Carclo Regulatory News (CAR)

Carclo plc

("Carclo" or "the group")

Half year results for the six months ended 30 September 2014

Strong performance from manufacturing businesses

Carclo plc today announces a good first half performance in its manufacturing divisions, with the group as a whole trading in line with the board's expectations.

· Technical Plastics increased underlying operating profits by 30.5% to £2.3 million (2013 - £1.7 million)

· LED Technologies benefitted from a strong performance in its supercar lighting business leading to underlying operating profits 81.9% above the previous half year at £1.7 million (2013 - £0.9 million)

· Precision Engineering had a positive first half generating underlying operating profits 4.6% ahead of the previous half year at £0.7 million (2013 - £0.7 million)

· Operating profit before exceptional items was impacted by higher amortisation charges and the reduced level of capitalised costs in CIT Technology ("CIT")

· Impairment review of the tangible and intangible assets of CIT led to a non-cash write down of £21.3 million

· Interim dividend maintained at 0.85p per share

· Net debt has risen to £22.4 million (2013 - £14.3 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 CIT generated sales of coated film

· The group's balance sheet remains strong and its financing is within its banking covenant limits. New committed facilities are expected to be agreed by the end of the financial year

Operational Highlights

· In Technical Plastics, our US and Czech businesses have completed their expansion programmes and are now fully operational. This additional capacity will support the business wins that have already been secured. We have executed a lease agreement for a larger medical facility in Taicang, to replace our existing nearby Shanghai facility. The closure of our loss making Harthill plant has been completed on schedule

· In LED Technologies, our Wipac business has continued to win new business from its major supercar lighting customers. The new optics design and warehousing facility in Aylesbury is fully operational. The division is well placed to deliver impressive growth both in the current financial year and beyond

· At Carclo Diagnostic Solutions we have made excellent progress in line with our development timeline

Commenting on the results, Michael Derbyshire, Chairman said -

"The group's two main manufacturing divisions have produced excellent results in the first half of the year. With new business wins already secured both Technical Plastics and LED Technologies are expected to enjoy an even stronger second half. The increase in global medical markets and new customer wins and expanded capacity in Technical Plastics underpin the good growth prospects for this division. Investment in the Wipac facility and further programme wins will enable the LED Technologies division to exceed the previous growth expectations.

The strategic review of the CIT business is underway and we expect to conclude this process by the end of the current financial year. We have continued to make excellent technical progress with Carclo Diagnostic Solutions' innovative Micropoc platform development."

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

A presentation for analysts will be held at 9.00 a.m. on 18 November 2014 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 London Stock Exchange.

Carclo's strategy is to develop and expand its key manufacturing assets where there remain significant further opportunities to drive value. To enhance profit margins the group has been investing in new technologies.

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

Overall Carclo has traded in line with the board's expectations in the first half of the financial year with good revenue and profit progression in both Technical Plastics and LED Technologies. The group expects a much stronger second half due to the impact of new business wins, expanded capacity, closure of the loss-making Harthill facility, the phasing of tooling programmes and the usual seasonality.

Our Technical Plastics business has traded well ahead of the comparative period last year and is set for a stronger second half performance. The expansion of the facilities in the US and Czech Republic has been completed and this investment is underpinned by significant business awards. We have completed the lease of a new Chinese facility in Taicang to replace our existing Shanghai operation. This new property will contain state of the art cleanroom facilities for medical component manufacture providing a long term platform to supply the growing Chinese medical diagnostics market. The Harthill facility closure has been completed on schedule.

In the LED Technologies division, the first half has been significantly stronger than the comparative period last year. This is due mainly to the high level of design and development work being performed in the supercar lighting division as a result of recent new programme wins. This work is set to underpin our production revenues over the next few years. In the first half of the financial year the business was awarded four new design wins and this will support the strong growth expectations for this operation which is in the process of increasing its capacity and capabilities at its Buckingham facility.

The LED Optics business has continued to trade well. It has now been relocated to new premises in Aylesbury alongside the other smaller Wipac aftermarket businesses.

In Precision Engineering, our aerospace businesses continue to perform well and recently awarded new business provides an opportunity to grow these activities.

At CIT, sales of coated film were in line with expectations in the first half. However, as a result of the higher amortisation charges and much lower levels of costs capitalised, the business made a loss of £1.0 million in the first half of the financial year. As announced previously, the poor financial performance, and the lower than expected take up of the touch screen technology has precipitated a full strategic review of the business, which is expected to be completed by the group's year-end. In addition, an impairment review has resulted in a decision to impair the intangible and tangible assets of the CIT business by £21.3 million.

Carclo Diagnostic Solutions has made excellent progress and remains on target to achieve the timelines as illustrated in the Report & Accounts 2014.

Underlying group operating profits of £2.6 million were lower than the prior year (2013 - £2.8 million). Excellent performances by Technical Plastics and LED Technologies were more than offset by the losses at CIT. Unallocated costs have also returned to normal levels with less central management cost being allocated to CIT and Precision Engineering than in the prior year. Despite this, underlying profit before tax increased to £2.3 million (2013 - £2.1 million).

Underlying earnings per share for the six months to 30 September 2014 were 2.5p in line with prior year (2013 - 2.5p). Due to the exceptional write down at CIT, the group generated a loss before tax in the six months to 30 September 2014 of £21.2 million (2013 - £1.8 million profit). Consequently, basic earnings per ordinary share decreased to (31.7)p (2013 - 2.0p).

Financial position

As expected, net debt has risen since the year-end to £22.4 million (2013 - £14.3 million) due to the planned capital expenditure investments and an increase in working capital. This represents gearing on assets (excluding the pension deficit) of 39.5% (2013 - 19.3%). The group's balance sheet remains strong and its financing is within its banking covenant limits. The group generated cash from operations of £0.2 million (2013 - £2.5 million) with working capital increasing by £4.6 million (2013 - £2.0 million) due mainly to the unwinding of the Atmel prepayment and increased sub-contract tooling balances.

Capital expenditure in the six months to 30 September 2014 was £3.2 million (2013 - £3.7 million). This reflected the completion of the major facility expansion at our Technical Plastics facility in Latrobe, Pennsylvania and the investment in modernising our facility and equipment technology at Wipac to support the large influx of new technical high end automotive lighting programs. Investment in new

technologies continued with £0.8 million (2013 - £2.2 million) invested in development at CDS and CIT Technology.

In line with our normal practice, the group has commenced negotiations to refinance its medium term loan facilities and expects to have completed this process on similar terms to its existing facilities by the financial year end.

Since the start of the current financial year, the corporate bond yield, which is used to discount the group pension scheme liabilities, has decreased significantly and equity markets have also weakened resulting in a pension deficit of £11.8 million as at 30 September 2014 compared to a small surplus at 31 March 2014 under IAS19 "Employee Benefits".

The board has declared an interim dividend of 0.85 pence per ordinary share (2013 - 0.85 pence). The dividend will be paid on 10 April 2015 to shareholders on the register on 6 March 2015. The shares will trade ex-dividend from 4 March 2015.

Operating review

Technical Plastics reported revenues of £30.0 million (2013 - £28.0 million), an increase of 7.0% on the same period last year and just ahead of global medical market growth. Operating profits, before rationalisation costs, increased by £0.6 million to £2.3 million (2013 - £1.7 million). This is primarily due to growth in our US and Czech operations. Our Chinese business also had a stronger half than in the previous year and our Indian business continued to perform well. Our strategy to grow our existing sites and increase our asset utilisation is starting to show the improved returns that we have been anticipating. Medical and optics business now accounts for over 70% of this division's revenue.

We have continued to gain new business awards from our target customer base, and this will drive future sales growth in this division.

As reported in our October 2014 half year trading statement, we have committed to moving our existing Chinese facility from Shanghai to Taicang, following the award of a multi-year programme for medical component manufacture by an existing, US-based customer, in order to benefit from the world's fastest growing medical market. The new facility is significantly larger than our existing one and will provide cleanroom manufacturing capacity to support the long term expansion of the medical business into China. Whilst this investment is supported by an existing global customer programme, we have several other key strategic Western-based global accounts who we believe will use our newly expanded business during the medium term.

The closure of the loss making operation at Harthill, Scotland has now been completed and the work which was identified as to be retained is now in full production across several of our other locations.

The group's LED Technologies division consists of the LED Optics business and the Wipac LED based supercar lighting business.

The LED Technologies division generated sales of £14.3 million (2013 - £12.1 million) and operating profits of £1.7 million (2013 - £0.9 million). This performance was in line with expectations following the award of several new programmes in Wipac during the second half of the previous financial year. In addition four contract wins came in the first half of this year and these and further anticipated programme wins will enable this division to exceed the previously expected growth over the coming years. Our major investment in Wipac's Buckingham factory is nearing completion. We have recently installed additional capabilities including a further two shot moulding machine as well as a state of the art UV coating line. We are serving some of the most advanced and demanding customers in the world and it is essential that our facility meets their expectations in order that we can continue to develop and grow in the markets which we serve.

Our LED Optics business has continued to be successful with good first half trading, particularly in the area of custom optics. This business relocated from Slough to a much larger facility in Aylesbury which now also incorporates the smaller Wipac aftermarket retail businesses and warehousing.

The aerospace business performed in line with expectations with sales of £2.7 million (2013 - £3.9 million) and operating profits of £0.7 million (2013 - £0.7 million). The decrease in turnover was mainly due to the sale of the non-core Birkett Cutmaster business at the prior year-end, although this disposal has not affected overall profitability. Our continued focus on customer service and fast turnaround for the aerospace spares sector continues to be attractive to OEMs and their Tier 1 suppliers. We have recently secured further OEM spares work which should help us grow the business over the coming years. This business continues to produce strong margins and excellent cash generation.

CIT Technology ("CIT")

CIT has continued to supply coated film to Atmel. Much work has been undertaken by CIT to improve the efficiency of the existing supply chain through product performance enhancement and supply chain process yield improvements. Turnover in the first half of the year was £1.7 million (2013 - £1.4 million) with an underlying operating loss of £1.0 million (2013 - £0.0 million). The main reasons for this loss were the reduction in capitalisation of development costs and the increased level of amortisation charges.

In light of the board's forward view of the business and Atmel's own public statements about their XSense™business, a strategic review of the CIT business has been commenced. As part of this review, the board has conducted an impairment review that has resulted in a write down of the intangible and tangible fixed assets by £21.3 million leaving the carrying value of the CIT investment at £5.3 million. Whilst sales have tracked our H1 expectations the increasing price pressure from the sector has brought into question the sustainability of our current business model. Our contractual relationship with Atmel results in mutual obligations which need be considered by both parties. Nonetheless we remain committed to reaching a clear and positive outcome for the group on or before our year end. We continue to work together with Atmel and have appointed our own advisors to assist us as we look to both eliminate the risk of future losses and ensure the maximum level of return from our investment and the continuation of the excellent technology that we have created.

Carclo Diagnostic Solutions ("CDS")

At Carclo Diagnostic Solutions we have continued to develop our quantitative, disposable, Point-of-Care diagnostic platforms in line with the detailed work plan illustrated in the Report & Accounts 2014. The focus continues on four initial applications:

· CAT device for blood coagulation testing

· CAT device for infectious disease determination using CRP

· PRO device for Pi_GST ELISA testing for kidney disorders

· PRO device for a cardiac marker using Troponin-I

As part of our planned investment we are now utilising part of our Cambridge based operation to supplement our Daresbury Laboratory. We have developed rigorous program plans and have continued to overcome technical obstacles.  In particular there has been an exciting breakthrough in our microfluidics optimisation work which will support all four of our application areas moving forward. We continue to work with a wide range of commercial partners and outside technical advisors, as well as potential customers.

Risks and uncertainties

In the annual report to shareholders in June 2014 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 two main manufacturing divisions have produced excellent results in the first half of the year and both Technical Plastics and LED Technologies are expected to enjoy an even stronger second half.

The increase in global medical markets and new customer wins and expanded capacity in Technical Plastics underpin the good growth prospects for this division. China has become the fastest growing consumer market for medical devices and as such we are investing in an expanded cleanroom facility. This, underpinned by the partnership with a global US based medical company, leaves us well positioned for considerable future growth in this market.

Investment in the Wipac facility and further programme wins will enable the LED Technologies division to exceed the previous growth expectations. Wipac has been increasingly successful at developing strong partnerships across a range of key premium automotive customers. These relationships are resulting in technology alignments which will be both beneficial to our customers and drive further future growth in our business.

The strategic review of the CIT business is underway and we expect to conclude this process by the end of the current financial year.

We have continued to make excellent technical progress with Carclo Diagnostic Solutions' innovative Micropoc platform development.

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 2014 has been prepared on the basis of the accounting policies set out in the audited accounts for the year ended 31 March 2014 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 25.

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 2014 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 2014 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 18 November 2014 and is being sent to shareholders on 28 November 2014. 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 2014 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 2014.

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 2014. The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 April 2014:

IFRS 10 - "Consolidated Financial Statements" and IAS 27 - "Separate Financial Statements", IFRS 11 - "Joint Arrangements" and IAS 28 - "Investments in Associates and Joint Ventures". These are part of a new suite of standards on consolidation and related standards, replacing the existing accounting for subsidiaries and joint ventures (now joint arrangements), and making limited amendments in relation to associates;

IFRS 12 - "Disclosure of Interests in Other Entities"; - This contains the disclosure requirements for entities that have interests in subsidiaries, joint arrangements (i.e. joint operations or joint ventures), associates and/or unconsolidated structured entities;

Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32);

Recoverable Amounts Disclosures for Non-Financial Assets (Amendments to IAS 36);

IFRIC 21 - Levies;

Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS 39);

These standards do not have a material impact on the Consolidated Financial Statements. 

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 2014.

4. Segment reporting

The group is organised into four, separately managed, business segments - Technical Plastics, LED Technologies, Precision Engineering 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 supercars.

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

The CIT 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 2014 were as follows -

The segment results for the six months ended 30 September 2013 were as follows -

The segment results for the year ended 31 March 2014 were as follows -