Carclo Regulatory News (CAR)

19 November 2013

Carclo plc

("Carclo" or "the group")

Half year results for the six months ended 30 September 2013

Strong progress across breadth of group; first sales contribution from CIT

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

Other Financial Highlights

· Underlying operating profits from Technical Plastics increased to £1.7 million (2012 - £1.3 million)

· LED Technologies benefitted from a strong performance from its LED optics business leading to underlying operating profits in line with the previous half year at £0.9 million (2012 - £0.9 million)

· Precision Engineering had a strong first half generating underlying operating profits of £0.7 million (2012 - £0.7 million)

· Net debt has risen to £14.3 million (2012 - £11.4 million) due to our continued investment in the group's manufacturing capacity and the unwinding of the $10.0 million prepayment from Atmel Corporation ("Atmel") as Conductive Inkjet Technology ("CIT") generated sales of coated film

Operational Highlights

· Full scale manufacture of coated film to support Atmel's start-up of the XSense™ programme has commenced and CIT revenue in the first half of the financial year was £1.4 million

· Within Technical Plastics our US business in particular has traded strongly and is set for further growth. Its capacity expansion project is on track for completion early next year. Our US and Czech businesses are both expected to benefit in future years from multiple new business wins

· With design wins already awarded to Wipac, the LED Technologies division is expected to have a much stronger second half due to the phasing of design, development and tooling projects in its LED supercar lighting business. Further project wins are anticipated for the second half as manufacturers begin to adopt Wipac's new Hyperlite LED modules

· At Carclo Diagnostic Solutions ("CDS") our external review of market opportunities has indicated good suitability to a wide range of medical device sectors. In parallel, our technical development has been focussed on performance robustness and test repeatability on both the Micropoc-pro and Micropoc-cat platforms with encouraging initial results. We have now entered into our first commercial collaboration with EKF Diagnostics Systems plc which will see our Micropoc-pro device used in a clinical samples programme with EKF for an Acute Kidney Injury test

Commenting on the results, Michael Derbyshire, Chairman said -

"The group's traditional businesses have produced solid results in the first half of the year and both Technical Plastics and LED Technologies are expected to enjoy a stronger second half with encouraging future growth prospects. CIT is now generating growing revenues from the supply of coated film to Atmel and its turnover and profitability are set to expand rapidly as the XSense™ programme ramps up in the next calendar year and beyond. CDS's Micropoc platforms are well positioned to disrupt the Point-of-Care diagnostics market and resources will be increased in 2014 to support this significant long term opportunity.

The group's balance sheet remains strong and its financing is secure".

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

Stephanie Badjonat

A presentation for analysts will be held at 9.30 a.m. on 19 November 2013 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 group. It is a public company whose shares are quoted on the London Stock Exchange.

Carclo's strategy has been to develop new technologies and products to drive future growth. Its investment in CIT has led to the introduction of a new material for use in Capacitive Touch Screens. Further investment has been made in Carclo Diagnostic Solutions, where a novel Point-of-Care hardware platform has been developed.

Approximately three fifths of revenues are currently 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 LED based systems to the premium automotive industry, as well as key control systems for the aerospace 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 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 much stronger second half result due to the impact of new business wins and the usual seasonality.

Following the commissioning of its new Cambridge facility Conductive Inkjet Technology has now commenced full scale manufacture of coated film to support Atmel Corporation's ("Atmel's") ramp up of production on its XSense™ programme and revenues of £1.4 million were generated in the first half of the financial year. We expect this production scale up to continue into the second half of the year and beyond.

Our Technical Plastics business has traded ahead of the comparative period last year and is set for a strong second half performance. Significant progress has been made on the US facility expansion which will support revenue growth from the start of the next financial year.

Carclo Diagnostic Solutions' collaboration with EKF Diagnostic Holdings plc has progressed very well and in early 2014 our Micropoc-pro device will be included in a clinical samples trial programme with EKF for an Acute Kidney Injury assay.

In the LED Technologies division the phasing of design, development and tooling programmes in Wipac's supercar lighting business means that the performance of this business is heavily weighted to the second half of the financial year. This business will benefit from a number of new programme wins and is expected to show good growth for the year as a whole. The LED Optics business has enjoyed a strong first half. In Precision Engineering our aerospace businesses continue to perform well.

Underlying group operating profits of £2.8 million were well ahead of the prior year (2012 - £2.0 million) with a particularly strong performance by Technical Plastics and with LED Technologies and Precision Engineering in line with their prior year numbers.

These results take account of the changes made following the revisions to IAS 19 - "Employee Benefits (2011)" and these changes have also been applied to the comparatives. The amendments to the accounting standard result in pension scheme administration costs being charged directly to the income statement whilst the pension financing credit/charge is determined directly by applying the discount rate to the net defined benefit asset or liability. The impact on the results for the six months ended 30 September 2013 is to reduce operating profit by £0.3 million (2012 - £0.2 million) and increase net finance expense by £0.3 million (2012 - £0.6 million).

The group generated a profit before tax in the six months to 30 September 2013 of £1.8 million (2012 - £1.1 million), consequently, basic earnings per ordinary share increased by 53.8% to 2.0 pence. 

Financial position

As expected, net debt has risen since the year-end to £14.3 million (2012 - £11.4 million) due to our continued investment in the group's manufacturing capacity and the unwinding of the $10.0 million prepayment from Atmel as CIT generates sales of coated film. This represents gearing on assets (excluding the net pension deficit) of 19.3% (2012 - 15.2%). The group generated cash from operations of £2.5 million (2012 - £1.6 million) with working capital increasing by £2.0 million (2012 - increase of £2.2 million). Capital expenditure in the six months to 30 September 2013 was £3.7 million (2012 - £3.8 million) reflecting the completion of the development of the new Cambridge facility for CIT and the ongoing major facility expansion at our Technical Plastics facility in Latrobe, Pennsylvania. Investment in new technologies continued with £2.2 million (2012 - £1.7 million) invested in development costs at CIT and CDS.

As at 30 September 2013 the total drawings on the group's £20.0 million medium term loan facilities were £17.9 million (2012 - £17.5 million). These are committed facilities that run until November 2015. The facilities remain 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 £9.8 million.

The board has declared an increased interim dividend of 0.85 pence per ordinary share. The dividend will be paid on 8 April 2014 to shareholders on the register on 28 February 2014. The shares will trade ex-dividend from 26 February 2014.

Operating review

Technical Plastics reported revenues of £28.0 million (2012 - £24.2 million), an increase of 15.8% on the same period last year. Operating profits, before rationalisation costs, increased by £0.4 million to £1.7 million (2012 - £1.3 million). This is primarily due to good growth in our US and Indian operations and the phasing of new customer funded tooling and development projects. Our Chinese business has had a more difficult year with reduced schedules from its biggest customer.

New business awards, both from existing and new customers, should underpin a stronger second half performance and future growth in this division over the medium term.

As reported in our June 2013 Preliminary results announcement, we have committed to a significant increase in manufacturing capacity at our facility in Latrobe, Pennsylvania. This expansion is well under way and is expected to be completed by the end of the group's financial year. This additional capacity will support the new medical programmes that are due to enter production at the start of the next financial year.

The group's LED Technologies division consists of the LED Optics business which was previously reported within Technical Plastics and the Wipac LED based supercar lighting business which was previously reported within the former Precision Products division.

The LED Technologies division generated sales of £12.1 million (2012 - £11.5 million) and operating profits of £0.9 million (2012 - £0.9 million) The performance of this division is significantly skewed to the second half due to the phasing of design, development and tooling programmes in Wipac's supercar lighting business. This business has won two new programmes during the first half of the year which, together with further expected contract wins, should provide the momentum for significant growth in this division over the next few years. Our LED Optics business has enjoyed a strong first half benefitting from new business wins particularly in the area of custom optics.

The aerospace business continued to produce strong results with sales of £3.9 million (2012 - £4.0 million) and operating profits of £0.7 million (2012 - £0.7 million). This business produces good margins and cash generation and we have invested in new machinery this year which will improve efficiency and profitability going forwardand allow us to better serve our customers with rapid turnaround supplies.

Conductive Inkjet Technology ("CIT")

CIT has commenced volume sales of coated film to our partner Atmel for machine commissioning and to support sales of its XSense™ product. CIT sales during the first half of the financial year totalled £1.4 million and, as announced at the end of October, we now expect full year sales to be towards the lower end of our previous guidance for revenues in the range of £4 - 7 million. Predicting revenues for a start-up product in the electronics industry is notoriously difficult as schedules are always subject to change in this consumer led industry. Notwithstanding this we take comfort from our partner's recent statement in its Q3 Analysts Earnings call that the XSense™ product is "shipping, ramping and accelerating". Our partner's announcement follows qualification of its Colorado manufacturing facility and confirmation that at least $100m of capacity will be available by the end of this calendar year. Atmel's recent confirmation that, as part of a customer system, XSense™ achieved Windows® 8 certification further confirms how XSense™ will address the fast growing market for PC's, Ultrabooks, Tablets and Smartphones. CIT has continued to create further product enhancements which will address customer needs moving forward. These developments include new protective coatings and increase our compatibility to a wider range of substrates that will be required as the industry diversifies into different capacitive touch assembly formats.

The new production facility in Cambridge was completed on schedule and the new high speed coating line commissioned on time. This coating line, which is performing well, is capable of supporting the production of 3.0 million square metres per annum of coated film. Our new plating line has also now been successfully commissioned and is running well.

Our original CIT facility is being prepared for our Printed Electronics investment and we anticipate that our first new equipment lines, which will include a new printing and conversion facility, will begin installation early next year. An example of how CIT's revolutionary printed electronics offering can create new products was showcased by the recent collaboration with CSR plc and Atmel in producing a reference design for the world's thinnest wireless touch interface.

CIT has incurred legal costs of £0.4 million in the period in respect of its litigation against Uni-Pixel Displays Inc ("Uni-Pixel"). On 7th October 2013 the English High Court determined that CIT may pursue claims against Uni-Pixel in the English courts for breach of confidence and patent entitlement.

Carclo Diagnostic Solutions ("CDS")

At Carclo Diagnostic Solutions the first phase of our external review of market opportunities has indicated good suitability to a wide range of medical device sectors. The second phase of this review, which is underway and will complete by the end of 2013, will assist us in identifying detailed target applications and customer opportunities. In parallel, our technical development has been focussed on performance robustness and test repeatability on both the Micropoc-pro and Micropoc-cat platforms with encouraging initial results. Our collaboration with EKF Diagnostic Holdings plc ("EKF") has progressed very well and an assay based on our Micropoc-pro platform will be entering a clinical samples trial with EKF of an Acute Kidney Injury marker (pi-GST). Micropoc-pro is a unique single use, quantitative Point-of-Care test which can be adapted to a wide range of ELISA assays. The trials, which will start early in 2014 and be complete by mid-year, will provide an initial clinical validation of the Micropoc platform supporting further potential commercial collaboration with our partner, EKF, and providing a strong reference for broader external commercial engagements.

Risks and uncertainties

In the annual report to shareholders in June 2013 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

The group's traditional businesses have produced solid results in the first half of the year and both Technical Plastics and LED Technologies are expected to enjoy a stronger second half with encouraging future growth prospects. CIT is now generating growing revenues from the supply of coated film to Atmel and its turnover and profitability are set to expand rapidly as the XSense™ programme ramps up in the next calendar year and beyond. CDS's Micropoc platforms are well positioned to disrupt the Point-of-Care diagnostics market and resources will be increased in 2014 to support this significant long term opportunity.

The group's balance sheet remains strong and its financing is secure.

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 2013 has been prepared on the basis of the accounting policies set out in the audited accounts for the year ended 31 March 2013 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 on page 23.

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 2013 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 2013 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 19 November 2013 and is being sent to shareholders on 29 November 2013. 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 2013 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 2013.

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 2013. The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 April 2013:

Amendments to IAS 19 - "Employee Benefits (2011)";

Amendments to IAS 1 - "Presentation of Items of Other Comprehensive Income";

Amendments to IFRS 13 - "Fair Value Measurement";

Amendments to IFRS 7 - "Financial Instruments: Disclosures - Offsetting Financial Assets and Liabilities";

Amendments to IAS 32 - "Financial Instruments: Disclosures - Offsetting Financial Assets and Liabilities"; and

Annual improvements to IFRSs - "2009-2011 Cycle."

The impact of IAS 19 -"Employee Benefits (2011)" is described below. The implementation of the other standards has only had a presentational impact.

IAS 19 - "Employee Benefits" was amended in June 2011 and is effective for accounting periods beginning 1 January 2013 and onwards with retrospective application required. The principal impact of the revised standard is that the concepts of expected return on the defined benefit obligation as separate components of the defined benefit cost have been replaced by a single concept such that interest is now calculated on the net defined benefit deficit. This calculation uses the discount rate previously used to measure defined benefit pension liabilities after allowance for any asset ceilings and additional liability under IFRIC 14 - "The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction". In addition, plan administration expenses, previously deducted from the expected return on scheme assets, are now included within operating profit.

As a result of these amendments the comparative financial information in the income statement and statement of comprehensive income for the six months ended 30 September 2012 and the year ended 31 March 2013 has been restated. The impact on the results for the six months ended 30 September 2012 is to reduce operating profit by £0.249 million (31 March 2013 - £0.614 million), increase net finance expense by £0.585 million (31 March 2013 - £1.183 million) and reduce actuarial losses in the statement of comprehensive income by £0.834 million (31 March 2013 - £1.797 million). The pensions deficit has remained unchanged and so the balance sheet has not been restated.

IFRS 13 - "Fair Value Measurement" establishes a single framework for measuring fair value and making disclosures about fair value measurements, when such measurements are required or permitted by other IFRSs. In particular, it unifies the definition of fair value as the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date. It also replaces and expands the disclosure requirements about fair value measurements in other IFRSs, including IFRS 7 - "Financial Instruments: Disclosures". Some of these disclosures are specifically required in interim financial statements for financial instruments; accordingly, the group has included additional disclosures in this regard (see note 18).

In accordance with the transitional provisions of IFRS 13, the group has applied the new fair value measurement guidance prospectively, and has not provided any comparative information for new disclosures. Notwithstanding the above, the change had no significant impact on the measurements of the group's assets and liabilities.

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 2013.

4. Segment reporting

The group is 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 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 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.

The Unallocated segment also includes the group's development companies, Platform Diagnostics Limited and Carclo Diagnostic Solutions, until these companies start to achieve income streams for the group.

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 2013 were as follows -

The segment results for the six months ended 30 September 2012 were as follows -

The segment results for the year ended 31 March 2013 were as follows -