Carclo Regulatory News (CAR)

20 November 2012

Carclo plc

("Carclo" or "the group")

Half year results for the six months ended 30 September 2012

Carclo plc, the technology led plastics group, today announces a solid first half performance in line with the board's expectations.

Highlights

·; Conductive Inkjet Technology ("CIT") has made its first production shipment for touch sensors for a low volume smartphone and is in the final stages of production validation for a high volume tablet computer

·; Technical Plastics had lower turnover of £26.4 million (2011 - £28.3 million) as expected due to timing delays on the recognition of sub contract tooling revenues. Underlying operating profits reduced to £1.3 million (2011 - £1.9 million). The second half of the year is expected to be much stronger than the first half of this year

·; LED Technologies benefited from growth in its supercar lighting business and improved manufacturing efficiencies which together resulted in underlying operating profits improving to £0.9 million (2011 - £0.7 million). Turnover of £11.5 million (2011 - £16.3 million) was lower due to the exit from the automotive communication business in 2011

·; Precision Engineering had a strong first half generating underlying operating profits of £0.7 million (2011 - £0.6 million)

·; Carclo Diagnostic Solutions ("CDS") has continued to make good technical progress and there is now significant external interest in the formation of commercial partnerships to exploit this technology

·; July's equity placing raised £12.6 million for the group to use for investment in technology and debt reduction

·; Profit before tax of £1.9 million (2011 - £1.3 million)

·; Basic earnings per share increased to 2.3 pence (2011 - 1.6 pence)

·; Interim dividend increased to 0.80 pence per share (2011 - 0.75 pence)

Commenting on the results, Michael Derbyshire, chairman, said -

"Our businesses continue to win new contracts despite the uncertain global economic environment. We expect a stronger second half trading performance and our core operations remain on track to deliver a satisfactory year. Contract awards throughout our businesses, coupled with further capital investment in infrastructure and technology support our confidence in the future growth of the group.

We are now starting to see the first substantial rewards from the significant investment in CIT and anticipate a good maiden contribution from CIT's touchscreen business in the final quarter and rapid growth thereafter. Our CDS business has also made considerable progress and has attracted a high level of interest from a wide range of potential partners.

The balance sheet has been strengthened by the equity fund-raising and our financing is secure."

Enquiries

A presentation for analysts will be held at 9.30 a.m. on 20 November 2012 at the offices of Weber Shandwick Financial, 2 Waterhouse Square, 140 Holborn, London EC1N 2AE.

Notes to editors

About Carclo

Carclo plc is a technology led plastics group. It is a public company whose shares are quoted on the London Stock Exchange.

Approximately three fifths of revenues are derived from the supply of fine tolerance, injection moulded plastic components, which are used in medical, optical and electronics products. This business, Carclo Technical Plastics, operates internationally in a fast growing and dynamic market underpinned by rapid technological development.

Approximately two fifths of revenues are derived from the supply of specialised precision components to the premium automotive and aerospace industries and LED optics for a wide range of end applications. Carclo is a leader in the development of high power LED lighting for supercars.

Carclo's strategy is to develop new technologies and products to drive future growth. Its investment in Conductive Inkjet Technology is at the heart of the newly emerging market for very low cost printed electronics.

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 continued to trade in line with the board's expectations in the first half of the current financial year and the group is expected to generate a stronger second half performance . Conductive Inkjet Technology made the first production shipments for touch sensors in September and is in the final stages of production validation for a high volume tablet computer with volume shipments before the end of the calendar year that will trigger the $10.0 million prepayment from our commercial partner.

In our newly created LED Technologies division the benefits of withdrawing from the volume automotive communications market can be seen in increased margins with further growth in our supercar lighting business. In Precision Engineering our aerospace businesses continue to perform well. Technical Plastics continues to develop its strongposition in the medical diagnostics and electronics sectors. Carclo Diagnostic Solutions continues to make excellent technical and commercial progress.

Underlying operating profits of £2.2 million were marginally down on the prior year with better performances by LED Technologies and Precision Engineering offsetting an expected reduction in operating profits in Technical Plastics.

The net finance charge of £0.3 million (2011 - net credit of £0.3 million) reflects the reduction in the net IAS 19 pensions financing credit.

The group generated a profit before tax in the six months to 30 September 2012 of £1.9 million (2011 - £1.3 million), with the better result largely due to the £1.2 million charge taken in 2011 in respect of the costs of exiting the volume automotive communication business offset by the reduction in the IAS 19 financing credit. Consequently, basic earnings per ordinary share increased by 43.8% to 2.3 pence.

Financial position

In July we completed an equity placing raising £12.6 million net of costs, and as a result net debt at 30 September was £11.4 million, well below the year-end net debt of £18.0 million and the net debt of £19.0 million a year ago. This represents gearing on assets (excluding the net pension deficit) of 15.2% (2011 - 31.3%). Cash generated from operations was £1.6 million (2011 - £4.9 million) with working capital increasing by £2.2 million (2011 - reduction of £1.0 million) reflecting the build-up of development and tooling work-in-progress. Capital expenditure in the six months to 30 September 2012 increased to £3.8 million (2011 - £1.9 million) as we invested in the new Cambridge facility for CIT and purchased the Technical Plastics facility in Bangalore. Investment in new technologies continued at a high level with £1.7 million (2011 - £1.0 million) invested in development costs at CIT and CDS.

As at 30 September 2012 the total drawings on the group's £20.0 million medium term loan facilities were £17.5 million. These committed facilities run until November 2015. The facilities are competitively priced in the current market, and the group has significant levels of headroom on its main banking covenants. The group also has available overdraft facilities totalling £11.5 million.

The board has declared an increased interim dividend of 0.80 pence per ordinary share. The dividend will be paid on 9 April 2013 to shareholders on the register on 1 March 2013. The shares will trade ex-dividend from 27 February 2013.

Operating review

Technical Plastics

Technical Plastics reported revenues of £26.4 million, down 6.7% on the same period last year. Operating profits, before rationalisation costs, reduced by £0.5 million to £1.3 million. This is mainly due to the timing of profit recognition on new customer funded tooling and development projects and consequently this situation is expected to reverse in the second half.

New business awards, both from existing and new customers, have been better than expected and this provides a driver for future growth in this business. In particular, we expect significant levels of growth to come from our US operations.

We have continued to invest to support the growth of our medical and electronics businesses and have brought forward the planned capacity expansion in the US to accommodate the new contract awards. This will involve a substantial redevelopment of our Latrobe facility in 2013. During the first half of the year we acquired the land and buildings occupied by our operations in Bangalore. This has provided the necessary footprint to service increasing manufacturing volumes today, and an ability to expand further as demand increases.

The effect of some customer specific weakness in schedules should be compensated by new business awards and the profit from development and tooling projects in the second half of the financial year.

LED Technologies

In this financial year we have formed an LED Technologies division to increase our focus on this growing market. This new division combines the LED Optics business previously reported within Technical Plastics and the Wipac supercar lighting business previously reported within Precision Products.

The LED Technologies division generated sales of £11.5 million and operating profits of £0.9 million. Sales in the prior year of £16.3 million and operating profits of £0.7 million are not directly comparable as they include Wipac's high volume automotive communication business which we withdrew from in March 2011. However, the improvement in profitability reflects the success of Wipac's LED based supercar lighting business coupled with the benefits of exiting the lower margin automotive communication business. Wipac has continued to win new supercar lighting programmes and these will generate significant design, development and tooling revenues over the next two years. The LED Optics business has benefited from the change in management and sales have started to increase in the latter part of the period.

Precision Engineering

The aerospace businesses showed good growth over the prior year with turnover of £4.0 million (2011 - £3.6 million) and operating profits of £0.7 million (2011 - £0.6 million). These businesses continue to achieve strong margins and cash generation.

Conductive Inkjet Technology ("CIT")

At CIT there has been an intense focus on the commercialisation of our Fine Line Technology for touch screen applications. The Cambridge pilot line achieved full production validation from our partner in early September, and the first production shipment for a low volume smartphone was achieved at the end of September. Further shipments are underway for this programme. We are in the final stages of production validation for a high volume tablet computer with a major tier 1 customer. A large pre-production batch is in build at the end customer and our schedules show volume shipments commencing before the end of the calendar year. The first production shipment on this programme will trigger the $10.0 million prepayment from our commercial partner.

This is a high volume programme and it will take most of the initial capacity on the Cambridge pilot line. The Colorado production line operated by our partner is expected to achieve full production validation before the end of the year which will immediately double available capacity. In a change of approach by our partner, the Cambridge and Colorado lines will be expanded in tandem. The capacity of the Cambridge line will be increased three-fold by April 2013.

Planning of the new production facility in Cambridge is well underway. The new high speed coating line will be operational early in the new financial year. A second high speed coating line (to be operated as a 'hot' second source by CIT) will be installed in Colorado soon after. This will increase the surge capacity on coated film to 1 billion 3.1" screen equivalents. Further equipment is on order to increase the finished sensor production capacity at Colorado through the balance of 2013.

Engagement with customers is at a high level which gives us confidence that our increasing capacity will be utilised in full. Technical progress throughout the year has enabled CIT touch sensors to have optical performance at least equivalent to Indium Tin Oxide ("ITO") and CIT expects to benefit from significant customer take-up due to its compelling technical advantages; which include edgeless borders, curved surfaces, greater linearity, thinner materials and in the case of larger screens, savings on component cost due to our greater electrical performance.

CIT's other core technologies have continued to progress well and CIT will soon be expanding its product offering within its Printed Electronics business with the addition of further capabilities which will facilitate a more rapid commercialisation of its unique interconnect technology. Our projects on electrodes for Organic Photovoltaics and Organic Lighting have continued and we expect these projects to complete successfully in 2013.

Carclo Diagnostic Solutions ("CDS")

Carclo Diagnostic Solutions was formed to retain and develop ownership of the patents related to the hardware developments made by Carclo in support of Platform Diagnostics Limited. We have continued to make excellent technical progress and have proof of concept devices for the three micropoc families - lite, cat and pro. We are well advanced in discussions with a commercial partner which will see micropoc products launched commercially towards the end of 2013. Further information on these developments will be released upon their completion.

Risks and uncertainties

In the annual report to shareholders in June 2012 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 there has been no significant change in the risks faced by the group.

Outlook

Our businesses continue to win new contracts despite the uncertain global economic environment. We expect a stronger second half trading performance and our core operations remain on track to deliver a satisfactory year. Contract awards throughout our businesses, coupled with further capital investment in infrastructure and technology, support our confidence in the future growth of the group.

We are now starting to see the first substantial rewards from the significant investment in CIT and anticipate a good maiden contribution from CIT's touchscreen business in the final quarter and rapid growth thereafter. Our CDS business has also made considerable progress and has attracted a high level of interest from a wide range of potential partners.

The balance sheet has been strengthened by the equity fund-raising and our financing is secure.

Michael Derbyshire

Chairman

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

The condensed consolidated half year report for Carclo plc ("Carclo" or "the group") for the six months ended 30 September 2012 has been prepared on the basis of the accounting policies set out in the audited accounts for the year ended 31 March 2012 and in accordance with the Disclosure and Transparency Rules of the UK Financial Services 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 on page 21.

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 2012 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 2012 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 20 November 2012 and is being sent to shareholders on 30 November 2012. 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 2012 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 2012.

There have been no new standards, amendments or interpretations that have impacted Carclo during the current financial year.

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 2012.

4. Segment reporting

At 30 September 2012, the group was organised into four, separately managed, business segments - Technical Plastics, LED Technologies, Precision Engineering and Conductive Inkjet 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 general executive committee).

Formerly the group reported three business segments, Technical Plastics, Precision Products and Conductive Inkjet Technology. Following the combination of the LED optics business previously contained within Technical Plastics and the Wipac supercar lighting business previously contained within Precision Products to form LED Technologies, the directors receive and report results over the four segments detailed above. Consequently the group has restated the previous segmental reporting to provide comparatives under the new segmentation.

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 supercars.

The Precision Engineering segment supplies systems to the manufacturing and aerospace industries

The Conductive Inkjet Technology segment undertakes applied research into the digital printing of conductive metals onto plastic substrates.

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 2012 were as follows -

The segment results for the six months ended 30 September 2011 following restatement as a result of a change in operating segments in the period were as follows -

The segment results for the year ended 31 March 2012 following restatement as a result of a change in operating segments in the period were as follows -