Carclo Regulatory News (CAR)

Carclo plc

("Carclo" or "the Group")

Half year results for the six months ended 30 September 2016

Strong profit growth across the business

Carclo plc, the global manufacturing group, announces a strong trading performance across its divisions in the first half of the financial year, with all businesses trading in line with the board's expectations.

* underlying is defined as before all exceptional items

· Group revenue increased by 10.7% to £63.3 million (2015 - £57.2 million)

· Operating profit before exceptional items increased by 19.0% to £5.6 million (2015 - £4.7 million), with underlying operating margin increasing by 62 basis points to 8.8% (2015 - 8.2%)

· Earnings per share increased by 24.4% to 5.6p (2015 - 4.5p)

· Increased profitability driven by strong performances from the Technical Plastics and LED Technologies divisions

· As anticipated net debt rose to £27.6 million at the half year (31 March 2016 - £24.8 million), due partly to the impact of currency movements on the retranslation of the Group's US dollar and Euro denominated medium term loans; the Group's financing remains secure and well within covenant requirements 

· IAS 19 retirement benefit liability net of deferred tax increased to £42.6 million from £18.9 million at the previous year end; a long term pension deficit funding agreement with the trustees is in place with the next triennial valuation at 31 March 2018

Operational Highlights

· In Technical Plastics divisional operating margin increased to 8.8% (2015 - 8.0%) and we have commenced the expansion of our Bangalore, India facility that will double its overall capacity

· Following the period end we have completed the acquisition of Precision Tool & Molding, LLC, trading as Precision Tool & Die, which will bring significant new capabilities to Technical Plastics and broaden the division's offering to its customers and also completed a new share placing to repay the short-term debt facility used to fund the initial consideration for the acquisition and to reduce medium term debt

· In LED Technologies, all of Wipac's current design, development and tooling projects, including its new medium volume lighting project, are on plan

· The Aerospace division has benefited from stable demand in the first half of the financial year

Commenting on the results, Michael Derbyshire, Chairman said -

"The Group has enjoyed a strong first half trading performance with all divisions performing well and showing solid progress over the comparative period last year.

In particular, our strategy to invest in increased capacity in our Technical Plastics division is continuing to facilitate strong growth in revenues which is resulting in good margin appreciation. The exciting acquisition of Precision Tool & Die provides further capabilities and opportunities for this division and its customer base has been enthusiastic about the combination of our businesses leading to an enhanced offering.

In LED Technologies, our Wipac luxury and supercar lighting business has continued to perform well, benefiting from good product demand and its continuing ability to win new customer programmes and it is expected to deliver significant growth into the future.

The board confirms that the Group is trading in line with its expectations for the full year and expects the Group to have a stronger second half of the financial year, benefiting additionally from the anticipated contribution from the Precision Tool & Die acquisition."

Enquiries

Carclo plc 020 7067 0700 (today)

Chris Malley, chief executive 01924 268040 (thereafter)

Robert Brooksbank, finance director

Weber Shandwick Financial 020 7067 0700

Nick Oborne / Tom Jenkins

A presentation for analysts will be held at 9.00 a.m. on 15 November 2016 at the offices of Weber Shandwick Financial, 2 Waterhouse Square, 140 Holborn, London EC1N 2AE.

Notes to editors

About Carclo

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

Carclo's strategy is to develop and expand its key manufacturing assets in markets where there are significant further opportunities to drive shareholder value. To enhance profit margins and support its customers, the group has been investing across its global footprint.

Approximately three fifths of group revenues are generated from the supply of fine tolerance, injection moulded plastic components, mainly for medical products. The balance of group revenue is derived mainly from the design and supply of specialised injection moulded LED based lighting systems to the premium automotive industry.

Forward looking statements

Certain statements made in this announcement 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.

Overview

Carclo has traded strongly in the first half of the financial year, with good revenue and profit progression in Technical Plastics, good progress in LED Technologies and with the Group delivering an overall performance in line with the board's expectations.

Group revenues increased by 10.7% to £63.3 million (2015 - £57.2 million). Group underlying operating profits of £5.6 million were significantly higher than those for the comparative period last year (2015 - £4.7 million). This was driven by excellent performances in Technical Plastics and LED Technologies, with the performance of Aerospace broadly consistent with the comparative period last year.

Unallocated costs were a little higher than the comparative period last year at £1.5 million (2015 - £1.2 million) but in line with the previous half year period. The IAS 19 pension finance charge at £0.4 million (2015 - £0.2 million) was also higher than in the comparative period last year. Underlying profit before tax increased 18.9% to £4.8 million (2015 - £4.1 million).

The Group generated profit before tax in the six months to 30 September 2016 of £4.8 million (2015 - £4.1 million). As a result, earnings per share for the six months to 30 September 2016 increased 24.4% to 5.6p (2015 - 4.5p).

The board expects the Group to have a stronger second half performance reflecting in particular further growth in its Technical Plastics division which will benefit additionally from the integration of and profits generated by Precision Tool & Die.

Operating review

The Group's Technical Plastics business reported revenues of £39.2 million (2015 - £31.5 million), an increase of 24.7% on the comparative period last year. Divisional operating profits increased by 36.7% to £3.5 million (2015 - £2.5 million). The divisional operating margin increased from 8.0% to 8.8% and we expect this margin to increase further in the second half of the year towards our medium-term target of 10% for this division.

Our UK business has outperformed expectations in the first half of the financial year with good product demand from many of its customers and strong sub contract tooling activity.

Our US business has continued to trade well benefiting from good customer demand and cost management. The expansion of our Tucson, Arizona facility has now been completed and the integration of Precision Tool & Die is underway and this business is expected to contribute sales and profits in the second half of the financial year.

We have commenced the expansion of our Bangalore, India facility on our land adjacent to the existing facility. This investment should double the capacity of this business by the summer of 2017. Our new facility in Taicang, China is operating well, and supporting the growth of its main medical customer and is now beginning to secure new opportunities from both new and existing customers.

This division derives the majority of its revenues from outside the UK and, therefore, movements in foreign exchange rates do affect its financial results with sales in the first half around £2 million higher than at the previous year's rates. Whilst foreign exchange contracts that we put in place prior to the EU Referendum have limited the net benefit on profit from foreign exchange rates in the first half of the financial year, we expect to benefit from the retranslation of overseas profits during the second half of the financial year should sterling rates remain broadly at current levels.

The Group's LED Technologies division is made up of our Wipac luxury car and supercar lighting business, based in Buckingham, UK and our LED Optics and aftermarket business, based in Aylesbury UK.

Performance in the division during the first half of the year was ahead of the comparative period last year despite slightly lower turnover of £20.6 million (2015 - £21.2 million) mainly due to the phasing of design, development and tooling contracts. Divisional operating profit increased by 5.4% to £2.9 million (2015 - £2.8 million).

Lighting product sales have been in line with targets due to good demand across a range of customers. Design, development and sub contract tooling revenues, which in aggregate made up just over half of Wipac's sales, were slightly ahead of expectations and this has driven an improved profits performance by the division for the period. All of Wipac's current design, development and tooling projects, including its new medium volume lighting project, are on plan. The market for low and medium volume lighting projects has remained strong and we continue to see good growth in this sector with Wipac well placed to deliver significant growth into the future.

Our LED Optics business enjoyed a strong first half, benefiting especially from strong demand for custom optics. We are commencing the process of consolidating some of our LED Optics manufacturing business in our Technical Plastics facility in Brno, Czech Republic and this should enable the business to benefit from both additional production space and the lower cost base.

The Group's aerospace business enjoyed a good first half performance, with sales of £3.5 million (2015 - £3.1 million) and divisional operating profits of £0.7 million (2015 - £0.6 million). We are planning to target more OEM work in our machined components business which has traditionally been focussed on the spares market.

This business continues to be both very profitable and cash generative for the Group, with little ongoing investment required.

Carclo Diagnostic Solutions

The closure of Carclo Diagnostic Solutions ("CDS"), which was announced in our statement of 16 May 2016, will be completed by the end of the calendar year.

Acquisition of Precision Tool & Die ("PTD") and associated Equity Fund Raising

On 14 October 2016 the Group announced that its US subsidiary, CTP Carrera Inc., had acquired Precision Tool & Molding, LLC, trading as Precision Tool & Die, for an initial consideration of US$5.5 million (approximately £4.5 million) in cash plus further deferred consideration of up to US$1.0 million (approximately £0.8 million) in cash, subject to the satisfaction of certain performance criteria. The completion consideration was also subject to a working capital adjustment of up to US$750,000 (approximately £615,000) of which an initial payment of US$256,397 (approximately £210,000) was paid on completion of the acquisition. The total working capital adjustment will be determined shortly. The acquisition was funded by an additional short term debt facility which has been repaid using the proceeds of a placing of approximately 6.6 million new ordinary shares at a price of 120 pence, raising net proceeds of approximately £7.7 million after costs.

Financial position

Net debt has risen since the last financial year-end to £27.6 million (31 March 2016 - £24.8 million). Debt was expected to rise slightly due to the high level of ongoing capital expenditure and an increase in working capital to support growth in our businesses, and additionally reflects the negative impact of weaker sterling on the re-translation of the Group's foreign currency denominated borrowings.

The Group generated cash from operations of £3.2 million (2015 - £2.5 million) with working capital increasing by £4.5 million (2015 - £6.4 million) due mainly to a significant increase in trade debtors resulting from the invoicing of a large tooling contract in our UK Technical Plastics business just prior to the half year end. Capital expenditure in the six months to 30 September 2016 on a cash basis was £3.6 million (2015 - £3.2 million) the majority of which relates to investment in additional capacity in our US and UK Technical Plastics businesses. The retranslation of the Group's Euro and US dollar denominated medium term loans resulted in an increase in the sterling value of the Group's net debt of £1.3 million since the previous financial year end.

Since the half year end the Group announced the placing of approximately 6.6 million new shares at 120 pence per share raising net proceeds of £7.7 million, of which approximately £4.7 million was used to repay the short-term debt facility used to fund the initial consideration for the acquisition of Precision Tool & Die. The additional funds raised have mainly been utilised to repay part of the Group's medium term loan facility and this will result in a reduction in the Group's net debt at the financial year end. The Group's balance sheet remains strong and its financing is well within its two main banking covenant limits.

The Group's pension deficit net of applicable deferred tax under IAS19 "Employee Benefits" as at 30 September 2016 has increased to £42.6 million from £18.9 million at 31 March 2016.

Although the Pension Scheme's assets have increased in value by £5.5 million, the Pension Scheme liability has increased by £33.6 million since 31 March 2016. This increased liability has mainly resulted from the significant reduction in the corporate bond yield (from 3.5% to 2.3%) during the period. As reported in our trading update of 14 October 2016, the material increase in the IAS19 pension deficit has extinguished Carclo plc's distributable reserves and so the Group was unable to pay the recommended final dividend of 1.95 pence per share which was referred to in the results announcement made on 7 June 2016. As a consequence, the Group has not declared an interim dividend.

The cash cost of the pension scheme has, however, remained at similar levels and the annual recovery plan payment of £1.2 million was made subsequent to the 30 September 2016 period end. The Group's next triennial valuation is expected to be as at 31 March 2018.

Risks and uncertainties

In the annual report to shareholders in June 2016 we provided a detailed review of the risks faced by the Group and how these risks are managed. We continue to face, and proactively manage, the risks and uncertainties in our business and, while recognising some increased economic uncertainty post the EU referendum and the US elections, the board does not consider that the principal risks and uncertainties have changed since the publication of the Annual Report for the year ended 31 March 2016.

Outlook

The Group has enjoyed a strong first half trading performance with all divisions performing well and showing solid progress over the comparative period last year.

In particular, our strategy to invest in increased capacity in our Technical Plastics division is continuing to facilitate strong growth in revenues which is resulting in good margin appreciation. The exciting acquisition of Precision Tool & Die provides further capabilities and opportunities for this division and its customer base has been enthusiastic about the combination of our businesses leading to an enhanced offering.

In LED Technologies, our Wipac luxury and supercar lighting business has continued to perform well, benefiting from good product demand and its continuing ability to win new customer programmes and it is expected to deliver significant growth into the future.

The board confirms that the Group is trading in line with its expectations for the full year and expects the Group to have a stronger second half of the financial year, benefiting additionally from the anticipated contribution from the Precision Tool & Die acquisition.

Condensed consolidated income statement 

Condensed consolidated statement of comprehensive income

Condensed consolidated statement of financial position

Condensed consolidated statement of changes in equity

Attributable to equity holders of the company

Condensed consolidated statement of cash flows

1. Basis of preparation

Except as outlined below, the condensed consolidated half year report for Carclo plc ("Carclo" or "the Group") for the six months ended 30 September 2016 has been prepared on the basis of the accounting policies set out in the audited accounts for the year ended 31 March 2016 and in accordance with the Disclosure and Transparency Rules of the UK Financial Conduct Authority and the requirements of IAS 34 "Interim Financial Reporting" as adopted by the EU.

The financial information is unaudited, but has been reviewed by the auditors and their report to the company is set out below.

The half year report does not constitute financial statements and does not include all of the information and disclosures required for full annual statements. It should be read in conjunction with the annual report and financial statements for the year ended 31 March 2016 which is available either on request from the company's registered office, Springstone House, PO Box 88, 27 Dewsbury Road, Ossett, WF5 9WS, or can be downloaded from the corporate website - www.carclo-plc.com.

The comparative figures for the financial year ended 31 March 2016 are not the company's statutory accounts for that financial year. Those accounts have been reported on by the company's auditors and delivered to the Registrar of Companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain statements under Section 498 (2) of the Companies Act 2006.

The half year report was approved by the board of directors on 15 November 2016 and is being sent to shareholders on 25 November 2016. Copies are available from the company's registered office and can also be downloaded from the corporate website.

The Group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRSs").

The Group meets its day-to-day working capital requirements through its banking facilities. The Group's business activities and financial position, the factors likely to affect its future development and performance, and its objectives and policies in managing financial risks to which it is exposed are disclosed in the Group's 2016 Annual Report and Accounts. After making enquiries, 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 condensed interim financial statements.

2. Accounting policies

The accounting policies, methods of computation and presentation applied by the Group in this condensed consolidated half year report are the same as those applied by the Group in its annual report and financial statements for the year ended 31 March 2016.

Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Group's accounting period beginning on or after 1 April 2016. The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 April 2016:

Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11);

Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38);

Equity Method in Separate Financial Statements (Amendments to IAS 27);

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28);

Annual Improvements to IFRSs 2012 - 2014 Cycle; and

Disclosure Initiative (Amendments to IAS 1).

The above standards are not expected to have a material impact on the Consolidated Financial Statements.

IFRS 15 - "Revenue From Contracts With Customers" has been published which will be mandatory for the Group's accounting period beginning on or after 1 April 2018. The Group is still considering the impact of this standard however it is anticipated the impact on the financial position and performance of the Group will not be material. 

IFRS 16 - "Leases" has been published which will be mandatory for the Group's accounting period beginning on or after 1 April 2019. The Group is still considering the impact of this standard however it is anticipated the impact on the financial position and performance of the Group will not be material. 

3. Accounting estimates

The preparation of the half year financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. In preparing these half year financial statements, the significant judgements made by management in applying the Group's accounting policies and the key source of estimation uncertainty were the same as those applied to the audited consolidated financial statements as at, and for the year ended, 31 March 2016.

4. Segment reporting

The Group is organised into four, separately managed, business segments - Technical Plastics, LED Technologies, Aerospace and CIT Technology. These are the segments for which summarised management information is presented to the Group's chief operating decision maker (comprising the main board and group executive committee).

The Technical Plastics segment supplies fine tolerance, injection moulded plastic components, which are used in medical, optical and electronics products. This business operates internationally in a fast growing and dynamic market underpinned by rapid technological development.

The LED Technologies segment develops innovative solutions in LED lighting, and is a leader in the development of high power LED lighting for luxury cars and supercars.

The Aerospace segment supplies systems to the manufacturing and aerospace industries.

The CIT Technology segment manages its portfolio of IP over the digital printing of conductive metals onto plastic substrates.

The Unallocated segment also includes the Group's development companies, Platform Diagnostics Limited and Carclo Diagnostic Solutions.

Transfer pricing between business segments is set on an arm's length basis. Segmental revenues and results include transfers between business segments. Those transfers are eliminated on consolidation.

The segment results for the six months ended 30 September 2016 were as follows -

The segment results for the six months ended 30 September 2015 were as follows -

The segment results for the year ended 31 March 2016 were as follows -