agreed not to charge any penalties or admin fees for missed or short deliveries. However, were this situation to change in the future, a contingent liability or claim could arise giving rise to a material cash outflow that could not be met in the normal course of business.

·; Continued bank support

The base case forecasts and bank covenants have been prepared on the basis that Wipac is disposed of. Should Wipac not be disposed of by the end of October, the bank facility agreement states that the covenants will need to be renegotiated by the end of November. Our base case cash flow forecasts assume a positive impact on the Group's financing position from the disposal process by March 2020. If this were not the case, and in the absence of significant cash inflows from any alternative options, it is likely that the 31 March 2020 covenant would be breached and would need to be renegotiated.

Other assumptions in relation to the remainder of the Group include:

·; Suppliers continuing to offer normal commercial credit terms

Certain credit insurers have removed cover on the Group. To date this has not had a material impact on the cash flows. The cash forecast assumes that suppliers continue to offer normal commercial credit terms. Any move to acceleration of supplier payments could impact on cash requirements.

·; Customers paying invoices to terms

Any significant delay in receiving payment could impact on headroom.

·; Ongoing trading performance

The CTP Division has won a number of new sales programmes which are due to start in the current financial year. Any delay in commencement or in the ramp up of forecast volumes or failure to deliver revenue and margin growth could reduce headroom, as could any material trading underperformance in the remaining businesses or loss of existing customers.

·; Capital investment projects completing on time and on budget

The CTP Division has won a number of new sales programmes which require capital investment. If this investment is not completed on time and on budget, there could be further cash requirements

·; Lenders continuing to offer the facilities described above

£30m of the bank funding relates to a committed facility in place until 31 January 2021. The remainder is an overdraft that is repayable on demand that has been reduced to £10m in September 2019. The base case cash flow forecasts and hence the going concern assessment have been prepared on the basis that the bank continues to extend a sufficient overdraft facility for the period to January 2021. 

·; Bank permission is required for the disposal of Wipac.Wipac is a guarantor of the Group bank facility and following disposal, the Group is reliant on the support of the bank to waive these cross-guarantees. Whilst the bank has indicated its support, there is no guarantee that this waiver will be granted.

Financial sensitivity modelling was carried out which assessed the impact of the risks noted above both individually and in aggregate on both headroom and bank covenants.

The Board concluded that in the event of any of these individual risks occurring and having a material impact on the forecasts, the Group would require the support of its lenders by way of additional overdraft facility or covenant waiver / deferral.

Based on their assessment, the Directors consider that there is a material uncertainty related to events or conditions that may cast significant doubt on the entity's ability to continue as a going concern and that it may therefore be unable to realise its assets and discharge its liabilities in the normal course of business. However, subject to the successful disposal of the Wipac business in the near-term or, in the absence of this, to appropriate actions being taken to protect the Group from Wipac's underlying losses and subject to the ongoing support of the Group's lending bank, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its financial statements.

Profits and earnings

The loss of the Group before taxation, after charging net interest of £2.1m (2018 - £1.7m), amounted to £14.7m compared with a profit of £8.2m for the previous year. After taxation the earnings per ordinary 5 pence share was a loss of 25.4p pence compared with a profit of 11.6 pence for the previous year.

Post balance sheet events

Following the year end, an announcement was made on 11 June 2019 regarding a change in strategic focus for Wipac, to exit from mid-volume contracts and refocus on low volume work.

A further announcement was made on 4 July 2019 that the Group has received a number of approaches from parties interested in the potential acquisition of Wipac, the main operating business in the Group's LED Technologies division. The Group has marketed the business and it is expected that a sale will be completed within the next year; the Wipac business is therefore classified as held for sale subsequent to the balance sheet date and no adjustments have been made to the financial statements in respect of this.

On 25 July 2019 the existing bank facilities were extended from 30 March 2020 to 31 January 2021. An agreement was also reached with the Pension Trustee regarding the level of contributions for the same period.

In September 2019, following receipt of payments for significant Wipac design and development programmes, the bank overdraft facility was reduced to £10m, leaving total facilities at £40m.

Share capital

At 31 March 2019, the Company's issued share capital comprised 73,419,193 ordinary shares of 5p each. Details of the changes in issued share capital during the year are set out in Note 26 to the accounts. The information in Note 26 is incorporated into this Directors' report by reference and is deemed to form part of this report.

Each share carried equal rights to dividends, voting and return of capital on the winding up of the Company as set out in the Company's articles of association. There are no restrictions on the transfer of securities in the Company and there are no restrictions on voting rights or deadlines, other than those prescribed by law or by the articles of association, nor is the Company aware of any arrangement between holders of its shares which may result in restrictions on the transfer of securities or voting rights.

Share capital authorities

The directors were granted a general authority at the 2019 annual general meeting (the "2019 AGM") to allot shares in the capital of the Company up to an aggregate nominal value of £1,211,417 (representing approximately 33% of the issued share capital prior to the 2019 AGM). This authority is due to lapse at the annual general meeting in 2020 (the "2020 AGM").

At the 2019 AGM the directors also requested authority to allot shares for cash on a non pre-emptive basis in any circumstances up to a maximum aggregate nominal amount of £183,548 (representing approximately 5% of the issued share capital prior to the 2019 AGM) and to purchase up to 10% of the Company's issued ordinary shares in the market but the requisite majorities for approval of these two resolutions were not achieved and these powers lapsed.

Change of control

There are no significant agreements to which the Company is a party that take effect, alter or terminate on a change of control following a takeover bid, nor are there any agreements between the Company and its directors or employees providing for compensation for loss of office or employment (whether through resignation, purported redundancy or otherwise) that occurs because of a takeover bid.

Amendment of articles of association

The Company's articles of association may only be amended by special resolution of the shareholders at a general meeting.

Appointment and replacement of directors

The Company's articles of association provide that the number of directors shall be not more than 12 and not fewer than 4, unless otherwise determined by the Company by ordinary resolution. Directors may be appointed by an ordinary resolution of the shareholders or by a resolution of the Board.

A director appointed by the Board during the year must retire at the first annual general meeting following his or her appointment and such director is eligible to offer him or herself for election by the Company's shareholders.

Additionally, the Company's articles of association provide that one-third of the directors who are subject to retirement by rotation shall retire from office at each annual general meeting. A director who retires at an annual general meeting may be re-elected by the shareholders. Notwithstanding these retirement provisions in line with the UK Corporate Governance Code and as permitted by the articles of association all directors retired and presented themselves for re-election at the 2019 AGM.

In addition to the statutory power, a director may be removed by ordinary resolution of the shareholders. The articles also set out the circumstances when a director must leave office. These include where a director resigns, becomes bankrupt, is absent from the business without permission or where a director is removed by notice signed by a requisite number of remaining directors.

Political donations and expenditure

No political donations were made, nor was political expenditure incurred during the financial year.

Financial instruments

Information on the Group's financial risk management objectives and policies and its exposure to credit risk, interest risk, liquidity risk and foreign currency risk can be found in Note 28. Such information is incorporated into this Directors' report by reference and is deemed to form part of this report.

Employment policies

The Group's policies as regards the employment of disabled persons and a description of actions the Group has taken to encourage greater employee involvement in the business are set out on page 24. Such information is incorporated into this Directors' report by reference and is deemed to form part of this report.

Greenhouse gas emissions

Information on greenhouse gas emissions required to be disclosed in this Directors' report is set out on page 25. Such information is incorporated into this Directors' report by reference and is deemed to form part of this report.

Substantial shareholdings

The Company had been notified under Disclosure Guidance and Transparency Rule 5 of the following major holdings of voting rights associated with its issued ordinary share capital as at the dates set out below:

Directors and directors' interests

The directors at the date of this Directors' report are listed on page 27. Chris Malley resigned from the Board as Group Chief Executive on 11 January 2019 and Sarah Matthews-DeMers resigned from the Board as Group Finance Director on 23 October 2019. No other person served as a director of the Company at any time during the financial year.

Additional information relating to directors' remuneration and interests in the ordinary share capital of the Company are included in the directors' remuneration report on pages 41 to 56.

Biographies of directors

Mark Rollins (Chairman)

Mark joined the Group as a Non-Executive Director on 1 January 2018. He became Chairman at the conclusion of the 2018 AGM and Executive Chairman on 11 January 2019. On the appointment of Antony Collins as interim Chief Executive Officer with effect from 1 October 2019, Mark resumed the role of Non-Executive Chairman. He is currently the Senior Independent Director of Tyman plc and the Non-Executive Chairman of Sigma Precision Components UK Limited. Previously, Mark was Group Chief Executive of Senior plc from March 2008 until his retirement in June 2015. He is a Chartered Accountant and joined Senior plc from The Morgan Crucible Company plc as a Divisional Finance Director in March 1998, before being appointed as Group Finance Director in July 2000.

Committees:  Nomination Committee (Chair)

Antony Collins (interim Chief Executive Officer)

Antony was appointed Chief Executive Officer on 1 October 2019, having previously been Chief Restructuring Officer from 30 May 2019. Antony has held a variety of roles as executive and advisor in listed and private equity companies. Having begun his career in the British Army, he became a director in PwC's Business Restructuring Division. He has an MBA from Manchester Business School and is a Member of the Institute for Turnaround.

Committees: None

Peter Slabbert (Senior Independent Non-Executive Director)

Peter was appointed a Non-Executive Director of the Company from 1 April 2015 and Chairman of the Audit Committee from that date. He was Chief Executive of Avon Rubber plc from April 2008 to September 2015. He joined Avon as Group Financial Controller in May 2000 and he was appointed Group Finance Director on 1 July 2005. A Chartered Accountant, Peter joined from Tilbury Douglas where he was Divisional Finance Director and Group Financial Controller. Prior to that, he worked at Bearing Power International as Finance Director.

Committees:  Audit Committee (Chair), Nomination Committee, Remuneration Committee

David Toohey (Independent Non-Executive Director)

David was appointed a Non-Executive Director of the Company from 1 April 2015. He has over 30 years' experience in international business, the last 20 of which have been in medical devices and the In Vitro Diagnostics industry. He has been Chief Executive Officer of Syncrophi Systems Limited since 2012. He joined Syncrophi from Alere Inc, where he spent 11 years in senior managerial roles, latterly as President of International Business Operations. He has held various Executive positions at Boston Scientific Corporation, Bausch & Lomb, Inc., Digital Equipment Corp. and Mars, Inc.

 Committees:  Audit Committee, Nomination Committee, Remuneration Committee

Joe Oatley (Independent Non-Executive Director)

Joe was appointed as a Non-Executive Director of the Company and the Chairman of the Remuneration Committee with effect from 20 July 2018. He is currently also a Non-Executive Director at Wates Group Limited. Previously he was Group Chief Executive of Cape plc from 2012 to 2017. Prior to joining Cape, he was Chief Executive of Hamworthy plc.

Committees: Remuneration Committee (Chair); Audit Committee; Nomination Committee

Directors' indemnities

The Company's articles of association permit the Company to indemnify any director or any director of any associated company against any liability pursuant to any qualifying third-party indemnity provision or any qualifying pension scheme indemnity provision, or on any other lawful basis. The indemnity provisions entered into by the Company in favour of all the directors were in force during the year and continue to be in force at the date the Directors' report is approved. The Company also takes out insurance covering claims against the directors or officers of the Company and any associated company and this insurance provides cover in respect of some of the Company's liabilities under the indemnity provisions.

Disclosure of information to auditor

In accordance with section 418(2) of the Companies Act 2006, the directors who held office at the date of approval of this directors' report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditor is unaware; and each director has taken all the steps that he ought to have taken as a director to make himself aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

Information required by LR 9.8.4R

There is no additional information required to be disclosed under LR 9.8.4R other than that disclosed in the Directors' Remuneration Report.

By order of the Board

Angie WakesSecretary31 October 2019

Statement of Corporate Governance

UK Corporate Governance Code

The Company remains committed to the highest standards of corporate governance for which the board is accountable. The Company has complied throughout the year with the main provisions of the 2016 UK Corporate Governance Code (the "2016 Code") issued by the Financial Reporting Council. The Company continues to maintain and review its systems, processes and policies to support its sustainability and governance practices. This statement, together with the directors' remuneration report, describes how the Company has applied the main principles of the Code.

The Financial Reporting Council published a revised code in April 2016 (the '2016 Code'), which took effect for companies with accounting periods beginning on or after 17 June 2016. We have taken into consideration the areas of change arising from the 2016 Code, which also reflect the implementation of the European Union's Audit Regulation and Directive. We have been mindful to consider how we comply not just with the principles of the Code but also the spirit of the Code and our report below reflects this assessment.

The board

Until 11 January 2019 the Board comprised the Non-executive Chairman, the Chief Executive, the Executive Finance Director and three other non-executive directors. On 11 January 2019 the Chief Executive resigned from the Board and the Chairman took over the responsibilities of being the Executive Chairman. On 1 October 2019 on appointment of the interim Chief Executive, the Executive Chairman returned to a non-executive role. On 23 October 2019, the Finance Director resigned from the Board. Under the Company's articles of association, all directors must offer themselves for re-election at least once every three years. However, in accordance with developing best governance practice, all directors normally seek re-election on an annual basis.

The biographies of all the directors appear on page 33.

The Chairman has primary responsibility for leading the board and ensuring its effectiveness. He sets the board's agenda and ensures that all directors can make an effective contribution. Since the Chairman took the role of executive chairman the senior independent non-executive director assists with these responsibilities. The Senior Independent Non-Executive Director has the power to add items to the agenda of full board meetings. Whilst the Group did not have a chief executive, the Executive Chairman had responsibility for all operational matters and the development and implementation of Group strategy approved by the board.

The Chairman and each non-executive director were independent on appointment and the board considers each non-executive director to be independent in accordance with the Code.

P Slabbert, as Senior Independent Non-Executive Director, is available to shareholders if they have concerns which have not been resolved through the normal channels of chairman or chief executive.

The board meets regularly (at least nine times each year) and there is contact between meetings to progress the Company's business. During the year, one in which the ongoing challenges faced by the Group resulted in a significant increase in the need for board meetings, attendance by directors at meetings of the board and its various committees was as follows:

Board meetings are held at subsidiary facilities at least twice a year. These visits include meeting with staff and attending presentations from management which enables particular focus on the regional considerations associated with implementation of the Group's strategy. In the 2019 financial year the visits were made to the LED Technologies facility in Buckingham and the Technical Plastics facility in Latrobe, USA.

The board has a formal schedule of matters specifically reserved to it for decision (including the development of corporate strategy and the approval of annual budgets, major capital expenditure and potential acquisitions and disposals). Briefing papers are distributed by the secretary to all directors in advance of board meetings. All directors participate in a full induction process on joining the board and subsequently receive training and briefing as appropriate including on social, environmental and ethical matters. The directors are authorised to obtain independent advice as required. The board evaluation process also considers specific training or development needs.

Conflicts of interest

Under the requirements of the Companies Act 2006 each director must seek authorisation before taking up any position that may conflict with the interests of the Company. The board has not identified any actual conflict of interest in relation to existing external appointments for each director which have been authorised by the board in accordance with its powers. A register is maintained by the company secretary and reviewed on an annual basis.

Board evaluation

This year the Senior Independent Non-Executive Director supervised an internal evaluation of the board's performance and that of its principal Committees. In addition, an evaluation of the performance of individual directors was undertaken.

The evaluation process was based on a series of questions devised for the purpose and circulated to the directors. The process reviewed issues such as: the assessment and monitoring of the Company's strategy; the monthly board meeting agenda and information flow, the evaluation of risk and social responsibilities including anti-bribery policies and environmental risks. There was also a review of the role and performance of the board Committees. The results of the evaluation were collated by the senior independent non-executive director and will form the basis of board objectives for 2019/20, including:

- refining the Group's technology strategy

- evaluating the linking of strategy to investment

- discussion of management and board succession

- refining the board's analysis of and response to corporate social responsibility matters

The Nomination Committee recognises the benefits to the Group of diversity in the workforce and in the composition of the board itself and supports the Davies Report's aspiration to provide a greater female representation on listed company boards. While the Company will continue to make all appointments based on the best candidate for the role, we will look to follow the procedures recommended by the Davies Report and by the Code when new board appointments are made.

Board Committees

The board has four Committees, Nomination, Remuneration, Audit and Disclosure all of which have terms of reference which deal specifically with their authorities and duties. The terms of reference may be viewed on the Company's website. All Committee appointments are made by the board. Only the Committee chairmen and members of the Committees are entitled to be present at Committee meetings, but others may attend by invitation.

Nomination Committee

The Nomination Committee comprises the non-executive directors and the Chairman. The Committee is chaired by the Chairman and is responsible for proposing candidates for appointment to the board, having regard to the balance and structure of the board. In considering an appointment the Committee evaluates the balance of skills, knowledge and experience of the board and prepares a description of the role and capabilities required for a particular candidate.

In the last year the full Committee has met four times to discuss succession planning and board performance.

Remuneration Committee

The Company has established a Remuneration Committee consisting entirely of independent non- executive directors. The Remuneration Committee met five times during the year and was chaired by Mark Rollins until Joe Oatley was appointed on 20 July 2018. Mark Rollins stepped off the Committee in January 2019 when he became Executive Chairman. The Committee recommends to the full board the Company's policy on executive director and executive management remuneration and continues to determine individual remuneration packages for executive directors. The Remuneration Committee is authorised by the board to obtain independent professional advice if it considers this necessary. The directors' remuneration report on pages 41 to 56 sets out the Group's remuneration objectives and policy and includes full details of directors' remuneration in accordance with the provisions of the Code.

The Remuneration Committee takes care to recognise and manage any conflicts of interest when receiving views from executive directors or senior management or consulting the executive chairman about its proposals.

Audit Committee

The Audit Committee comprises all the non-executive directors excluding the Group chairman and meets not less than three times annually. During the year the Committee was chaired by P Slabbert who, as a Chartered Accountant and being the former Group finance director of Avon Rubber plc until his appointment as chief executive in April 2008, has both recent and relevant financial experience. The Committee provides a forum for discussions with the Group's external and internal auditors. Meetings are also attended, by invitation, by the Chairman and Finance Director.

The Audit Committee has terms of reference which follow closely the recommendations of the Code and include the following main roles and responsibilities:

·; To monitor the financial reporting process.

·; To review the effectiveness of the Group's internal financial controls, internal control and risk management systems and internal audit function.

·; To review the independence and effectiveness of the external auditor, including the provision of non-audit services.

The Committee has reviewed whistleblowing arrangements whereby employees can report concerns about financial irregularities, health and safety and environmental or legal matters. A dedicated whistle-blower email address has been set up, details of which are included in new employee induction material and advertised at operating sites.

The Audit Committee assists the board in observing its responsibility for ensuring that the Group's financial systems provide accurate information which is properly reflected in the published accounts. It reviews half year and annual accounts before their submission to the board and reviews reports from the internal auditors and computer department. The Audit Committee report is set out on pages 38 and 39.

Disclosure Committee

The Disclosure Committee's responsibilities are to ensure that the Company's obligations to make timely and accurate disclosure of information in accordance with any applicable law or regulation are met in circumstances where it is impractical for the Board, or any other Board Committee with delegated responsibility, to fulfil those obligations. In accordance with these responsibilities, the Committee may make disclosures on behalf of the Board. The Committee will take advice, including as appropriate to the subject matter from the Company's broker, external auditor and legal advisors, on the form and content of any disclosure under consideration. The remit of the Disclosure Committee, its conduct and terms of reference have been considered in light of the Market Abuse Regulations, which came into effect during 2016. The Committee includes but is not limited to the Chief Executive, Executive Chairman, Finance Director and the Company Secretary with a quorum being any two members. The chairman of each Committee meeting will be appointed on an ad hoc basis. Should a decision not achieve a majority basis the executive chairman should be requested to provide a casting vote. Meetings of the Committee may be called by any member of the Committee on any period of notice, provided that notice is given to all members.

Certain operational and administrative matters are delegated by the board to the following executive Committees:

Group Steering Committee

The Group Steering Committee is chaired by the Chief Executive or Executive Chairman and comprises the executive directors together with the company secretary, selected managing directors from operating companies, the Group IT manager and the Group financial controller. The Committee met each quarter during the year and is responsible to the board for running the ongoing operations of the Group's businesses.

Finance, administration and risk management committee

The finance, administration and risk management committee is chaired by the Finance Director and comprises the Company Secretary, Group financial controller and Group project accountant. The Committee met at least monthly during the year and is custodian of the Group finance manual and is responsible for setting accounting and risk management policies and ensuring overall compliance with Turnbull guidance on internal controls.

Corporate Social Responsibility Committee

The Corporate Social Responsibility Committee is chaired by the Finance Director and comprises the Company Secretary and several other responsible employees from subsidiaries to enhance the global reach. The Committee drives the Group's actions in the fields of global social responsibility, health and safety, bribery and corruption, environmental and climate change policies, charitable support, equality and human and labour rights, whistleblowing and supply chain labour standards. The Committee has been allocated a budget by the Group for use in charitable pursuits.

Accountability and audit

Internal control

The board confirms that it has established procedures that provide for a continuous process for identifying, evaluating and managing the principal material business risks faced by the Group. This process has been in place throughout the year under review and up to the date of approval of the annual report and accounts. The process has been reviewed by the board.

For the year ended 31 March 2019, the board has reviewed the effectiveness of the Group's system of internal control and risk management, for which it retains overall responsibility. Responsibility for operating the system is delegated to the Group Steering Committee and responsibility for monitoring the system is delegated to the Finance, Administration and Risk Management Committee. The Audit Committee reviews the effectiveness of the Group's internal control system, the scope of work undertaken by the internal auditors and its findings, the Group's accounts and the scope of work undertaken by the external auditors. Reviews are undertaken regularly and cover each accounting year and the period up to the date of approval of the accounts.

The internal control system is designed to manage rather than eliminate the risk of failure to achieve business objectives. Although no system of internal control can provide absolute assurance against material misstatement or loss, the Group's system is designed to provide reasonable assurance that problems are identified on a timely basis and dealt with appropriately. The principal features of the Group's internal control structures can be summarised as follows:

a) Matters reserved for the board

The board holds regular meetings and has a number of matters reserved for its approval, including major capital expenditure, treasury and dividend policy. The board is responsible for overall Group strategy and for approving all Group budgets and plans. Certain key areas are subject to regular reporting to the board including treasury operations, capital expenditure, corporate taxation and legal matters. The Audit Committee assists the board in its duties regarding the Group's financial statements and liaises with the external auditors.

b) Organisational structure

There is a clearly defined organisational structure with lines of responsibility and delegation of authority to divisional executive management. Divisional responsibility is supplemented by a Group finance manual which dictates policies and practices applicable across the Group and includes accounting, purchasing, capital expenditure and codes of business conduct. These are reviewed by the internal auditor and are reported to the Audit Committee. This process forms part of the Audit Committee's review of the effectiveness of the Group's system of internal control.

c) Financial control and reporting

There is a comprehensive Group wide system of planning and budgeting with frequent reporting of results to each level of management as appropriate, including monthly reporting to the board. Reviews involving executive directors and divisional executives include the annual identification and assessment of business and financial risks inherent in each division.

d) Internal auditor

During the year Grant Thornton provided the outsourced internal audit function. The internal auditor reports to the Audit Committee and works to an agreed programme.

Relations with shareholders

The Company recognises the importance of communication with its shareholders. Regular meetings are held between directors of the Company and major institutional shareholders including presentations after the Company's preliminary announcements of the half year and full year results and discussions on performance and strategy. Major shareholders have been advised that the Chairman and the non-executive directors are available for separate discussions if required. The Chairman held meetings with several major shareholders during the year. The board uses the annual general meeting to communicate with private and institutional investors and welcomes their participation. Shareholders have the opportunity to raise questions with the board during the meeting. Directors also make themselves available before and after the annual general meeting to talk informally to shareholders, should they wish to do so. From the 2019 AGM, which was held on 25 September 2019 voting has been held on a Poll basis. Details of the resolutions proposed at the annual general meeting on 25 September 2019 can be found in the AGM circular.

Structure of the Company's capital

Details of the structure of the company's capital are set out in the directors' report on pages 31 and 32.

Approved by the board

on 31 October 2019

and signed on its behalf by

Angie Wakes

Secretary

Audit Committee Report

Annual statement by the Chairman of the Audit Committee

The Audit Committee has continued its detailed scrutiny of the Group's system of risk management and internal controls, the robustness and integrity of the Group's financial reporting and the scope, effectiveness and results of both the internal and external audit processes.

The key responsibilities of the Committee are:

·; to review the quality and acceptability of accounting policies and practices;

·; to keep under review the Group's financial and other systems and controls and financial reporting procedures;

·; to plan and scope the annual audit, receive audit reports and review financial statements taking account of accounting policies adopted and applicable reporting requirements;

·; to review the financial statements (half yearly and annual report) and advise the Board on whether they give a fair, balanced and understandable explanation of the Group's performance, business model and strategy over the relevant period;

·; to review the internal controls of the Group and monitor and review the effectiveness of the internal audit function;

·; to review and update the Company's risk management systems and the effectiveness of those systems;

·; to review and challenge actions and judgements of management in relation to financial statements;

·; to review significant legal and regulatory matters;

·; to review all matters associated with the appointment, terms, remuneration, independence, objectivity and effectiveness of the external audit process and to review the scope and results of the audit;

·; to review the Anti-Bribery Code and procedures and other policies relevant to financial security, compliance and business ethics;

·; to review the Committee's terms of reference and carry out an annual review of the performance of the Committee; and

·; to report to the Board on how the Committee has discharged the aforementioned responsibilities.

The Committee will continue to keep its activities under review in the light of developing regulations and best practice.

The Audit Committee is the body appointed by the Board with responsibility for carrying out the functions required by the Listing Rules DTR 7.1.3R.

Composition

The Audit Committee comprises all the non-executive directors excluding the Chairman and meets not less than three times annually. During the year in question the committee was chaired by P Slabbert who, being a Chartered Accountant and former group finance director of Avon Rubber plc, has both recent and relevant financial experience. The Board is satisfied that the committee as a whole has relevant sectoral competence as required by the Code. Other members also have relevant financial experience.

Meetings

Only audit committee members are entitled to attend a meeting. However, the Executive Chairman/Chief Executive, Finance Director and the external Audit Engagement Partner are normally invited to attend meetings.

Four meetings were held during the year, two of which were scheduled to coincide with the Board's review and approval of the Group's Interim Statement and of its preliminary results announcement based on the annual report and accounts. A section of at least two meetings during the period took place without management present.

Internal Control and risk management

The Group has an established system of internal control and a risk management framework that the Board considers appropriate in the context of the Group's reporting requirements and strategic objectives. Internal controls and risk management systems covering all material controls including financial, operational and compliance controls, are subject to internal and external audit and the outputs of the risk management process are actively challenged by the Board. On behalf of the Board, all these activities are periodically reviewed by the committee and their effectiveness assessed through oral and written reports from both internal and external auditors. A Risk Assurance Review is conducted annually by the full Board, in addition to a Risk Management and Internal Control Report Review.

The Board concluded that whilst the risk management process had been in place during the year and was operating as documented, it had failed to highlight the risk factors that led to the significant operational and financing issues in the LED Technologies Division and the effectiveness of this process is now under review.

Further details of the Group's risks and uncertainties together with the mitigating actions are set out on pages 19 to 22 of the annual report and accounts.

Internal Audit

The committee reviews annually the arrangements for internal audit and during the year appointed Grant Thornton UK LLP to provide the outsourced internal audit function. The internal auditor monitors and reports on the system of internal control and works to an agreed programme. The internal and external audit plans are set in the context of a developing assurance reporting process, are flexed to deal with any change in the risk profile of the Group and are approved by the committee. The internal audit programme will be reviewed in light of the recent changes to the Group's strategic focus.

Significant issues related to the financial statements

The Committee reviews accounting papers prepared by management that provide details of significant financial reporting issues, together with reports from the external auditor prepared in conjunction with the interim and full year results, and assesses the following, amongst other matters.

• the quality and acceptability of accounting policies and practices;

• the clarity of the disclosures and compliance with financial reporting standards and relevant financial and governance reporting requirements;

• material areas in which significant judgements have been applied or there has been discussion with the external auditor;

• whether the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

• any correspondence from regulators in relation to our financial reporting.

These matters are also discussed with the external auditor together with anything else that the auditor brings to the committee's attention.

In the year to 31 March 2019, such issues included the impact of changes in accounting standards and other financial reporting disclosures.

In addition to the above, the Committee supports the Board in completing its assessment of the adoption of the going concern basis of preparing the financial statements. The directors include a Viability Statement concerning the prospects of the Company, as required by section C.2.2 of the Code. During the financial year, the Committee reviewed the approach taken by the directors in preparing and reporting on the Viability Statement with due regard for wider market practice and developing guidance. As a result of that review, the Committee was satisfied that the approach adopted was appropriate. The Viability Statement for the 2019 financial year is included on pages 23 and 22.

The Committee also considered changes in corporate governance and the need for the annual report to be fair, balanced and understandable and to contain sufficient information on the Group's performance.

The significant judgements considered by the Committee where there was potential risk of material misstatement were:

• The IAS19 pensions position. The Company has a defined benefit pension scheme with liabilities of approximately £215.4m and assets of approximately £166.3m as at 31 March 2019. These numbers are sensitive to the main assumptions utilised to calculate the deficit or surplus on the scheme and the Audit Committee seeks confirmation that these assumptions are appropriate.

• The Group balance sheet value of goodwill. The balance of goodwill on the Group balance sheet as at 31 March 2019 is £23.1m and the Audit Committee seeks to gain assurance through the executive management's review of discounted cash flow analyses, particularly in the light of the reduction in market capitalisation in the year, that the impairments made in the year are appropriate.

• Recoverable amount of the LED cash generating unit. There has been a decline in the recoverable amount of the LED cash generating unit and the Audit Committee seeks to gain assurance, through the executive management's preparation and review of impairment models, that the impairments made in the year are appropriate.

• Going Concern. The Audit Committee supported the Board in its assessment of the adoption of the Going Concern basis of preparing the financial statements. As a result of that review, notwithstanding the material uncertainties that may cast significant doubt upon the ability to continue as a going concern, the Committee and the Board were satisfied that the approach adopted was appropriate.

Other areas of judgement reviewed by the Committee, but where it concluded there was not a risk of material misstatement included:

• Recognition of deferred tax assets. Deferred tax assets are only recognised to the extent that it is considered there are sufficient taxable profits against which to offset future tax deductions. No deferred tax assets have been recognised in the UK entities as the central costs are considered likely to offset the trading profits. The Committee agreed with this approach.

The Committee considered whether the 2019 Annual Report taken as a whole was fair, balanced and understandable and whether it provided the necessary information for Shareholders to assess the Company's position, performance, business model and strategy. The Audit Committee is satisfied that, taken as a whole, the Annual Report is fair, balanced and understandable.

External audit

The Committee has responsibility for making a recommendation on the appointment, re-appointment and removal of the external auditor. The external auditor's appointment is reviewed periodically, and the lead audit partner is rotated at least once every five years. KPMG LLP has been the Group's external auditor since September 2005. Whilst KPMG LLP will be proposed for re-appointment as auditor by shareholders at the General Meeting on 19 December 2019, the Group intends to hold a tender for audit services prior to the end of the financial year to 31 March 2020. KPMG LLP has indicated that it will not participate in this process.

The Committee reviews reports from KPMG LLP as part of the annual audit process. These cover the scope, approach and results of the external audit and include the procedures adopted for safeguarding the firm's independence and objectivity. The quality and content of these reports, together with the performance and behaviour of the audit teams during the exercise of their duties, inform the Committee's assessment of audit effectiveness.

The Committee has an established policy for determining the non-audit services that the external auditor can provide where justified on grounds of cost and related expertise and where not impacted by potential conflicts of interest. This allows the Committee to satisfy itself that auditor objectivity and independence are safeguarded. The analysis of audit and non-audit fees for the year to 31 March 2019 and the nature of the non-audit services provided appear in Note 5 on the accounts. Non-audit fees totalled £15,000 which is equivalent to 7% of the audit fees. No non-audit fees incurred in the year were considered to be significant. Since 31 March 2017 the auditor has only been permitted to perform non-audit work outside of the EU. Non-audit work outside of the EU is only awarded to the auditor in line with the non-audit services policy which requires approval in advance of all individual non-audit services with fees of £25,000 or more. No approval shall be given to any non-audit services prohibited under the amendments to UK Companies Act 2006 and the FRC Revised Ethical Standard 2016. Given the type of non-audit services provided, they are not considered by the Committee to affect the objectivity and independence of the external auditor.

As discussed above, KPMG LLP will be proposed for re-appointment as auditor by shareholders at the forthcoming General Meeting.

Peter Slabbert

Chairman of the Audit Committee

31 October 2019

Nomination Committee Report

The Nomination Committee is responsible for regularly reviewing the structure, size, diversity and composition of the Board.

This is to ensure that the Group has the right leadership, balance of skills and experience to deliver its strategy and enable the Board to effectively fulfil its obligations.

Composition

The Nomination Committee comprises all of the non-executive Directors. It is chaired by the Chairman, Mark Rollins. The Committee met on four occasions during the year.

Responsibilities

The Committee is responsible for regularly reviewing the structure, size, diversity and composition of the Board. It is also responsible for succession planning and identifying and recommending appropriate candidates for membership of the Board when vacancies arise. The Committee has applied the UK Corporate Governance Code provisions in developing the Group's policies on succession planning and appointments. In considering an appointment, the Committee evaluates the balance of skills, knowledge, independence and experience of the Board and prepares a description of the role and capabilities required for a particular appointment. Internal candidates are considered where appropriate.

During the financial year the Committee focused on Board succession and composition.

The Committee considered candidates in relation to the appointment of a new finance director following the departure of Robert Brooksbank, who served as a director for 14 years. It also considered candidates in relation to the appointment of a new non-executive director, following the retirement of Michael Derbyshire and his succession as chairman by Mark Rollins. In addition, candidates for the interim Chief Executive Officer and, after the year end, the interim Chief Finance Officer were considered by the Committee.

During 2018 and 2019 meetings of the Committee considered the Company's initiatives for succession planning, together with the training and development of employees with the ability to progress to senior positions in the Group. The Board recognises that these initiatives can lead to the appointment of internal candidates to key executive positions and thereby enable the Group to fulfil its strategic objectives.

The Nomination Committee also reviews the time required from each non-executive Director and any other significant commitments of the Chairman. The 2019 review found the non-executives' time commitments to be sufficient to discharge their responsibilities effectively. Based on recommendations from the Nomination Committee, Directors submit themselves for election at the AGM following their appointment and thereafter annually for re-election in accordance with good governance.

Boardroom diversity

The Board recognises the importance of diversity as an essential element in maintaining Board effectiveness and a competitive advantage. Diversity of skills, background, knowledge, international and industry experience, and gender will be taken into consideration when seeking to make new appointments to the Board and its Committees. All appointments will be made on merit, taking into account suitability for the role, composition and balance of the Board to ensure that the Company has the appropriate mix of skills, experience, independence and knowledge. In the year we have sought to increase the level of female representation on the Board which was achieved following the recruitment of Sarah Matthews-DeMers.

The Board will always consider suitably qualified applicants for roles from as wide a range as possible, with no restrictions on age, gender, religion, ethnic background or current employment, but whose competencies and knowledge will enhance the Board.

Directors' Remuneration Report

Annual Statement

Dear Shareholder

On behalf of the Board I am pleased to present the Directors' Remuneration Report (the "Report") for the year ended 31 March 2019.

The Report has three sections:

·; This Annual Statement, which summarises and explains the major decisions and changes in respect of directors' remuneration;

·; A summary of the Directors' Remuneration Policy (the "Policy") as approved at the 2017 AGM; and

·; The Annual Report on Remuneration, providing details of the remuneration earned by the Company's directors in relation to the year ended 31 March 2019 and how the Policy will be operated for the year to 31 March 2020.

Clearly, for reasons explained earlier in these Annual Accounts, Carclo did not achieve the anticipated financial performance during the 2018/19 financial year and the Remuneration Committee (the "Committee") were fully cognisant of this when making judgments as to past and future elements of Board remuneration. These judgments are summarised below.

Leadership changes

The Committee supported the work associated with the changes in Group leadership during the year.

On 20 July 2018 it was announced that I had joined the Board at which point Mark Rollins, who had replaced the retiring Mike Derbyshire as Chairman, resigned as chairman of the Remuneration Committee and I replaced him in this role.

As discussed in the Remuneration Report for the year-ended 31 March 2018, Sarah Matthews-DeMers joined the Group on 18 July 2018 to take the position as Group Finance Director. The principal terms of Sarah's remuneration were set out in the 2017/18 Directors' Remuneration Report and are further disclosed in this year's Annual Report on Remuneration. Sarah's remuneration package was consistent with the approved Remuneration Policy.

It was also announced, on 11 January 2019, that Chris Malley was stepping down from the Board with immediate effect to take on the role of LED Technologies Divisional Chief Executive and that, until a new Group Chief Executive was appointed, Mark Rollins would act as Executive Chairman. It was announced on 4 July 2019 that Sarah Matthews-DeMers would be leaving the Group towards the end of October 2019. On 25 September 2019 it was announced that Ed Watkinson had been appointed as Group Chief Finance Officer Designate and would take over on Sarah's departure, although Ed will not, at least initially, join the Board. On 25 September 2019 it was announced that Antony Collins would join the Board as Interim Chief Executive Officer from 1 October 2019. A summary of the principal terms of Antony's remuneration are set out on page 49. As an interim appointment, Antony receives a salary but no other benefits, which is not consistent with the policy for permanent appointments.

2018/19 financial year - performance and pay

Remuneration Alignment to Strategy: The Remuneration Committee believes in rewarding Carclo's executives based on their performance and the value created for the Group's shareholders. The variable elements of executive remuneration during the year were focused on simple and transparent measures of profit before tax, Earnings per Share ("EPS") growth and net debt. Accordingly, this Report should be read in conjunction with the Strategic Report.

Salary: As set out in the 2017/18 Directors' Remuneration Report, an internal review concluded that basic salary for senior employees, including executive directors, would not be increased during the financial year 2018/19.

Annual Bonus: In respect of the 2018/19 bonus, 100% of the payment was set against demanding financial targets. As can be seen from page 50 of this Report, these targets were not achieved and consequently no bonus was payable in respect of 2018/19.

Long Term Incentive Plan: Performance measures for awards made under the Carclo Performance Share Plan ("PSP") are equally weighted between EPS and TSR targets. As 2018/19 was a disappointing year, there was no vesting in relation to the EPS portion of the 2016 award and no vesting in respect of the Total Shareholder Return ("TSR") portion. Consequently, none of the shares subject to the 2016 PSP awards vested.

Implementation of the Remuneration Policy for the 2019/20 financial year

The current Directors' Remuneration Policy was approved by shareholders at the 2017 AGM. In respect of the implementation of the Policy for the 2019/20 financial year, and in light of the recent financial performance of the Group, the Committee agreed that:

·; Basic salary level for the Finance Director be increased by 3%. This was in line with the awards made to other employees within the Group. As discussed above, M Rollins acted as Executive Chairman from January 2019 to September 2019, however, he elected not to receive any increase in salary for taking on the Executive Chairman role;

·; There will be no increase in the fees for the Chairman or non-executive directors.

·; The structure and quantum of the annual bonus continued to be broadly appropriate and aligned to shareholders' interests. For 2019/20 the annual bonus potential will continue to be based on demanding financial targets; and

·; The long-term incentive plan, whereby conditional awards of shares are granted annually under the Carclo PSP with vesting after three years based on earnings per share and relative total shareholder return performance conditions (followed by a two year holding period), continues to provide a strong alignment between the senior executive team and shareholders.

The Remuneration Committee is mindful of the changes to the 2018 Code and those provisions will be taken into account when the new Policy is put to shareholders in 2020. A number of those provisions have already been adopted:

·; The Remuneration Committee was responsible for setting senior management pay for the 2019/20 financial year.

·; The requirement for a total vesting/holding period of 5 years for the PSPs was implemented when the new scheme was approved in 2017.

·; The Remuneration Committee already has the ability to use discretion to override formulaic outcomes.

·; Future recruited executive directors will only receive a pension contribution rate in line with the general workforce.

Alignment with shareholders

The Remuneration Committee is mindful of the interests of the Group's shareholders and is keen to ensure a demonstrable link between reward and value creation. In addition to the matters set out in this report, alignment and shareholder interest is further demonstrated by the operation of share ownership guidelines and the inclusion of clawback and malus provisions for both annual bonus and LTIP awards. Most importantly, however, is the clear link between executive remuneration and the performance of the business as a whole.

The Group acknowledges the support it has received in the past from its shareholders and hopes that this will continue at the forthcoming general meeting, where I, and all of the Remuneration Committee, will be in attendance and delighted to answer any questions you may have at that time.

Joe OatleyChairman of the Remuneration Committee31 October 2019

Compliance Statement

This Report has been prepared in accordance with the requirements of the Large and Medium Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, the UK Listing Authority Listing Rules and applies the principles set out in the UK Code on Corporate Governance (the "Code").

The following parts of the Annual Report on Remuneration Report are audited: the single total figure of remuneration for directors, including annual bonus and LTIP outcomes for the financial year ending 31 March 2019; scheme interests awarded during the year; and, directors' shareholdings and share interests.

Remuneration payments and payments for loss of office can only be made to directors if they are consistent with the approved Directors' Remuneration Policy or otherwise approved by ordinary resolution of the Company's shareholders.

Directors' Remuneration Policy

The Remuneration Policy was approved by the shareholders at the 2017 AGM on 7 September 2017. The full Directors' Remuneration Policy can be found in the Investors' section of the Company's website.

Policy table

The Policy Table below summarises the key components of remuneration for executive directors:

Notes to the Policy table

A description of how the Company intends to implement the Policy set out in this table for the 2019/20 financial year is set out in the Annual Report on Remuneration on page 52.

Performance measurement selection

The choice of "Underlying Profit" as the financial performance metric applicable to the annual bonus scheme is designed to link performance to strategy and the business plan. The Committee believes that performance measures set in respect of the annual bonus should be appropriately challenging and tied to both the delivery of profit growth and specific individual objectives.

The TSR and EPS performance conditions applicable to the Carclo PSP (further details of which are provided on page 51) were selected by the Remuneration Committee on the basis that they reward the delivery of long term returns to shareholders and the Group's financial growth and are consistent with the Company's objective of delivering superior levels of long term value to shareholders.

The Committee operates the Carclo PSP in accordance with the rules of that plan, Listing Rules, company law and the relevant tax legislation. The Committee retains discretion over certain areas relating to the operation and administration of the Carclo PSP consistent with market practice.

As highlighted above, the Company has a share ownership policy which requires the executive directors to build up and maintain a target holding equal to 100% of base salary. Details of the extent to which the executive directors had complied with this Policy as at 31 March 2019 are set out on page 56.

Remuneration policy for other employees

The following differences exist between the Company's Policy for the remuneration of executive directors as set out above and its approach to the payment of employees generally:

i) A lower level of maximum annual bonus opportunity generally applies to employees below Board level;

ii) Benefits offered to other employees generally comprise provision of healthcare and company car benefits where required for the role or to meet market norms;

iii) The majority of employees participate in local defined contribution pension arrangements; and

iv) Participation in the Carclo PSP is limited to the executive directors and certain selected senior managers.

In general, these differences arise from the development of remuneration arrangements that are market competitive for the various categories of individuals. They also reflect the fact that, in the case of the executive directors and senior executives, a greater emphasis tends to be placed on performance related pay.

Remuneration Policy for the chairman and non-executive directors

The Board determines the Remuneration Policy and level of fees for the non-executive directors, within the limits set out in the Articles of Association. When doing so, an individual is not allowed to participate in the discussions relating to their own remuneration. The Remuneration Committee recommends the remuneration policy and level of fees for the chairman to the Board.

The Policy Table summarises the key components of remuneration for the chairman and non-executive directors.

Pay scenario charts

The graphs below provide estimates of the potential future reward opportunity for the two executive directors positions for the 2019/20 financial year, and the potential split between different elements of remuneration under three different scenarios; "Minimum", "On Target" and "Maximum" performance.

[tables/graphics removed - see Annual Report]

The amounts shown in the table above represent:

·; Chief Executive: the amounts paid to the Chairman, M Rollins, for the 6-month period from 1 April 2019 to 30 September 2019 whilst acting as Executive Chairman (£45,000) together with the amounts to be paid to A Collins for the 6-month period from 1 October 2019 to 31 March 2020 (£225,000). As an interim, A Collins receives a fixed salary only and is not entitled to any other benefits, bonus or LTIP. The amounts included for M Rollins represent his Chairman's fee only for the period as he elected not to receive any additional remuneration for taking on the executive responsibilities;

·; Finance Director: the actual amounts paid to Sarah Matthews De-Mers in salary and benefits for the 7-month period from 1 April 2019 to 31 October 2019 (£158,000), the date she will leave the Group, Sarah did not receive any amounts in respect of bonus or LTIP. No amounts have been included in the table in respect of Ed Watkinson, the Group Chief Finance Officer from 1 November 2019, as he is not a director of the Company. As an interim, Ed Watkinson receives a fixed daily rate only and is not entitled to any other benefits, bonus or LTIP. He is remunerated at £1,400 per day and is therefore expected to be paid approximately £130,000 for the 5-month period from 1 November 2019 to 31 March 2020.

Approach to remuneration upon recruitment

The remuneration package for a new permanent executive director - i.e., basic salary, benefits, pension, annual bonus and long term incentive awards - would be set in accordance with the terms of the Company's prevailing approved Remuneration Policy at the time of appointment and would reflect the experience of the individual. The salary for a new executive may be set below the normal market rate, with phased increases over the first few years, as the executive gains experience in their new role. Annual bonus potential will be limited to 100% of salary for the Chief Executive and 75% of salary for the Finance Director and long-term incentives will be limited to 100% of salary in both cases (200% of salary in exceptional circumstances).

For external and internal appointments, the Committee may agree that the Company will meet certain relocation and/or incidental expenses as appropriate.

In the case of hiring or appointing a new non-executive director a base fee in line with the prevailing fee schedule would be payable for Board membership, with additional fees payable for additional services, such as chairing a Board committee or being the senior independent director.

Service contracts

The executive directors are employed under contracts of employment with Carclo. The principal terms of the executive directors' service contracts are as follows:

*after a fixed 6-month period

M Rollins acted as Executive Chairman from 11 January 2019 until 30 September 2019 when he returned to his position as non-executive chairman on the appointment of A Collins as interim Chief Executive Officer.

Letters of appointment are provided to the chairman and non-executive directors. Non-executive directors have letters of appointment effective for a period of three years and are subject to annual re-election at the AGM.

Directors' letters of appointment and the unexpired period of their appointments (where appropriate after extension by re-election) are set out below:

Directors' service contracts and letters of appointment are available for inspection at the Company's registered office.

This section has been updated to reflect the position as at 31 March 2019 in respect of the Directors' service contracts and letters of appointment. The position as at the time the Remuneration Policy was approved is set out in the Remuneration Policy which is available on the Company's website.

Exit payment policy

The Company's policy is to limit any payment made to a departing director to contractual arrangements and to honour any pre-established commitments. As part of this process, the Committee will take into consideration the executive director's duty to mitigate their loss.

It is Company policy that executive service contracts should not normally contain notice periods of more than 12 months.

There are no provisions within the contracts to provide automatic payments in excess of payment in lieu of notice upon termination by the Company and no predetermined compensation package exists in the event of termination of employment. Payment in lieu of notice would include basic salary, pension contributions and benefits. There are no provisions for the payment of liquidated damages.

Annual bonuses may be payable with respect to the period of the financial year served by the departing executive with the Committee ordinarily providing that such bonus will be pro-rated for time and paid at the normal pay out date. Any share-based entitlements granted to an executive director under the Company's share plans will be determined based on the relevant plan rules. The default treatment under the 2017 PSP is that any outstanding awards lapse on cessation of employment. However, in certain prescribed circumstances, such as death, injury or disability or other circumstances at the discretion of the Committee, 'good leaver' status may be applied. For good leavers, awards will normally vest on the normal vesting date, albeit that the Committee has the discretion to determine that the awards may vest at an earlier date. In determining the extent of any such vesting the Committee will take account of the extent to which the relevant performance conditions have been satisfied and the proportion of the performance period actually served. Similar provisions apply in respect of awards made under the 2007 PSP.

Malus and clawback

Awards granted under the Company's STI and PSP schemes are subject to malus and clawback provisions, enabling an adjustment to an employee's variable pay awards if warranted by the occurrence of a 'trigger event'. The type of events that may constitute a trigger event are as follows:

·; circumstances justifying the summary dismissal of an employee from his office or employment with any member of the Group including but not limited to dishonesty, fraud, misrepresentation or breach of trust;

·; circumstances where an employee has participated in or is responsible for conduct which resulted in significant losses to any member of the Group;

·; the Company has become aware of any material wrongdoing on the part of an employee;

·; an employee has acted in a manner which in the opinion of the Board has brought or is likely to bring any member of the Group into material dispute or is materially adverse to the interests of any member of the Group;

·; any material breach of an employee's terms and conditions of employment, or material breach of a fiduciary duty owed to any member of the Group;

·; any material violation of Company policy, rules or regulation, or a failure to meet appropriate standards of fitness and propriety;

·; any material failure of risk management;

·; any other conduct which is considered to be misconduct;

·; the inaccurate reporting of any accounts, financial data or such other information resulting in such accounts, financial data or other information being, in the opinion of the Remuneration Committee (acting fairly and reasonably), either materially corrected and/or requiring any future accounts, financial data or information having to include write-downs, adjustments or other corrective items in order to address the inaccuracy.

The application of malus (i.e. partial or full lapse of an unvested incentive opportunity) will be possible over the relevant performance period and holding period; the application of clawback (i.e. the partial or full repayment of a vested-and-paid incentive award) will be possible for a period of 18 month from the end of the relevant performance period.

The Remuneration Committee will consider the most appropriate method through which to apply an adjustment to pay at its absolute discretion. In most cases, the simplest approach would be in the following sequence:

1. Reduction of in-flight annual bonus and/or PSP awards not yet performance-tested (i.e. malus)

2. Reduction of deferred bonus or vested PSP (i.e. malus)

3. Request for the repayment of an already-paid annual bonus and/or PSP award (i.e. clawback)

An employee not in role at the time of the trigger event should be excluded from an adjustment except in the instance where the severity of the event warrants a collective adjustment across the entire business area or Company regardless of responsibility.

Annual Report on Remuneration

The following section provides details of how Carclo's remuneration policy was implemented during the financial year ending 31 March 2019.

Remuneration Committee membership in 2019

The Remuneration Committee currently comprises of P Slabbert, D Toohey and J Oatley and has been chaired by J Oatley since his appointment on 20 July 2018. M Derbyshire was a member until 19 July 2018 when he retired from the board. Until that point the Committee was chaired by M Rollins. M Rollins resigned from the Committee on 11 January 2019 when he was appointed Executive Chairman of Carclo plc. The Committee met five times during the financial year ended 31 March 2019 and individual Committee members attended all meetings held during the year under review other than the first meeting of the year which J Oatley did not attend as it was held before his appointment, but which M Derbyshire did attend. M Rollins chaired the first meeting during the relevant financial year and J Oatley the remainder.

During the year, the Committee sought internal support from the chief executive who attended Committee meetings by invitation from the chairman, to advise on specific questions raised by the Committee and on matters relating to the performance and remuneration of senior managers. The chief executive and finance director were not present for any discussions that related directly to their own remuneration. The company secretary attended each meeting as secretary to the Committee.

Independent Advice

In undertaking its responsibilities, the Committee seeks independent external advice as necessary. During the year £2,000 was paid to Mercer Limited in respect of general advice around levels of executive remuneration.

Summary of shareholder voting on remuneration matters

The following table shows the results of the shareholder vote on the 2017/18 Remuneration Report at the 2018 AGM:

The following table shows the results of the shareholder vote on the Remuneration Policy at the 2017 AGM:

Executive director changes

As announced on 11 January 2019, the Group Chief Executive, C Malley, resigned from the Board with immediate effect.

Also, on 11 January 2019, it was announced that M Rollins would assume the role of Executive Chairman until such point as a new Chief Executive Officer could be appointed. On 1 October 2019 on the appointment of A Collins as interim Chief Executive Officer, M Rollins resumed his role as Non-Executive Chairman. Sarah Matthews-DeMers resigned from the Board on 23 October ahead of her departure from the Group on 31 October.

C Malley - loss of office

C Malley remains with Carclo plc as LED Technologies Divisional Chief Executive. He received no compensation for loss of office and consequently has agreed a new service contract commensurate with his new role.

As he remains an employee of Carclo plc in line with the PSP rules C Malley retains the outstanding Carclo PSP awards awarded to him before his resignation and will be eligible to receive further awards at a suitable level to his new role.

M Rollins - remuneration details

M Rollins assumed the role of Executive Chairman until an interim Chief Executive was appointed.

The terms of his appointment can be summarised as follows:

- annual salary of £324,365, prorated for the number of days spent fulfilling the Executive Chairman role;

- the Remuneration Committee agreed that he would not be eligible for awards under the PSP and bonus plans

M Rollins acted as Executive Chairman from January 2019 to September 2019, however, he elected not to receive any additional payment for taking on the Executive Chairman role and consequently received only his normal fee as Chairman during this period.

A Collins - remuneration details

A Collins was appointed as interim Chief Executive Officer on 1 October 2019.

The terms of his appointment can be summarised as follows:

- annual salary of £450,000

- no entitlement to bonus, LTIP awards, pension contributions or other benefits

S Matthews-DeMers - resignation from office

S Matthews-DeMers will leave Carclo plc for a new role on 31 October 2019, and she will be entitled to her salary and contractual benefits up to the date she leaves. She will receive no compensation for loss of office, she will not be entitled to benefit from any bonus award for 2019/20 and her existing PSP award and unvested portion of her buy-out award will lapse on her ceasing employment.

Single total figure of remuneration for executive directors (audited)

The table below sets out a single figure for the total remuneration received by each executive director for the year ended 31 March 2019 and the prior year:

Notes

(1) Benefits comprise private medical cover, travel and car allowance.

(2) Payment in lieu of pension contributions are in line with the Remuneration Policy

(3) Details of the performance measures applicable to the annual bonus for 2019 are set out below

(4) Details of the performance measures applicable to the vesting of long-term incentive awards are set out below.

(5) M Rollins salary relates to the period from 11 January 2019 when he became an executive director. The amount shown represents his Chairman fee only for the period as he elected not to receive any additional remuneration for taking on the executive responsibilities.

(6) C Malley salary relates to the period until 11 January 2019 when he ceased to be an executive director

(7) S Matthews-DeMers salary relates to the period from 18 July 2018 when she became an executive director

Single total figure of remuneration for non-executive directors (audited)

The table below sets out a single figure for the total remuneration received by each non-executive director for the year ended 31 March 2019 and the prior year:

Incentive outcomes for the year ended 31 March 2019 (audited)

2016 LTIP vesting

The LTIP award granted on 13 July 2016 was based on the performance over the three years ended 31 March 2019. The performance targets for this award, and actual performance against those targets, were as follows:

This therefore resulted in 0.0% vesting for the 2016 award as follows:

Scheme interests awarded in the year ended 31 March 2019 (audited)

2018/19 LTIP

Awards take the form of conditional share awards and were made to the extent of 100% of salary in the respect of C Malley and S Matthews-DeMers.

The awards measured performance on the following basis:

Consistent with past awards, the extent to which awards granted in the year ending 31 March 2019 will vest will be dependent on two independent performance conditions with 50% determined by reference to the Company's TSR and 50% determined by reference to the Company's EPS, as follows:

·; The TSR element of an award will vest in full if the TSR ranks in the upper quartile, as measured over the three-year period relative to the constituents of the FTSE Small Cap Index, excluding investment trusts, at the beginning of that period. This element of the award is reduced to 25% on a pro rata basis for median performance and is reduced to nil for below median performance; and

·; The EPS element of an award will vest in full if EPS growth exceeds inflation, as measured by the Retail Prices Index, by an average of 12% per annum or more over the three-year period. This element of the award is reduced to 25% on a pro rata basis if EPS growth exceeds inflation by an average of 5% per annum over the period and is reduced to nil if EPS growth fails to exceed inflation by 5% per annum.

As noted above, S Matthews-DeMers will be leaving the Group on 31 October 2019, and her PSP award will lapse as a result.

S Matthews-DeMers "Buy Out" award

In accordance with its Remuneration Policy and the provisions of Listing Rule 9.4.2(2), the Company agreed to grant S Matthews-DeMers a "buy out" award to compensate her for the awards over shares that she has forfeited as a result of ceasing employment with her previous employer.

A review was undertaken taking account of the nature, time horizons, and performance requirements (including the likelihood of those conditions being met) of the forfeited awards. Consequently, an award over shares in the Company was made to her, with such shares under award having a value of £30,000 on the date of grant. The buyout award does not have any financial performance conditions and, subject to her continued employment, vests in respect of 50% of the shares under award on the first anniversary of her commencing employment, that being 18 July 2019, and the remaining 50% vesting on the second anniversary, that being 18 July 2020. There is a 2-year holding period following the vesting of the award.

For the purposes of complying with the Listing Rules, the following cannot be altered to S Matthews-DeMers' advantage without the prior approval of shareholders in general meeting (except for minor amendments to benefit the administration of the award, to take account of a change in legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for the executive or for a member of the group):

·; the person to whom shares are provided under the buy-out award,

·; the limitations on the number or amount of the shares subject to the buy-out award,

·; the maximum entitlement under the buy-out award, and

·; the basis for determining the entitlement to, and the terms of shares to be provided and for the adjustment thereof (if any) if there is a variation in share capital.

The buy-out award is not pensionable.

When S Matthews-DeMers ceases employment, the unvested portion of the buy-out award will lapse, and the shares subject to the vested portion will remain subject to the 2-year holding period.

Implementation of Remuneration Policy for the year ending 31 March 2020

A summary of how the Directors' Remuneration Policy will be applied during the year ending 31 March 2020 is set out below:

Basic salary

As reported in the Annual Statement on page 41 the Remuneration Committee agreed to increase the Finance Director's base salary level by 3.0%:

S Matthews-DeMers joined the Board on 18 July 2018. She was paid an annual salary of £218,000, meaning that she earned £153,000 pro-rated for the financial year in question.

M Rollins acted as Executive Chairman from January 2019 to September 2019. He elected not to receive any salary for taking on the additional executive responsibilities and consequently his remuneration for 2019/20 remains solely the fee he receives as Chairman. This is to remain unchanged for 2019/20.

A Collins joined the Board on 1 October 2019. He will be paid an annual salary of £450,000 meaning that he will earn £225,000 pro-rated for the financial year in question.

The majority of the Group's senior executives are also receiving an increase in salary of 3% for 2018/19. Elsewhere, the Group's other employees are, in general, receiving pay rises ranging from 0.0% to 5.0% depending on promotional increases, individual performance and wage inflation in the geography in which they are located.

Pension arrangements

A pension contribution calculated at 15% of salary, limited to a maximum of £40,000 will continue to be paid in respect of S Matthews-DeMers until her departure from the Group at the end of October 2019. A Collins is not entitled to pension contributions.

Annual bonus

The maximum bonus potential for the year ending 31 March 2020 will remain at 75% of salary for the Finance Director. Awards have historically been determined based on a combination of both the Group's financial results and personal achievements. As with the 2018/19 bonus there will be no element relating to personal objectives. This means that at all of the bonus will be based on financial measures, which will continue to include a net-debt based measure in addition to the historical profit-based measures. Maximum bonus will only be payable when the financial results of the Group significantly exceed expectations and any bonus will be payable only if, in the opinion of the Remuneration Committee, there is an improvement in the underlying financial and operating performance of the Group during the year ending 31 March 2020. Clawback and malus provisions will apply for all executive directors.

Proposed target levels have been set to be challenging relative to the 2019/20 business plan, although specific targets are deemed to be commercially sensitive and will not be published until such time that the Committee is confident there will be no adverse impact on the Company of such disclosure. At this time the Committee believes that the disclosure of targets in the year following the determination of bonuses is appropriate as disclosed above.

As noted above, S Matthews-DeMers will be leaving the Group on 31 October 2019, and she will not be entitled to a 2019/20 bonus.

A Collins is not entitled to a bonus.

Long term incentives

The new Performance Share Plan was approved at the AGM in 2017.

Consistent with past awards, the extent to which any LTIP awards granted in the year ending 31 March 2020 will vest will be dependent on two independent performance conditions with 50% determined by reference to the Company's total shareholder return ("TSR") and 50% determined by reference to the Group's earnings per share ("EPS"), as follows:

·; The TSR element of an award will vest in full if the TSR ranks in the upper quartile, as measured over the three-year period, relative to the constituents of the FTSE Small Cap Index excluding investment trusts at the beginning of that period. This element of the award is reduced to 25% on a pro rata basis for median performance and is reduced to nil for below median performance; and

·; The EPS element of an award will vest in full if EPS growth exceeds inflation, as measured by the Retail Prices Index, by an average of 12% per annum or more over the three-year period. This element of the award is reduced to 25% on a pro rata basis if EPS growth exceeds inflation by an average of 5% per annum over the period and is reduced to nil if EPS growth fails to exceed inflation by 5% per annum.

It was planned that the Finance Director would receive a grant of 100% of salary for the awards made during 2019 under the Carclo PSP. However, as noted above, S Matthews-DeMers will be leaving the Group on 31 October 2019, and therefore she will not be granted this PSP award. A Collins will not receive a grant of awards under the PSP.

As set out in the Directors' Remuneration Policy, awards will be subject to clawback and malus provisions, and to a requirement to hold the shares subject to awards for 5 years from date of grant except in exceptional circumstances or to pay any tax liability arising on vesting.

Chairman and non-executive directors

The Company's approach to non-executive directors' remuneration is set by the Board with account taken of the time and responsibility involved in each role, including where applicable the Chairmanship of Board Committees. A summary of current fees is shown in the table below.

Given the financial performance of the Group, it was concluded that the fee levels for the chairman and non-executive directors would be left unchanged. Fee levels for the 2019/20 financial year can be summarised as follows:

Percentage change in chief executive remuneration

The table below shows the percentage change in the chief executive's salary, benefits and annual bonus between the financial year ended 31 March 2018 and 31 March 2019 compared to that of the total amounts for all UK employees of the Group for each of these elements of pay.

Relative importance of spend on pay

The table below shows the Group's actual expenditure on pay (for all employees) relative to retained (losses)/profits for the financial years ending 31 March 2018 and ending 31 March 2019

Relative performance

The graph below compares the value of £100 invested in Carclo shares, including re-invested dividends, with the FTSE Small Cap index over the last nine years. This index was selected because it is considered to be the most appropriate against which the total shareholder return of Carclo plc should be measured.

[tables/graphics removed - see Annual Report]

Table of historical data (chief executive)

Figures for 2010 to 2013 relate to I Williamson who was succeeded as chief executive by C Malley on 27 March 2013. C Malley resigned as Chief Executive and stood down from the Board on 11 January 2019.

Directors' interests (audited)

The interests of the directors and their connected persons in the ordinary shares of the Company as at 31 March 2019 were as follows:

i) There have been no changes in the directors' interests since the year-end.

Directors' shareholding requirement (audited)

The table below shows the shareholding of each executive director against their respective shareholding requirement as at 31 March 2019:

S Matthews-DeMers will be leaving Carclo plc on 31 October 2019. The Remuneration Committee has determined that M Rollins was not to be bound by the shareholding requirements.

Directors' interests in shares in Carclo long-term incentive plans (audited)

Details of share awards under the Carclo PSP made to executive directors are shown below

Statement of directors' responsibilities in respect of the annual report and the financial statements

The directors are responsible for preparing the Annual Report and the Group and parent company financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare Group and parent company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and applicable law and have elected to prepare the parent Company financial statements in accordance with UK accounting standards, including FRS 101 Reduced Disclosure Framework.

Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of their profit or loss for that period. In preparing each of the Group and parent company financial statements, the directors are required to:

·; select suitable accounting policies and then apply them consistently;

·; make judgements and estimates that are reasonable, relevant, reliable and prudent;

·; for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;

·; for the parent company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the parent company financial statements;

·; assess the Group and parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

·; use the going concern basis of accounting unless they either intend to liquidate the Group or the parent company or to cease operations or have no realistic alternative but to do so.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company's transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the directors are also responsible for preparing a Strategic report, Directors' report, Directors' remuneration report and Statement of corporate governance that complies with that law and those regulations.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement of the directors in respect of the annual financial report

The directors as at the date of this report, whose names and functions are set out on page 31, confirm that to the best of their knowledge:

·; the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and

·; the strategic report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.

By order of the board

Mark Rollins

Chairman

31 October 2019

Independent auditor's report

to the members of Carclo plc

1. Our opinion is unmodified

We have audited the financial statements of Carclo plc ("the Company") for the year ended 31 March 2019 which comprise the Consolidated Income Statement, Consolidated Statement of Comprehensive income, Consolidated Statement of Changes in Equity, Consolidated Statement of Financial Position, Consolidated Statement of Cash Flows, Company Balance Sheet, Company Statement of Changes in Equity, and the related notes, including the accounting policies in note 1.

In our opinion:

- the financial statements give a true and fair view of the state of the Group's and of the parent Company's affairs as at 31 March 2019 and of the Group's loss for the year then ended;

- the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU);

- the parent Company financial statements have been properly prepared in accordance with UK accounting standards, including FRS 101 Reduced Disclosure Framework; and

- the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the audit committee

We were first appointed as auditor by the shareholders on 9 September 2005. The period of total uninterrupted engagement is for the 14 financial years ended 31 March 2019. We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that standard were provided

2. Material uncertainty related to going concern

We are required to report to you if the directors' going concern statement under the Listing Rules set out on pages 30 to 31 is materially inconsistent with our audit knowledge. We have nothing to report in this respect.

3. Other key audit matters: including our assessment of risks of material misstatement

Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. Going concern is a significant key audit matter and is described in section 2 of our report. We summarise below the other key audit matters, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.