Carclo Regulatory News (CAR)

Carclo plc

Interim Report and Accounts

Half Year Results for the six months ended 30 September 2021

Carclo plc, a global provider of value-adding engineered solutions for the medical, diagnostics, optical, electronics and aerospace industries, announces its results for the six months to 30 September 2021 ("H1 2022").

The key financial performance measures for H1 2022 are summarised below:

Highlights

· Strong trading momentum and operational execution throughout the period delivered significant growth in both revenues and underlying operating margins

· Total revenues of £58.7m, up 17.5% on the prior year (H1 2021: £50.0m)

o Technical Plastics ("CTP") total revenues up 19.8% to £56.6m, tooling income up 48.2% to £9.1m, product sales up 15.6%

o Higher tooling income reflects new business wins, further building the pipeline for future product sales growth

o Aerospace revenue down £0.6m (23.6%) against a comparative period which benefited from the fulfilment of a strong pre-Covid order pipeline

· Underlying Operating Profit more than doubled to £3.7m (H1 2021: £1.5m) excluding the benefit of £2.1m of non-repeating US Covid grant income

· Statutory operating profit of £5.8m (H1 2021: £0.2m)

· Discontinued business income received of £0.7m from residual claims on LED Technologies business disposal (H1 2021: £nil)

· Net debt excluding lease liabilities at 30 September 2021 was £21.6m, a reduction of £2.8m compared to 30 September 2020.

· Net debt reduced by £1.0m to £28.4m (H1 2021: £29.4m), an increase of £0.8m in the six months to 30 September 2021, including £3.5m inventory increase mainly to protect materials availability against current supply chain uncertainties

· IAS19 Retirement Benefit liability down to £33.4m, reduced by £24.7m since September 2020 (and reduced by £3.9m since March 2021) from improved asset returns, additional employer contributions, and initiatives progressed with the Trustees

Notes:

(1) underlying results are those calculated before discontinued operations, separately disclosed items and exceptional items. A reconciliation to statutory figures is set out below.

Reconciliation of non-GAAP financial measures - H1 2022

Commenting on the results, Nick Sanders, Executive Chairman, said:

"The Group continued to make good progress in the first half of the financial year. In common with many companies, we experienced significant Covid-related operational headwinds, but despite these delivered a strong set of financial results. Our first half performance is ahead of our expectations even after the impact of one-off benefits is removed.

Our primary focus has been to continue to ensure our employees and communities remain safe, whilst increasing output in line with customer demand. This has been achieved despite the continuing effect of mandatory lockdowns and production restrictions in some countries.

Demand for CTP products in the medical and diagnostic sectors has continued to increase from both existing and new customers and we expect this will continue in the post-pandemic period. Labour shortages and increased labour costs, particularly in the US, increased raw material costs and extended logistic lead times have all presented significant challenges in the first half. We have responded by implementing a range of measures and have been able to mitigate some of the impact of cost pressures by increasing prices.

While maintaining our usual high level of delivery performance has been difficult in recent months, and this situation will take some months yet to fully recover, we nevertheless have been able to strengthen our customer and supply chain relationships in working through these challenges together.

Encouragingly, our CTP businesses in Asia have performed strongly in line with our strategy to grow more rapidly outside of our traditionally strong US and European markets.

We have also benefited from strong demand for tooling with significant orders received for both replacement and new projects. Tooling orders are generally a precursor to production orders which provides us with optimism about future demand.

Our Aerospace division is also showing the early signs of recovery with order intake in the first half exceeding sales. A number of new contracts with existing and some new customers have also been secured. It will however take some time for these orders to feed through into sales and profit.

Central costs have been well managed, and our continued focus of cash management has again delivered good cash headroom and reduced bank debt. The Group has also worked closely with the Pension Trustees to develop enhancements to the pension schemes which improve scheme benefits and reduce the overall deficit.

Subject to there being no significant deterioration in trading conditions as a result of supply chain or Covid-related disruption, the Board expects the positive commercial momentum seen in the first half to continue, with further product sales growth in H2. Trading margins for the second half are expected to be slightly lower than H1, reflecting the current higher cost environment. Nevertheless, the Board currently anticipates full year underlying trading will be slightly ahead of expectations, with the one-off benefits of the Covid-related grant income and contribution from discontinued operations incremental to this.

Enquiries

Carclo plc Nick Sanders - Executive Chairman 01924 268040

FTI Consulting Nick Hasell / Susanne Yule 020 3727 1340

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

The alternative performance measures are defined in the financial review of the Annual Report and Accounts (ARA) for the year ended 31 March 2021, with a reconciliation to statutory figures included in this Half Year Report to aid the user of these accounts. The Directors believe that alternative performance measures provide a more useful comparison of business trends and performance. The term 'underlying' is not defined under IFRS and may not be comparable with similarly titled measures used by other companies. Operating profit before exceptional items is not referred to in the ARA for the year ended 31 March 2021.

Overview of Results

The Group delivered a strong trading performance in H1 2022, ahead of the Board's expectations, making progress over the prior year period on all the listed key performance measures. This was achieved despite continuing Covid-related headwinds on the Carclo supply chain, in common with many international businesses.

Comparing all results with H1 2021, Group revenues rose 17.5% to £58.7m (H1 2021: £50.0m).

Technical Plastics ("CTP") revenues rose 19.8% to £56.6m (H1 2021: £47.2m), including a 15.6% increase in product sales to £47.5m (H1 2021: £41.1m) and a 48.2% increase in tooling income to £9.1m (H1 2021: £6.1m).

The higher proportion of new and existing business converted into tooling income in the period will also help drive on subsequent product sales.

CTP underlying operating profit rose by 48.3% to £4.8m (H1 2021: £3.2m) as a result of improved tooling and product sales, with an additional £2.1m recognised in respect of a Covid-related US government loan which was forgiven and converted into grant income in H1 2022. All other Covid-related costs and credits are also included in operating profit. Other non-US Covid-related credits amounted to £0.1m in the period.

As anticipated, Aerospace revenue of £2.1m was down £0.6m on the previous period which benefited from a high pre-Covid order pipeline. Whilst the aerospace industry remains heavily impacted by the pandemic, the division continued to be profitable with £0.2m delivered in the period, a reduction of £0.3m. Encouragingly, the division is already seeing orders recover. These have been tracking ahead of revenues for the Aerospace business over recent months and will gradually benefit sales as the orders convert.

On a constant currency basis revenue from continuing operations increased by 23.3%, and underlying operating profit by 149.7%.

Central costs have been well managed, and our continued focus on cash management has again delivered good cash headroom and helped reduce net bank debt to £21.6m (H1 2021: £24.4m). Central costs including pension administration costs reduced from £2.2m to £1.3m and finance costs increased from £1.1m to £1.4m. Finance costs comprise net interest payable on bank loans and leases of £1.0m (H1 2021: £0.7m) including bank commitment fees, and net interest on the defined benefit pension liability of £0.4m (H1 2021: £0.4m).

There were no exceptional costs recognised in the period (H1 2021: £1.3m). The Board concluded that Covid-related costs and credits, given the indeterminate nature of evaluating the additional costs, should all be included within operating costs.

A further residual £0.7m was received following final distribution by administrators of the discontinued LED business exited in December 2019, with the income being shown separately from continuing operations.

The Group statutory profit before tax was £4.4m (H1 2021: loss (£0.9m)). 

Taxation was a credit of £0.4m against a statutory profit before tax of £4.4m, giving an effective tax credit rate of 8.5% (H1 2021: tax expense £0.5m giving a 52.7% effective tax rate on a pre-tax loss of £0.9m). The result includes a £0.9m credit from renewed deferred tax asset recognition from UK combined businesses which have returned to forecasting taxable profits, providing available tax losses to be set off against future profits. The underlying effective tax rate, after excluding the deferred tax credit of £0.9 million, amounts to 20.4% of underlying profit before tax (H1 2021: 104.3%).

Underlying earnings per share from continuing operations for H1 2022 was 2.5 pence (H1 2021: 0.0 pence). The statutory earnings per share for the period, for all operations, was 7.5 pence (H1 2021: loss of 1.8 pence).

Board changes

As reported in our Full Year Results on 30 June 2021, Peter Slabbert and David Toohey stepped down from the Board as Non-Executive Directors on 31 March 2021 and 30 April 2021 respectively.

Eric Hutchinson and Frank Doorenbosch were appointed to the Board as Non-Executive Directors on 7 January 2021 and 1 February 2021 respectively. Eric became Chair of the Audit Committee in March 2021, taking over from Peter Slabbert. Frank took over as Chair of the Remuneration Committee in April 2021 following David Toohey's departure.

Financial Position

Cash generated from continuing operations during the first half was £2.0m (H1 2021: £0.6m), including increased cash payments (net of administration costs) into the pension scheme of £1.8m (H1 2021: £1.0m) and a net working capital increase of £3.3m (H1 2021: £2.3m), of which £3.5m related to inventory increases mainly to protect operations amidst post-Covid supply chain disruption.

Gross cash capital expenditure for the period was £3.5m (H1 2021: £0.8m).

As a result, net debt excluding lease liabilities reduced by £2.8m to £21.6m (H1 2021: £24.4m), and net debt reduced by £1.0m to £28.4m compared to 30 September 2021.

At 30 September 2021, the Group's total UK bank facilities were £33.6m of which £30.1m related to a term loan and £3.5m to a revolving credit facility.

No additional government COVID-19 support was received in cash during the period (H1 2021: £3.9m of which £2.6m was presented within interest bearing loans and borrowings).

The Group's IAS 19 pension deficit reduced to £33.4m as at 30 September 2021 (30 September 2020: £58.1m and 31 March 2021: £37.3m) on additional contributions made by the Group, backed by improved asset returns and initiatives progressed with the Trustees. No change was made in the discount rate assumption of 2.0% since March 2021 and no changes were made at this stage in the mortality assessments. No initial data has yet been released on the triennial actuarial valuation of March 2021. Relevant data here will be taken into account to the extent that it is available for IAS19 valuation purposes at the end of the financial year.

In accordance with the recovery plan agreed by the Pensions Regulator and pension scheme trustees, total contributions paid by the Company (for deficit recovery contributions and scheme administration costs) for the six-month period were £2.1m (H1 2021: £1.1m). Total contributions for the six-month period to 31 March 2022 are expected to be £1.8m.

DividendUnder the terms of its financing agreements the Company is not permitted to make a dividend payment to shareholders up to the period ending in July 2023.

Outlook

Subject to there being no significant deterioration in trading conditions as a result of supply chain or Covid-related disruption, the Board expects the positive commercial momentum seen in the first half to continue, with further product sales growth in H2. Trading margins for the second half are expected to be slightly lower than H1, reflecting the current higher cost environment. Nevertheless, the Board currently anticipates full year underlying trading will be slightly ahead of expectations, with the one-off benefits of the Covid-related grant income and contribution from discontinued operations incremental to this.

Principal Risks and Uncertainties

In the Annual Report for the year ended 31 March 2021 a detailed review of the principal risks faced by the Group, and how these risks were being managed, was provided. We continue to face, and proactively manage, the risks and uncertainties in our business and, whilst the Board considers that these principal risks and uncertainties have not materially changed since the publication of the 2021 Annual Report, it is worth noting that:

· COVID-19 related uncertainty continues as to the impact on the Group's markets and geographies evolving over time. It is possible that the Group's operations, its supply chains and customer demand could continue to be further impacted, particularly in the US, where labour and material shortage experience has been most acute;

· the impact of Brexit has to some extent become intertwined with post-Covid impact on labour and materials resource shortages in the supply chain and as such is seen as a lesser but contributory factor in the COVID-19 risks identified above; and

· during the current period significant new tooling agreements have been either entered into or progressed with new and existing customers. These agreements and pending subsequent agreements for the supply of manufactured product are subject to operational execution risk.

Going Concern

These interim financial statements have been prepared on a going concern basis as detailed in Note 1 to these interim accounts. While headroom against banking covenants has increased significantly over the last 6 months, it should continue to be noted that any material manifestation of the above risks, individually or in combination, could lead to a breach of the Group's banking covenants. Management has considered the impact of potential mitigations including improved trading, cost saving and working capital management initiatives, as well as compensation from customers in respect of delays and it considers that the potential benefits from these give sufficient comfort that the downside risks can be mitigated. If it were not possible to mitigate a potential breach the bank would be approached to request that it considers issuing a waiver for any covenant that may be breached.

Responsibility Statement

We confirm to the best of our knowledge:

(a) the condensed consolidated set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting;

(b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

By order of the Board,

Nick Sanders Phil White Executive Chairman Chief Financial Officer 

18 November 2021

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