Carclo Regulatory News (CAR)

13 Jun 2005 07:01

Carclo plc13 June 2005 13 June 2005 Carclo plc Preliminary results for the year ended 31 March 2005 Key points • Profit before tax was £1.7 million (2004 - a loss of £6.7 million) with earnings per share of 3.9 pence compared to a loss of 8.4 pence per share last year. • Underlying operating profits from continuing operations, before goodwill and exceptional charges, doubled to £4.6 million despite sales down 6.9%. • Profits have improved following the significant rationalisation programmes undertaken in recent years and a good performance in CTP Automotive as a number of specialist lighting contracts came into full production. • A binding offer has been received from NV Bekaert SA to acquire the card clothing business for up to £8.6 million in cash subject to shareholder approval which is being sought on 13 June 2005. • Carclo's strategy is to grow rapidly in low cost manufacturing regions and to develop new technologies and products to underpin future growth. • A new facility in the Czech Republic was commissioned in the year ended 31 March 2005. An automotive facility is under construction in India, in conjunction with our 50:50 joint venture partner. • Conductive Inkjet Technology has won the Plastic Industry award for the best technology achievement in 2005. • Carclo's focus on debt reduction has been successful with net debt reducing by £2.2 million to £25.9 million and will further reduce upon completion of the card clothing disposal. • The board has recommended a total dividend of 1.2 pence per share for the year (2004 - 1.2 pence). Commenting on the results, George Kennedy, chairman said:"We have entered the new financial year with good momentum and the expecteddisposal of the card clothing operations will allow management to focus fully onexploiting the range of opportunities which the Technical Plastics businessesbring. Overall, demand across our markets has stabilised. The medical components market continues to present good opportunities although we have some concerns over the strength of demand for automotive components in the USA. Our Technical Plastics operation in China entered the new financial year inprofit and is seeing encouraging growth opportunities. The CTP Automotive jointventure in India is on track to becoming fully operational during the comingyear and our developments in new technologies continue to progress well. Weexpect the award winning Conductive Inkjet Technology joint venture to commencegenerating revenues in the new financial year. Overall, therefore, with good growth prospects in specialist plastics togetherwith interesting new products and technologies in development, we feel that thegroup is well placed to deliver positive momentum." - Ends - For further information, please contact:Carclo plc On 13 June: 020 7067 0700Ian Williamson, chief executive Thereafter: 01924 268040Robert Brooksbank, finance director Weber Shandwick Square Mile 020 7067 0700Richard Hews / Susanne Walker A presentation for analysts will be held at 9.15am at the offices of WeberShandwick Square Mile, Fox Court, 14 Gray's Inn Road, London WC1X 8WS. Notes to editors • Carclo plc is a global supplier of technical plastic products. It is a public company whose shares are quoted on the London Stock Exchange. • 70% of sales, on a pro forma basis (assuming the ECC Card Clothing disposal completes), are derived from the supply of fine tolerance, injection moulded plastic components, which are used in medical, telecom and electronics products. This business, Carclo Technical Plastics, operates internationally in a fast growing and dynamic market underpinned by rapid technological development. • 30% of sales, on a pro forma basis, are derived from the supply of products to the automotive and aerospace industries. • Carclo's strategy is to grow rapidly in low cost manufacturing regions and to develop new technologies and products to underpin future growth. Chairman's statement Overview Carclo has continued its strategy of developing its specialist technicalplastics operations, expanding in low cost regions and investing in newtechnologies. In the year ended 31 March 2005 Carclo returned to profit, with underlyingoperating profits from continuing operations, before exceptional items andgoodwill, doubling to £4.6 million on turnover reducing from £115.7 million to£107.7 million. The improvement in profitability reflects the benefits from therestructuring programmes undertaken in both the prior year and in the year justended together with the benefit of new specialist lighting contracts in CTPAutomotive. After net exceptional charges of £0.3 million (2004 - £6.3 million), goodwillamortisation and interest, the profit before tax amounted to £1.7 million (2004- a loss of £6.7 million). The profit per ordinary share was 3.9 pence (2004 - aloss per ordinary share of 8.4 pence). Since the year end we have received an offer from NV Bekaert SA to acquire thecard clothing business for a total cash consideration of up to £8.6 million, ofwhich £6.5 million will become payable once the disposal becomes unconditional.Due to the size of the transaction shareholder approval is being sought at anextraordinary general meeting to be held on 13 June 2005. Dividend The board is recommending a final dividend for the full year of 0.8 pence pershare, giving a total dividend for the year of 1.2 pence (2004 - 1.2 pence). Subject to shareholder approval, dividend payments will be posted on 8 September2005 to shareholders on the register at close of business on 5 August 2005. Theshares will be traded excluding the right to the dividend from 3 August 2005. Financial position At the year end net debt was £25.9 million (2004 - £28.1 million) representinggearing of 53.7% (2004 - 60.6%). On a pro forma basis, after allowing forattributable transaction costs, debt will reduce to approximately £20 million asand when the card clothing disposal completes. This will mean that Carclo willhave achieved its internal objective of reducing the group's net debt to thetargeted £20 million level. This is a creditable performance and means that debtwill have more than halved since 31 March 2002 when the group's net debt stoodat £44.3 million. At 31 March 2005 the group had cash and unutilised assuredmedium term facilities of £17.0 million. Employees The past year has again been demanding with the further rationalisation of theUK moulding facilities, the closure of one moulding operation in the USA and thereorganisation of the UK card clothing business. As a result the number ofCarclo employees reduced by 14% to 1,719 at 31 March 2005. The ongoing success of the group is ultimately dependent upon our employees andI would like to thank them for their significant contribution. The board As stated in last year's annual report, Robert Brooksbank joined the board on 1April 2004 as group finance director and Noel Hutton was appointed a nonexecutive director on 1 July 2004. Both Robert and Noel have made significantcontributions to the strategic development of Carclo. I joined the board of Carclo in June 1993 and became chairman in January 1997.Since then the group has undergone a significant transformation, investing in arange of technical plastics businesses whilst divesting non core metalprocessing businesses. The final stage of this strategic realignment will,subject to shareholder approval and other conditions being satisfied, be reachedwith the disposal of the card clothing business. Carclo will then be focused onthe development of its specialist moulding businesses and technologicalinnovations. With this transformation complete, I have elected to retire fromthe board within the next twelve months. The search for a new chairman is beingco-ordinated by our senior independent director, Barbara Richmond. I would like to take this opportunity to thank the members of the board and theemployees of Carclo, both past and present, who have provided continued supportin such challenging times. Outlook We have entered the new financial year with good momentum and the expecteddisposal of the card clothing operations will allow management to focus fully onexploiting the range of opportunities which the Technical Plastics businessesbring. Overall, demand across our markets has stabilised. The medical componentsmarket continues to present good opportunities although we have some concernsover the strength of demand for automotive components in the USA. Our Technical Plastics operation in China entered the new financial year inprofit and is seeing encouraging growth opportunities. The CTP Automotive jointventure in India is on track to becoming fully operational during the comingyear and our developments in new technologies continue to progress well. Weexpect the award winning Conductive Inkjet Technology joint venture to commencegenerating revenues in the new financial year. Overall, therefore, with good growth prospects in specialist plastics togetherwith interesting new products and technologies in development, we feel that thegroup is well placed to deliver positive momentum. George Kennedy 13 June 2005 Chief executive's review Strategic overview I wrote last year that I was more confident in the future of the group than atany time since the telecom collapse hit us in 2001. That confidence was wellfounded. We have experienced stable trading allowing underlying profits todevelop well and have been able to make excellent strategic progress in our coretechnical plastics business. Since the year end we have announced the disposalof ECC Card Clothing - Carclo's original business - completing the process ofrestructuring which commenced in 1997. The strategy of the group is: • to grow our specialist businesses such as medical plastics and LED optics, • to continue our expansion in low cost regions, • to increase our investment in new technologies and proprietary know-how. The economic environment we face remains harsh - our established customer basein the UK and the USA continues to decline - and price pressures, especially inautomotive, remain as brutal as ever. In the UK the burden of excessiveregulation and poorly conceived legislation - most notably in pensions -represents a substantial cost and constraint on the group. Our response has beento increase our capacity in low cost regions and to concentrate our UKactivities in technical and quality control related areas. During the last yearwe have commissioned a second moulding plant in the Czech Republic, initiated anew factory in Bangalore, India, with our joint venture partner SuprajitEngineering Ltd, and expanded capacity at our existing facility in Shanghai,China. During the same period we have reduced manufacturing capacity in the UKand the USA. This strategic shift of capacity is now serving us well. We can offer UK or USAbased technical, quality and logistics support matched to a highly competitivecost base with manufacturing located in the most appropriate location for thecustomer. It is a very attractive offering and as a consequence we are seeingstrong enquiry levels and a good inflow of new contracts. This year's results show that we have passed a turning point in terms ofprofitability. Our focus now is on improving operating margins, targeting thelevels achieved historically in our businesses - we still have some way to gowith this task and it will require us to continue reducing costs as appropriate.In the longer term we would hope to see another turning point where salesrevenues show growth on a like for like basis. It is difficult to forecast whenthis turning point may come but our mix of specialist businesses and our globalmanufacturing base positions us well for growth. In the longer term we need to add more Carclo owned intellectual property to thebusiness mix. We have recognised this for some time and have been selectivelyinvesting in new technologies. In this report we profile our work using digitalinkjet technology to apply optical coatings. In this application we haveestablished a world leading position. We also include an update on ourdevelopments in optics for high power LEDs where again we have a world leadingposition. Finally, the Conductive Inkjet Technology development ("CIT") has had a verysuccessful year. We are well advanced with the development of innovativeapplications of this technology with existing Carclo customers which shouldcontribute to revenues in the coming year. However, these applications aredwarfed by the potential in RFID tags where the CIT technology looks likely toprovide a cost and performance breakthrough. The level of interest from majorplayers in the RFID field is high and we expect to be able to extend our jointdevelopment programmes into commercial exploitation agreements during the comingyear. Although for many of us at Carclo the disposal of the card clothing business isa sad event, it leaves the group focused, with good, well invested facilitiesand with plenty of exciting development opportunities ahead of us. My confidencein the future of the group remains well founded. Operating review ------------------------------------------------------------------------------------| Carclo TechnicalPlastics Carclo Specialist Wire|| || 2005 2004 2005 2004||----------------------------------------------------------------------------------||Turnover - continuing operations £86.8m £93.5m £20.8m £22.2m|| ||Underlying operating profit * £4.1m £1.7m £1.4m £1.9m|| ||Net assets £44.1m £39.8m £13.0m £12.0m|| ||Operating margin 4.7% 1.8% 6.6% 8.5%|| ||Return on capital employed 9.3% 4.2% 10.6% 15.8%|| ||Average number of employees 1,462 1,643 370 379|| |------------------------------------------------------------------------------------* before goodwill amortisation and exceptional charges Carclo Technical Plastics Profits advanced strongly in all parts of Carclo Technical Plastics even thoughsales continued to reduce. Divisional profits, before exceptional charges andgoodwill amortisation, increased by 144.8% to £4.1 million on sales down by 7.1%at £86.8 million. The sales decline reflected the continuing rationalisation ofthe UK and USA operations as we adjusted our capacity to the available business. Despite the continued erosion of the UK and USA customer base, the UK and USAmoulding operations delivered much improved profits and benefited particularlyfrom continuing growth in medical business. The Carclo optics business had adisappointing year as telecom related programmes declined and the recent growthof LED optics did not fully compensate. The low cost region operations in the Czech Republic and China continued to winnew programmes and are set to deliver good growth in 2006 and beyond. The CTP Automotive operations had a very successful year. The new programmes inspecialist lighting for vehicles such as Bentley, Mercedes McLaren and Porschecame up to full volumes. Demand for our vehicle antennas was also strong and weare seeing continued growth from our multiband products which combine radio,mobile telephone and satellite navigation antennas. In control cables we are nowwell advanced with our resourcing of production to India and Hungary. We haveestablished a 50:50 joint venture with Suprajit Engineering Ltd, with whom wehave had a supply agreement for some years, and a new CTP Suprajit Ltd cablefactory will commence production in October 2005. CTP Automotive was a supplier of control cables to MG Rover. Their creditinsurance was withdrawn in early 2004 and since that time we limited theircredit facility. As a consequence, our loss on the receivership of MG Rover waslimited to £0.1 million, mostly in regard to stocks which we would expect torecover over the coming years through ongoing sales of replacement parts. The last twelve months has seen very significant increases in the price of steeland polymers. In addition there have been significant increases in the price ofgas and electricity. Generally we have recovered most of the increase in polymerprices from our customers. In automotive we have been able to recover some, butas yet not all, of the steel price increase. We continue to pursue a resolutepolicy of full cost recovery with all of our customers. Carclo Specialist Wire As a division, Specialist Wire produced profits down by 27.3% at £1.4 million onsales down by 6.1% at £20.8 million. All of the decline was in Card Clothing.The two smaller Precision Engineering companies, which manufacture aerospacecontrol cables and sell band saws and consumables, performed well. Following thedisposal of the card clothing business, we intend to combine the two PrecisionEngineering companies with CTP Automotive and report this new divisionseparately from Carclo Technical Plastics. The world textile industry is undergoing a rapid shift as a consequence of theending of the MultiFibre Agreement. China and India are expected to be majorbeneficiaries from the freeing up of world trade in textiles with almost allother markets likely to suffer to some extent. For Card Clothing, last year wasdifficult with demand starting slowly, improving in the summer but falling awayagain sharply as customers faced the global uncertainty of the new tariffregime. We continued to develop our operations in China and India and to reducecosts and capacity in Europe. This process is set to continue over the comingyears as more and more of the world's textile capacity migrates to China. On 26 May 2005 we announced that we had received a binding offer from NV BekaertSA for the card clothing business. Completion of this transaction is expected inthe coming weeks. Bekaert's offer essentially realises for cash the net bookvalue of the card clothing assets and leaves Carclo in possession of thefreehold UK and French properties which should, in due course, realise in excessof the book value. Bekaert is a world wide market and technological leader in selected applicationsof its two core competence's - advanced metal transformation and advancedmaterials and coatings. Bekaert has been active in the card clothing industryfor many years and wants to play a leading role as a supplier for textilemachine builders. Ian Williamson 13 June 2005 Technological innovations Over the last few years Carclo has pursued an explicit strategy of developingproprietary technologies which add value to our products and capabilities. Aparticular area of expertise we have developed is the use of digital inkjettechnology to apply specialist coatings to injection moulded plastics. Our firstdevelopment in this area was using inkjet print heads to apply scratch resistantcoatings to our specialist optical products. The development commenced in 2002and we are pleased to report that we have now received approval from a majorautomotive customer to use this technology in high volume production of anoptical component. As far as we are aware this will be the first time thatdigital inkjet technology has been used in a high quality volume manufacturingapplication. Our work in optical coatings led us to the conductive inkjet technologydevelopment which has been discussed in previous annual reports. The ConductiveInkjet Technology ("CIT") process is a unique patented chemistry which allows usto use digital inkjet technology to print pure copper directly onto plastic andnon porous surfaces. We have made excellent progress with this technology in thelast year and have recently increased our investment in the joint venturecompany which owns the technology. CIT won the 2005 Plastics Industry Award forBest Technology Achievement. Carclo Technical Plastics has two development projects with existing customerswhich we anticipate will lead to production of components using this innovativetechnology. With the world leading motorcycle helmet manufacturer, SchuberthHead Protection Technology GmbH, we have used the CIT processes to apply veryfine heating elements to the inside of the helmet visor to provide an electricaldemisting function. This unique high value application of the technologydemonstrates our ability to print directly and without contact onto complexthree-dimensional components. The second project is in a security applicationand remains confidential. Of greater potential significance is CIT's collaboration with the USA basedPreco Industries Inc. to demonstrate a high speed web printing line producingvery low cost antennas for RFID tags. This line will be able to produce up to100 million antennas per annum and our target cost for the antenna is around 1cent - well below competing technologies. We have also patented and proven atechnology, PRINT2CHIP, which uses CIT technology to provide connections to thevery small integrated circuits used in RFID tags and many other electronicapplications. PRINT2CHIP dramatically reduces the cost of a complete RFID tag,enabling tags to be produced in the 5 to 10 cent cost range. This is broadly inline with WalMart's target for universal application of RFID technology. Thecombination of CIT's print technology and PRINT2CHIP capability has createdenormous interest and we expect to extend our joint development programmes intocommercial exploitation agreements during the coming year. We remain veryexcited about the potential of CIT in its own right, and as a means by whichCarclo Technical Plastics can increase the added value content of our products. We have continued to make very good progress with our other technicaldevelopments. Earlier this year Philips Lighting BV launched a new range of LEDlighting using Carclo optics. Our specialist range of optics for high power LEDsis now generating good sales growth and we see great potential for thisproprietary product range which will be distributed by Future Electronics Inc.,a leader in the field. The development of water soluble capsules for drug delivery is ongoing with ourpartner, Stanelco plc. We are concentrating on increasing the starch content ofthe capsules to allow us both to reduce cost and, more importantly, tofacilitate the process of regulatory approval. We are in the process ofpresenting the capsule technology to a number of drug development companies. We continue to win new business as manufacturing partner for a number ofinnovative and highly successful UK based medical technology companies. Ourprojects with Vectura plc and Axis-Shield plc, which we described last year, areprogressing well. This year we are able to announce our involvement with GenosisUK plc who have developed a highly innovative range of devices to measure maleand female fertility. The Genosis device is an impressive blend of precisionplastics, microfluidics and electronics and is ideally matched to our addedvalue manufacturing capability. Finance director's review 2005 2004 £million £million ______________________________________________________________________________ Turnover - continuing 107.7 115.7 _____________________ Divisional operating profit 5.5 3.6 Central costs (0.9) (1.3) _____________________ Underlying operating profit from continuing operations 4.6 2.3 Share of operating loss in joint venture - (0.1) Operating loss from discontinued operations - (0.2) Goodwill amortised (1.1) (1.1) Non recurring items (0.3) (6.3) Net interest (1.5) (1.3) _____________________ Profit / (loss) before tax 1.7 (6.7) Taxation credit 0.3 2.4 _____________________ Profit / (loss) attributable to ordinary shareholders 2.0 (4.3) Ordinary dividend (0.6) (0.6) _____________________ Surplus / (deficit) for the year 1.4 (4.9) _____________________ Divisional operating margin from continuing operations 5.1% 3.1% Basic earnings per share 3.9p (8.4)p Underlying earnings per share 6.0p 0.9p Financial summary The group generated a profit before tax of £1.7 million last year after theprevious year's loss of £6.7 million. Turnover from continuing operationsdecreased by 6.9% to £107.7 million. However, underlying operating profit fromcontinuing operations was £4.6 million, compared to operating profit of £2.3million in the previous financial year. The increased profitability was due tonew specialist lighting contracts in CTP Automotive and the achievement offurther operating efficiencies in the group's moulding facilities in both the UKand the USA. Savings generated by the ongoing rationalisation programme enableda much stronger second half performance despite continued pricing pressure andraw material price increases. The group incurred net exceptional charges of £0.3 million (2004 - £6.3million). Costs incurred in respect of rationalisation and redundancy wereoffset in the main by exceptional profit generated from the sale of surplusgroup properties. Net debt at the year end was £25.9 million (2004 - £28.1 million). The receiptof the proceeds from the disposal of the group's card clothing business willresult in a net debt of approximately £20 million which is the group's internaldebt target. Despite the average level of debt being lower during the year,interest payable has risen to £1.5 million (2004 - £1.3 million) due to theprogressive increases in bank base rates experienced last year. The total investment in the Conductive Inkjet Technology joint venture duringthe year was £1.0 million and these costs have been capitalised as developmentexpenditure. The group received net tax refunds of £0.5 million (2004 - £0.7 million) due tothe utilisation of losses in prior periods. There is a net tax credit for thecurrent year of £0.3 million (2004 - £2.4 million). The profit attributable to ordinary shareholders was £2.0 million (2004 - a lossof £4.3 million). The board has recommended an unchanged dividend for the yearof 1.2 pence per ordinary share which is covered 3.3 times by earnings. The cashflow of the group continues to be impacted by the requirement to make deficitcorrection payments to the group pension schemes in accordance with the MinimumFunding Requirements ("MFR"). The future pensions funding regime remainsuncertain and until there is greater clarity in this area the board considerthat it is prudent to maintain the dividend at its current level. Exceptional items The net exceptional charge of £0.3 million (2004 - £6.3 million) is analysed asfollows: 2005 2004 £million £million__________________________________________________________________________Rationalisation of Technical Plastics operations 0.6 1.0Rationalisation of Specialist Wire operations 0.4 0.3 ___________________Total operating exceptional charges 1.0 1.3Loss on termination of operations 0.8 5.3Profit on disposal of surplus properties (1.5) (0.3) ___________________ 0.3 6.3 ___________________ Operating exceptional costs in respect of continuing operations were £1.0million (2004 - £1.3 million). These costs relate to the ongoing reorganisationat the group's UK Technical Plastics operations with the UK specialist medicaland optical moulding operations moving towards an integrated managementstructure. Costs were also incurred in respect of the rationalisation of the UKSpecialist Wire business where the UK business has been reorganised due to theongoing expansion of production at the Chinese facility. The loss on termination of operations was £0.8 million (2004 - £5.3 million).The group has closed one moulding operation in the USA during the year, due tothe withdrawal of business from one particular customer, and completed theclosure of one facility in the UK. The group continues to generate funds from the sale of surplus properties. Netproceeds of £1.5 million were generated from the sale of surplus land at one ofthe group's Scottish facilities and the waiver of certain rights over apreviously disposed property near the same facility. Net debt and gearing 2005 2004 £million £million _____________________________________________________________________ Underlying cash flow 8.6 6.4 Interest and tax (0.9) (0.7) Capital expenditure, other than for expansion (2.6) (3.4) __________________ Free cash flow 5.1 2.3 Other non recurring - 4.2 Equity dividends (0.6) (0.6) __________________ Cash flow available for corporate activities 4.5 5.9 Capital expenditure for expansion (1.5) (0.6) Investment in joint venture (1.0) (0.4) Exchange movement 0.2 1.9 __________________ Decrease in debt in year 2.2 6.8 __________________ Net borrowings reduced by £2.2 million in the year to £25.9 million (2004 -£28.1 million). The group gearing level is now 53.7% (2004 - 60.6%). Underlyingcash flow from operations was £8.6 million (2004 - £6.4 million) reflecting thebetter trading conditions and increased profitability resulting from operatingefficiencies. Free cash flow in the year was £5.1 million (2004 - £2.3million). The improvement in free cash flow reflects the increase in operating cash flowsand a lower capital expenditure requirement. Group capital expenditure was £4.1million (2004 - £4.0 million) representing 88% of depreciation. The free cashflow is after the cash cost of pension contributions of £2.6 million (2004 -£2.6 million). Other non recurring cash flow items netted to £nil (2004 - £4.2million) with property and other fixed asset disposal proceeds of £2.2 millionfunding reorganisation costs of £0.6 million and closure costs of £1.6 million. The group's surplus property portfolio has increased to a net book value of £5.8million due to the continuing rationalisation of group companies together withthe likely disposal of the card clothing business and we will continue torealise proceeds from the disposal of these surplus properties. Financing The group has assured medium term facilities of £35.3 million (2004 - £36.8million) with an average life of 2.6 years including a modest amount ofamortisation over the next two years. The facilities are secured by a fixed andfloating charge over the assets of six group companies. Continuing its debtreduction strategy, the group cancelled £1.5 million of medium term facilityduring the year following the receipt of proceeds from property disposals and afurther reduction is anticipated following the likely disposal of the cardclothing business. Pensions The group has two defined benefit pension schemes which are closed to newmembers. These accounts have been prepared under the provisions of SSAP 24 forthe final time. Under SSAP 24 the charge to the profit and loss was £1.5 million(2004 - £1.4 million) and this represents the costs of accounting for benefitsfor the existing workforce based on the last actuarial valuation of the largerscheme as at 31 March 2004. The actual cash contributions into the schemesamounted to £2.4 million, consisting of £1.1 million regular employer cashcontributions and an additional payment of £1.3 million in accordance with theMFR provisions. As required by the provisions of FRS17, the group has disclosed the impact ofapplying this standard on the balance sheet and profit and loss account. Apension deficit of £17.1 million, net of tax, would have been recorded in thebalance sheet (2004 - £13.8 million). The overall charge to the profit and lossaccount compared with current SSAP 24 accounting is illustrated in the followingtable: 2005 2005 SSAP 24 FRS 17 £million £million __________________________________________________ Charge to operating profits 1.5 0.7 Financing - (0.5) ___________________ Net charge 1.5 0.2 ___________________ As can be seen, the reported profits for the group would have increased by £1.3million if FRS17 had applied in year under review. It is likely that under thenew International Accounting Standard, IAS19 'Employee Benefits', the profit andloss pension charge in the new financial year will be higher than under FRS17.However, the IAS19 charge will be significantly lower than both the currentcharge under SSAP 24 and the ongoing cost of funding the pension schemes. Under the provisions of the MFR the group expects to make ongoing annualpayments of approximately £1.5m in order to eradicate the MFR deficit on thepension schemes. Proposed capital reorganisation In the 2004 interim report we commented upon the potential impact ondistributable reserves of the implementation of FRS17 in respect of thefinancial year ending 31 March 2006. The board proposes to seek shareholderapproval at the annual general meeting for a reduction in capital of Carclo plc(specifically £41.8 million of the share premium account) in order to resolvethis issue. We will then lodge the necessary petitions with the Court. Weare also seeking approval at the annual general meeting to modify the borrowingcovenant contained in the articles of association to reflect the impact of thenew International Accounting Standards on the company's accounts. Disposal of ECC Card Clothing On 26 May 2005 we announced the proposed disposal of our card clothing businessfor a cash consideration of up to £8.6 million. The acceptance of the bindingoffer and subsequent completion of this transaction is dependent uponsatisfactory completion of employee consultations, Carclo shareholder approvaland Turkish merger control clearance. On completion the group will receive £6.5 million, with further payments of upto £2.1 million dependent upon the achievement of certain performance criteriain the two years to 31 May 2007. The transaction excludes the main freeholdproperties of the UK and French businesses with a combined net book value of£2.2 million. Two of these properties will generate a commercial rent and themain UK property will be disposed of on a two year timescale. The transactionalso excludes the UK trade debts and UK bank balances. A pro forma unauditedstatement of net assets as at 31 March 2005 for the continuing group, whichillustrates the impact of the disposal, is set out below: Net Assets of Carclo Carclo post disposal as at Disposal of Net Transaction as at 31 March 2005 ECC consideration costs 31 March 2005 £'000 £'000 £'000 £'000 £'000Fixed AssetsIntangible assets 14,897 - - - 14,897Tangible assets 36,707 (3,391) - - 33,316Investments 10 - - - 10 _________ _________ _________ _________ _________ 51,614 (3,391) - - 48,223 _________ _________ _________ _________ _________ Current Assets Stock 13,685 (4,354) - - 9,331Debtors 22,193 (2,323) - - 19,870Debtors due after more than one year 14,013 - 1,700 - 15,713Cash At Bank And In Hand 9,938 (829) 6,447 (500) 15,056 _________ _________ _________ _________ _________ 59,829 (7,506) 8,147 (500) 59,970 Creditors: Amounts Falling Due Within One Year (27,409) 2,837 - - (24,572) _________ _________ _________ _________ _________Net current assets 32,420 (4,669) 8,147 (500) 35,398 Creditors: Amounts Falling Due After More Than One Year (30,350) 2 - - (30,348) Provisions For Liabilities And Charges (5,453) (89) - - (5,542) _________ _________ _________ _________ _________Net Assets 48,231 (8,147) 8,147 (500) 47,731 ========= ========= ========= ========= ========= Net debt 25,880 782 (6,447) 500 20,715 The group intends to utilise an element of the proceeds from the disposal of thecard clothing business to make an additional payment of up to £2 million to thepension schemes with the balance being used to reduce debt. International Accounting Standards Consolidated financial statements of all listed companies must be preparedaccording to the International Accounting Standards ("IAS") for accountingperiods beginning on or after 1 January 2005. The group will, therefore, bepreparing its consolidated accounts for the financial year ending 31 March 2006under the provisions of IAS. The first set of accounts to be published under IASwill be the group's interim results for the six months ended 30 September 2005. The transition balance sheet as at 31 March 2004 will form the opening positionfor the comparative information contained in the 31 March 2006 accounts. Adetailed review of the impact of IAS on the transition balance sheet and on theprofit and loss account has now been ongoing for a number of months. As thegroup has previously reported, a main impact on the balance sheet will resultfrom the adoption of IAS19 "Employee Benefits" which proposes a similar pensionaccounting treatment to FRS17. Under IAS19, the group pension deficit will berecorded in the balance sheet for the first time. Based on the FRS17 deficit, asat 31 March 2005 this would have reduced group net assets by £26.9 million to£21.3 million. The pension charge to the profit and loss account is likely to bereduced under IAS19. The group is considering the options under IAS19 tominimise volatility in the group's accounts going forward. A more detailed assessment of the impact of IAS on the financial statements ofthe group will be published in advance of the interim report published inDecember 2005. Robert Brooksbank 13 June 2005 Consolidated profit and loss accountyear ended 31 March 2005 2004 £000 £000 (as restated)______________________________________________________________________________TurnoverContinuing operations 107,674 115,652Discontinued operations - 623 _________________________ 107,674 116,275Operating profit/(loss) Continuing operations - before exceptional costs and goodwill 4,574 2,309 - exceptional costs (1,038) (1,314) _________________________ - after exceptional costs but before goodwill 3,536 995Discontinued operations - (226) _________________________ 3,536 769Goodwill amortisation (1,042) (1,042) _________________________Operating profit/(loss) 2,494 (273) _________________________ Continuing operations 2,494 (47)Discontinued operations - (226) _________________________Operating profit/(loss) 2,494 (273) Share of operating loss in joint venture - (115) Loss on termination of operations (763) (5,272)Profit on sale of properties 1,462 337 _________________________Profit/(loss) before interest 3,193 (5,323) Net interest payable 1,512 1,331 _________________________Profit/(loss) on ordinary activities before taxation 1,681 (6,654) Taxation credit 319 2,390 _________________________Profit/(loss) attributable to ordinary shareholders 2,000 (4,264) Ordinary dividends 613 613 _________________________Surplus/(deficit) for the year 1,387 (4,877) _________________________ Earnings per ordinary share Basic and diluted 3.9p (8.4p)Underlying 6.0p 0.9p _________________________ Dividend per ordinary share 1.2p 1.2p _________________________ Consolidated statement of total recognised gains and lossesYear ended 31 March 2005 2004 £000 £000 (as restated)______________________________________________________________________________Profit/(loss) attributable to ordinary shareholders 2,000 (4,264) Exchange gains/(losses) on the translation of overseas net assets 410 (539) _________________________Total recognised gains and losses relating to the year 2,410 (4,803) _____________ Prior period adjustment (324) _____________Total gains and losses recognised since last annual report 2,086 _____________ Note: The investment in own shares held under ESOP trusts have been treated inaccordance with the new requirements of UITF 38 and have been deducted fromequity. A prior period adjustment has been made to reflect the adoption of thisnew guidance. Consolidated balance sheetas at 31 March 2005 2004 £000 £000 £000 £000 (as restated) (as restated)___________________________________________________________________________________________Fixed assets Intangible assets 14,897 15,939Tangible assets 36,707 37,716Investments 10 10 _________ _________ 51,614 53,665 Current assetsStocks 13,685 13,596Debtors 22,193 24,546Pensions prepayment due after more than one year 14,013 13,052Cash at bank and in hand 9,938 7,693 _________ _________ 59,829 58,887 _________ _________ Creditors - amounts falling due within one yearBank loans and overdrafts 5,442 4,610Trade and other creditors 19,652 22,836Taxation 1,702 1,369Dividends 613 613 _________ _________ 27,409 29,428 _________ _________ Net current assets 32,420 29,459 _________ _________ Total assets less current liabilities 84,034 83,124 Creditors - amounts falling due after more than one year 30,350 31,086 Provision for deficit in joint ventureShare of gross assets 633 69Share of gross liabilities (686) (189) _________ _________ 53 120 Provisions for liabilities and charges 5,400 5,522 _________ _________Total net assets 48,231 46,396 ========= ========= Capital and reserves Called up share capital 2,594 2,594Share premium 41,772 41,772Revaluation reserve 840 852Other reserves 1,330 1,330ESOP reserve (905) (1,030)Profit and loss account 2,600 878 _________ _________Equity shareholders' funds 48,231 46,396 ========= ========= Consolidated cash flow statementyear ended 31 March 2005 2004 £000 £000________________________________________________________________________________Cash inflow from operating activities 6,303 1,654Returns on investments and servicing of finance (1,410) (1,350)Taxation 541 694Capital expenditure and financial investment (2,721) 4,560Acquisitions and disposals (95) -Equity dividends paid (613) (623) ____________________Cash inflow before use of liquid resources and financing 2,005 4,935 FinancingDecrease in debt (487) (2,938)Capital element of finance lease rentals (96) (168) ____________________Increase in cash in the year 1,422 1,829 ==================== 2005 2004 £000 £000________________________________________________________________________________ Reconciliation of net cash flow to movement in net debtIncrease in cash in the year 1,422 1,829Cash outflow from decrease in debt and lease financing 583 3,106 ____________________Change in net debt resulting from cash flows 2,005 4,935 Exchange movement 227 1,885 ____________________Movement in net debt in the year 2,232 6,820Net debt at beginning of the year (28,112) (34,932) ____________________Net debt at end of the year (25,880) (28,112) ==================== Turnover, operating profit / (loss) and net assets employedyear ended 31 March 2005 2004 Turnover Operating Net Turnover Operating Net £000 profit assets £000 profit assets £000 £000 £000 £000 (as restated) (as restated)____________________________________________________________________________________________________________________ By class of businessContinuing operationsTechnical plastics division 86,833 4,114 44,145 93,460 1,680 39,752Specialist wire division 20,841 1,378 12,982 22,192 1,896 11,976 ______________________________________________________________________________ 107,674 5,492 57,127 115,652 3,576 51,728 Exceptional costs (1,038) (1,314) ______________________________________________________________________________ 107,674 4,454 57,127 115,652 2,262 51,728 Discontinued operationsTechnical plastics division - - - 623 (226) - ___________ ___________Operating assets 57,127 51,728 Unallocated net liabilities (note 1) (8,896) (5,332) ___________ ________________________ ___________ 107,674 48,231 116,275 46,396 ______________________________________________________________________________Divisional operating profit 4,454 2,036 Central administration costs (918) (1,267)Goodwill amortisation (note 2) (1,042) (1,042) ___________ ___________Operating profit / (loss) 2,494 (273) =========== =========== By geographical area of originContinuing operationsUnited Kingdom 77,885 3,824 39,968 85,386 3,228 36,458United States of America 19,402 1,476 7,686 19,982 711 8,627Rest of World 10,387 192 9,473 10,284 (363) 6,643 ______________________________________________________________________________ 107,674 5,492 57,127 115,652 3,576 51,728Exceptional costsUnited Kingdom (932) (1,022)United States of America. (16) (172)Rest of World (90) (120) ______________________________________________________________________________ 107,674 4,454 57,127 115,652 2,262 51,728Discontinued operationsUnited Kingdom - - - 623 (226) - ___________ ___________Operating assets 57,127 51,728 Unallocated net liabilities (note 1) (8,896) (5,332) ___________ ________________________ ___________ 107,674 48,231 116,275 46,396 ______________________________________________________________________________Divisional operating profit 4,454 2,036 Central administration costs (918) (1,267)Goodwill amortisation (note 2) (1,042) (1,042) ___________ ___________Operating profit / (loss) 2,494 (273) =========== =========== Geographical segment - by destination