Carclo Regulatory News (CAR)

Carclo plc

("Carclo" or the "Group")

Preliminary Results for the year ended 31 March 2020

Carclo plc, a global manufacturer, principally of fine tolerance injection moulded plastic parts for the medical, electronics, optics and automotive safety markets, announces its results for the full year ended 31 March 2020 ("2020").

The key financial performance measures for the year are as follows:

Continuing Operations

Highlights

· Revenue from continuing operations increased by 4.9% to £110.5m (2019: £105.3m).

· Underlying operating profit from continuing operations increased by £0.9m to £7.3m.

· Statutory operating profit from continuing operations was £1.8m (2019: £1.9m) with statutory loss before tax from continuing operations being £0.5m (2019: £0.0m).

· Successfully concluded exit of the loss-making LED division, reducing net debt and the pension deficit by £5.5m and £3.5m respectively.

· Concluded a new three-year funding arrangement with the Company's main creditors, HSBC and the pension scheme, to secure the continued support of those parties through to July 2023.

*Underlying operating profit from continuing operations is defined as operating profit from continuing operations before all exceptional items. A reconciliation to statutory figures is given on page 44.

** 2019 net debt is stated before the adoption of IFRS16 Leases. See note 6 for details.

Commenting on the results, Joe Oatley, Chairman said:

"Despite a challenging period for the Group, the continuing businesses performed strongly in 2020.

Following the exit of the loss-making LED business and the completion of a three-year refinancing agreement with the Group's lending bank and pension trustees, Carclo now has a more stable platform from which to develop the business.

Whilst the Covid-19 situation creates some uncertainty over the near-term performance of the Group, the Board believes that the operating businesses within the Group have attractive long-term growth prospects, in particular within the medical diagnostics market where the CTP business is well positioned.

Alongside investing to deliver its organic growth strategy, the Group is working closely with its pension trustees to reduce the relative scale of the Group's defined benefit pension deficit. Delivering a reduction in the pension deficit over time will be a key element in translating the performance of the underlying business into value creation for shareholders."

Further Information

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

Alternative performance measures are defined in the glossary on page 45. A reconciliation to statutory figures is included on page 44. 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.

Chairman's Statement

The year to 31 March 2020 was one of both significant change and considerable challenge for the Group. Despite this, I am pleased to report the continuing businesses performed strongly, with both the Carclo Technical Plastics Division ("CTP") and the Aerospace Division ("Aerospace") seeing year-on-year improvements in underlying operating profits.

Group underlying operating profit from continuing operations was 14.4% higher at £7.3 million (2019: £6.4 million) with basic underlying earnings per share from continuing operations 133.3% higher at 4.9 pence (2019: 2.1 pence). Statutory basic loss per share was 15.5 pence (2019: 25.4 pence loss). The Group's net debt including IFRS16 lease liabilities decreased £11.1 million to £27.4 million (2019: £38.5 million) driven by both positive operational cash generation from the two continuing businesses and realisation of value from the assets of the exited LED division.

Whilst it was disappointing that we were unable to return the LED division to a position of profitability and cash generation, we were pleased to have successfully concluded the transactions to exit the businesses within this division during the year. As a result, key customer commitments were met and jobs were secured. £3.5 million from the net proceeds were paid to the Group's pension scheme and net debt was reduced by £5.5 million.

As announced on 17 August 2020, I am also pleased to reaffirm that we have concluded a new financing agreement with the Group's lending bank and its pension trustees which provides lending facilities through to 31 July 2023 alongside a schedule of agreed pension deficit reduction contributions for the same period. Nonetheless, the scale of the defined benefit pension scheme liability remains a significant issue for the Group, with an actuarial valuation of the technical provision deficit as at 31 March 2018 of £90.4 million (31 March 2015: £46.1 million). Alongside a focus on operational efficiency and growth from the medical diagnostics sector, reducing the scale of the Group's pension deficit over time is a key element of our value creation strategy.

COVID-19

Faced with the COVID-19 pandemic, the Group's primary focus has been to ensure the wellbeing of staff and the continued safe operation of its businesses. All applicable government advice has been followed across the different countries in which the Group operates, and safe working practices have been adopted.

Pleasingly, it has been possible to keep most sites operational through the lockdown period, enabling the Group to continue to serve its customers, many of whom operate in essential industries, particularly the medical diagnostics sector.

Management has taken a number of actions to mitigate the impact on the Group, including accessing government support programmes and controlling costs, details of which are discussed further in the Chief Executive's statement.

Dividend

Given the financial performance and position of the Group, coupled with restrictions on the payment of dividends contained within the refinancing agreement and the lack of distributable reserves, the Board is not recommending the payment of a dividend for the 2020 financial year (2019: nil).

Governance

Since joining the Board in 2018, I have observed the Board's focus on maintaining a strong corporate governance framework and culture throughout the Group. The Board is fully supportive of the principles laid down in the UK Corporate Governance Code and continues to review its systems, policies and procedures that support the Group's sustainability and governance practices.

Board changes

There were a number of changes to the Board in the year.

Antony Collins joined the Board as Group Chief Executive from 1 October 2019. Antony had previously been fulfilling the role of Chief Restructuring Officer since joining the Group in May 2019. Mark Rollins, who served in an executive capacity prior to Antony's appointment, returned to his Non-executive Chairman role from 1 October 2019.

Matt Durkin-Jones was appointed to the Board as Chief Financial Officer ("CFO") on 21 January 2020. Matt is a Chartered Management Accountant with extensive financial experience of manufacturing companies in Europe, Asia and North America.

Matt replaced Ed Watkinson, who fulfilled the CFO role on an interim basis following Sarah Matthews-DeMers' departure in October 2019. Ed left the Group on 9 January 2020 following the successful Wipac exit.

Mark Rollins stepped down from his role as Non-Executive Chairman and as Director of the Board on 24 March 2020. Mark had been Chairman of the Company since 2018 and on behalf of the Board, I would like to thank Mark for his dedicated service over the last two years. Mark had shown strong leadership in a difficult time and made a valuable contribution to the Group.

I assumed the role of Non-Executive Chairman on 27 April 2020 on an interim basis whilst the Board carried out a search for a long-term Chairman. I am delighted to welcome Nick Sanders to the Board as Chairman-elect with the intention that he will take over the Chairman role from me after this year's Annual General Meeting.

Change of auditor

Following a competitive audit tender process, the Group appointed Mazars LLP as its external auditor in April 2020, following KPMG LLP's resignation in March 2020.

Employees

On behalf of the Board I would like to thank all employees for their commitment during what was a challenging and uncertain year. Our employees play a critical role in the Group's success and we recognise that this will be particularly so in meeting the challenges ahead. In addition, the Board fully recognises the hard work and commitment of Wipac's employees, operating in often difficult circumstances during the year.

Outlook

Following the exit of the loss-making LED business and the completion of a medium-term financing agreement with the Group's lending bank and its Pension Trustees, Carclo now has a more stable platform from which to develop the business. The Group has significantly reduced its net debt position, enhanced by the successful exit of Wipac, as well as making a significant contribution to reduce the Company's pension deficit.

The near-term performance of the Group is uncertain as the impact of the COVID-19 pandemic on the business in the current financial year remains difficult to forecast. However, the medium and longer-term prospects for CTP remain robust, with the business having a strong position in the medical diagnostics market, which benefits from both near-term and long-term positive growth characteristics. As announced on 17 August 2020, the CTP business has been successful in securing a number of new tooling orders for the medical diagnostics sector after year end which both provides additional resilience for the near term and the opportunity for significant growth in future years. The medium term prospects of the Aerospace business are more difficult to ascertain, being dependent on the pace of recovery in the commercial aerospace market.

The Board believes that the operating businesses within the Group have attractive long-term growth prospects and the capability to generate improved returns over time. Nonetheless, the Group has a substantial pension deficit and relatively high net debt. Reducing the scale of the defined benefit pension deficit over time is an important element of translating the performance of the operating businesses into value creation for shareholders and, alongside driving operational excellence and growth in the medical diagnostics market, is a key focus for the business moving forward.

Joe Oatley

Chairman

25 August 2020

Chief Executive's Review

I was delighted to join the Carclo Board as Chief Executive Officer in October 2019 following my appointment as Chief Restructuring Officer in May.

I am particularly pleased that we were able to conclude the successful exit of the two Wipac businesses. The challenges faced by the business were substantial and the process to conclude an effective exit consumed considerable management time and attention, in addition to the large financial losses incurred by Wipac.

Despite a challenging year for the Group as a whole, it was pleasing to see that both of the continuing operating businesses performed well and were unaffected by the Wipac issues. Both the CTP and Aerospace divisions made demonstrable progress in the year. The businesses are well-managed and have remained profitable and cash generative in the reporting period. Their resilient performance during a period of major restructuring for Carclo provides encouragement for the longer-term prospects of the Group.

I am pleased to have been joined on the Board by Matt Durkin-Jones who took up the position of CFO in January 2020. Matt has extensive experience of international manufacturing companies and adds the required financial acumen and stability to the executive team as we move forward.

Financial performance

Group revenue from continuing operations increased by 4.9% to £110.5 million (2019: £105.3 million), underpinned by strong divisional performances from CTP and Aerospace. As one of our KPIs, this is very encouraging. Revenue including discontinued operations increased £1.4 million to £146.3 million (2019: £144.9 million).

Underlying operating profit margin from continuing operations increased to 6.6% (2019: 6.1%) as the business started to realise the benefits of operational improvement initiatives. Underlying earnings before interest, taxation, depreciation and amortisation from continuing operations increased to £13.4 million (2019: £10.9 million) which includes a positive impact of the adoption of IFRS 16 Leases of £1.7 million. Underlying operating profit from continuing operations increased 14.4% to £7.3 million (2019: £6.4 million). Return on capital employed increased from 2.0% to 10.1%.

Statutory operating loss including discontinued operations was £4.4 million (2019: £12.6 million loss) with statutory loss before tax and loss on disposal of discontinued operations of £7.0 million (2019: £14.7 million loss).

Refinancing and pension deficit

I am pleased to report that on 14 August 2020 we concluded a restructuring with the company's main creditors, HSBC and the pension scheme, to secure the continued support of those parties through to July 2023.

The new HSBC facilities comprise a term loan of £34.5 million and a revolving credit facility of £3.5 million. In parallel to this we reached agreement with the Trustees of the defined benefit pension scheme in respect of an increased level of contributions to the deficit recovery plan.

The pension deficit recovery plan comprises contributions of the following amounts over the next three years: £2.8 million (2021), £3.9 million (2022) and £3.8 million (2023). This agreement also concludes the outstanding 2018 triennial valuation. The actuarial valuation of the technical provisions deficit as at 31 March 2018 was £90.4 million (31 March 2015: £46.1 million). The next triennial valuation will be carried out as at 31 March 2021, with an expectation that the valuation and corresponding schedule of contributions will be agreed between the Company and the pension trustees before 30 June 2022. This will not change the agreed contributions up to July 2023.

COVID-19

As many of the Group's sites supply critical sectors, we have been able to continue operations with limited impact on production. We have experienced mandatory closures in India due to government regulations and brief closures in France and Scotland. Group revenue for the continuing businesses for the first quarter of the year to 31 March 2021 was 12% lower than the same period in the previous year.

We are actively monitoring the COVID-19 outbreak in line with local and national authorities, public health bodies and WHO guidelines and will continue to modify our procedures and working practices accordingly.

Notwithstanding relatively stable overall activity levels in the CTP business as increased demand for COVID-19 related products partially offset a reduction in demand for routine medical products, governmental guidance on social distancing and temporary shutdowns have had an impact on operational efficiency which inevitably affects profitability. The Group's Aerospace division is witnessing a significant reduction in customers' aircraft newbuild programmes and with much of the European aircraft fleet having been grounded since March 2020, demand for both newbuild and spares has been negatively affected.

The Group has accessed government support programmes where available, including the Coronavirus Job Retention Scheme and HMRC payment deferrals in the UK, and tax relief in China. In addition, on 17 April 2020, CTP Carrera Inc. in the USA received a loan of $2.9 million under the Paycheck Protection Program which was used to make payroll payments to its US workforce. We have also taken action to reduce costs where possible in both divisional and central areas. The Group remains focused on ensuring operational continuity where it can; however, it remains very difficult to predict how the ongoing crisis will affect performance going forward.

The refinancing agreed with HSBC provides an additional £3 million headroom which will assist the Group's efforts to manage through the near-term uncertainty presented by COVID-19.

Strategy

Having established greater comfort and certainty on the Group's financial position, the priority is to deliver an improved financial performance over the long term through a focus on growth and operational excellence. The Group delivers its products into highly regulated, safety critical markets where quality and performance are of paramount importance. Through a focus on operational excellence and by forging deep, long-term customer relationships we aim to be the supplier of choice for precision components into these markets.

The Group has a strong position in the medical market, which exhibits robust structural growth characteristics, and whose importance has been reinforced by the recent pandemic. Our strategy is to continue to focus on our core markets, in particular medical diagnostics, building on the strengths of the CTP business to deliver above-market growth rates. The combination of higher utilisation as new volume comes on stream and improved efficiency through our focus on operational excellence will drive increased margins and enhance the Group's return on invested capital.

The Group operates a devolved management structure, ensuring that key day-to-day decision making is done close to our customers and operations. This devolved structure also enables the Group to operate with a lean overhead base. Nonetheless, as part of our programme of continuous improvement we are actively managing both central and divisional overheads particularly as we experience the impact of COVID-19.

The CTP and Aerospace businesses are now focused on both enhancing operational efficiency and improving return on invested capital. New capital commitments are closely evaluated to ensure that they are accretive to overall Group return on capital and have a cash payback within an appropriate timescale.

Health, safety and environment

A comprehensive health and safety policy is in place to ensure a safe working environment at all times with a plan to ensure that all facilities in all countries meet the requirements of the most exacting location.

We were pleased to see a further improvement in the health and safety performance of both continuing divisions. There was a 35% reduction in incidents during the year. This was achieved through continuous communication of the policy at all levels through the Group and active participation of employee health & safety committees. Our aim is to continue to drive down health and safety incidents. Our Lost Time Frequency rate shows a year on year reduction for the last 3 years.

People

I am extremely grateful for the hard work and commitment of our employees during such a challenging and uncertain year. I am especially proud that the challenges presented by COVID-19 have been met with dedication and creativity, particularly by our employees in China who were first affected by the outbreak.

The restructuring and ultimate exit of the Wipac business was a long and difficult process for all involved, many of whom made significant sacrifices to ensure a successful outcome. In addition, it was a very unsettling time for those in the Wipac business and I would like to thank them for their commitment in supporting the business and its customers. I wish them success in their new organisation.

We have highly talented people and their continued support will be critical as we execute our strategy. We are taking steps to introduce a shared set of core values during the year to ensure a consistent approach and measurement of success across all our operating companies.

Divisional review

Carclo Technical Plastics

Carclo Technical Plastics is a leading global manufacturer of fine tolerance injection moulded plastic parts for the medical, electronics, optics and automotive safety markets.

Divisional revenue increased by 4.5% in the year to £103.1 million (2019: £98.6 million), largely driven by increased volume as the business continued to secure a number of new programmes in its core medical market. The division acquired the business and certain assets of the Optics business on 20 December 2019 from the administrator of the Wipac business for a sum of £0.25 million. Historical comparators have been restated to include the Optics business. Overall demand for medical testing parts was stable through the year, albeit in Q4 the business saw a significant increase for products associated with COVID-19 testing, offset by a reduction in demand for non-COVID related testing kits which fell as routine medical procedures were affected by the global pandemic.

All of the division's sites made considerable operational and commercial progress during the year. As a result, underlying operating profit increased significantly to £9.3 million (2019: £8.1 million) as the business began to realise the benefits from its continuous improvement activities together with a change in the mix toward higher margin contracts.

Our US operation performed strongly during the year and the business invested in additional technology to enhance automation and capability to service new customers in its core growth sectors. There has been a significant investment in employee welfare, training and education and whilst labour turnover remains high, it has stabilised compared to the previous year.

The UK business performed well in the first half of the year as it increased output of its drug delivery product and commissioned a new fully automated production line for disposable medical testing parts. The business successfully implemented intelligent process monitoring on a dedicated pharma cell producing insulin pens as part of our operational improvement programme. This initiative has increased automation and introduced predictive quality monitoring to reduce wastage and improve production yields. In the final quarter of the year, the UK operation successfully integrated the newly acquired Optics business.

Our facility in India continued to perform well as the business focused on a more attractive mix of contracts. As reported at the half year, CTP India, whose largest customer makes ATM machines for the global market, saw a marked increase in its market share and benefited from its key customer's newest product ramping up in volume. The business was successful in gaining the BSI accreditation to the international standard ISO 13485:2016 for medical applications. The accreditation opens the door to the medical supply market and led to the award of the business' first medical account in India with a major disposable diagnostics OEM. Following local government regulations related to COVID-19, the plant in India experienced a month-long closure from the end of March and reduced production in April and May.

Our Chinese facility had a notable year, winning new business with a key target customer and commencing production of a new disposable medical diagnostic part for a new multinational OEM customer, alongside a focus on lean activities and continuous improvement projects that led to substantial inventory reductions. The impact of COVID-19 was effectively managed by the team in China with minimal short-term impact on the business. The workforce showed tremendous dedication and ownership in getting the facility back to full production as quickly as possible. Our early experience of COVID-19 in China has assisted our other sites in developing effective protocols to help mitigate the risk of transmission.

As previously reported at the half year, activity in the Group's Czech site was impacted by the loss of volume from a major industrial customer following its decision to discontinue a key product. This reduction had been anticipated with the facility footprint reduced in the period, mitigating the effect of the revenue loss on the operation's profitability. As a result, the business performed well in the year with the cost reduction from this consolidation of its operations and a ramping up in production of new business offsetting the volume decline. The Optics business, which performed in line with expectations in the first half of the financial year, has been significantly impacted by the COVID-19 outbreak.

The facilities in China, India and Czech all successfully achieved ISO 45001 certification. This standard seeks to achieve a reduction in occupational injuries and diseases, including promoting and protecting physical and mental health. Programmes to achieve the same accreditation in the UK and US facilities were halted due to COVID-19 and will be completed in the 2020/21 financial year.

The business sees good opportunities for continued growth in its core medical markets and margin enhancement as it continues to pursue its strategy of operational improvement. As announced on 17 August 2020, the CTP business has been successful in securing a number of new tooling orders for the medical diagnostics sector after year-end which both provides both additional resilience for the near-term and the opportunity for significant growth in future years.

Aerospace

The Aerospace division is a market leader in cable assemblies and specialist machined parts to European commercial and military aerospace markets. The business operates facilities in the UK and France under the established and respected brands of Bruntons and Jacottet.

Divisional revenue increased by £0.7 million to £7.5 million (2019: £6.7 million) due to a healthy level of spares orders, increasing Airbus build-rates in the first half, and some market share gains for machined parts in the UK. Underlying operating profit increased 27% to £1.7 million (2019: £1.3 million), as a result of a positive shift in product mix, in particular high spares volumes, combined with tight cost control.

This business was strongly cash generative, with ongoing investment requirements more than funded by the business itself.

The COVID-19 pandemic is expected to continue to impact the business in the near-term as the airline industry experiences significant schedule disruption world-wide and aerospace customers significantly cut their aircraft newbuild programmes. The longer-term structural impact of the pandemic and thus prospects for the aerospace industry are particularly difficult to predict. As a result of this uncertainty, a full £1.4 million impairment of the remaining Aerospace goodwill has been recognised during the period.

Antony Collins

Chief Executive Officer

25 August 2020

Finance Review

Trading performance

Revenue from continuing operations increased by 4.9% to £110.5 million (2019: £105.3 million) with CTP up 4.5% and Aerospace up 10.9%. Revenue from discontinued operations was £35.8 million (2019: £39.5 million). Overall Group revenue increased by 1.0% to £146.3 million (2019: £144.9 million).

Underlying1 operating profit from continuing operations increased to £7.3 million (2019: £6.4 million). This is a three-year increase trend in one of our KPIs. Underlying earnings before interest, taxation, depreciation and amortisation from continuing operations increased to £13.4 million (2019: £10.9 million) which includes a positive impact from the adoption of IFRS16 in respect of lease contracts of £1.7 million. This represents a return on sales from continuing operations (defined as underlying EBITA divided by revenue) of 6.8% (2019: 6.2%). Operating profit from continuing operations was £1.8 million (2019: £1.9 million).

CTP and Aerospace underlying operating profits1 grew by 14.7% and 27.3% respectively; however central costs increased by 20.9% due to an increase in the PPF levy and under absorption of overheads following the disposal of the Wipac businesses. Ongoing operational issues experienced in the LED division resulted in a £3.0 million underlying operating loss from discontinued operations for the period to disposal (2019: £5.1 million loss for the full year).

After net interest of £2.4 million (2019: £1.9 million), Group underlying profit before tax from continuing operations was £4.9 million (2019: £4.5 million).

Net bank interest increased £0.1 million to £1.2 million. The pension finance charge increased to £1.1 million (2019: £0.8 million) due to an increase in the defined benefit pension liability from 31 March 2018 to 31 March 2019. Lease interest charges including those following the adoption of IFRS 16 Leases were £0.2 million (2019: £0.1 million).

The Group underlying tax charge from continuing operations totalled £1.4 million (2019: £1.1 million), an underlying effective tax rate from continuing operations of 27.8% (2019: 23.4%). The effective tax rate is higher than the current UK corporation tax rate due to the weighting of taxable profits generated in higher tax jurisdictions.

Basic underlying earnings per share from continuing operations were 4.9 pence (2019: 2.1 pence).

As set out in Note 7, exceptional items incurred for continuing operations totaled £5.5 million of which £3.4 million relates to the costs of external advisors of the Company, its lending bank and the Group pension scheme and £1.4 million relates to the impairment of goodwill related to Aerospace.

The exceptional costs associated with the discontinued operations total £3.3 million. These costs principally relate to a £1.5 million impairment in the fair value of the LED assets held for sale recognised in the 2020 interim financial statements, a £0.5 million impairment in the value of the contract assets, and a £0.3 million write-down of the carrying value of inventory both associated with the Wipac mid-volume programmes exited during the period and £1.0 million for the fees of external advisors to Wipac in respect to the restructuring and sale of the business.

Statutory operating loss was £4.4 million (2019: £12.6 million loss), and after statutory finance expenses of £2.6 million (2019: £2.1 million), statutory loss before tax and loss on disposal of discontinued operations was £7.0 million (2019: £14.7 million loss), giving a statutory basic loss per share of 15.5 pence (2019: 25.4 pence loss). The statutory tax charge was £1.5 million, compared with a tax charge in 2019 of £4.0 million, with the prior year charge impacted by a £4.0 million derecognition of deferred tax assets. A reconciliation of statutory to underlying non-GAAP financial measures is provided on page 44.

Net debt

Net debt is another Group KPI. Net debt including IFRS16 lease liabilities as at 31 March 2020 was £27.4 million, of which lease liabilities made up £5.3 million (31 March 2019: £38.5 million including lease liabilities of £1.5 million).

The major components of the net £11.1 million reduction in net debt were the proceeds from the exit of the LED Division which resulted in an inflow of £5.5 million and a reduction in working capital which generated £18.5 million, of which £16.9 million related to discontinued operations. Capital expenditure in the year was £8.6 million (Year to 31 March 2019: £6.7 million)

Lease liabilities increased by £5.7 million upon the adoption of IFRS 16. Net debt excluding IFRS16 lease liabilities at 31 March 2020 was £22.1 million (31 March 2019: £37.0 million).

Cash generated from operating activities from continuing operations was £6.9 million (2019: £8.8 million).

At the year end, total UK bank facilities were £35.0 million of which £30.0 million related to a revolving credit facility and £5.0 million to an overdraft facility. £30.5 million was drawn at the year end due to foreign exchange retranslation losses but remained within an allowed 5% tolerance under the terms of the facilities.

1 Underlying profit is defined as profit before all exceptional items.

The last triennial actuarial valuation of the Group pension scheme was carried out as at 31 March 2018. The actuarial technical provisions deficit as of this date was £90.4 million (31 March 2015: £46.1 million), showing the scheme to be 65.4% funded on a continuing basis.

Treasury

The Group faces currency exposure on its overseas subsidiaries and on its foreign currency transactions.

Each business hedges significant transactional exposure using forward foreign exchange contracts for any exposure over £20,000. The Group reports trading results of overseas subsidiaries based on average rates of exchange compared with sterling over the year. This income statement translation exposure is not hedged as this is an accounting rather than cash exposure and as a result the income statement is exposed to movements in the US dollar, euro, Czech koruna and Indian rupee. Based on the 2020 results, a 10% increase in the value of sterling against these currencies would have increased reported loss before tax by £0.7 million.

Dividend

Given the financial performance and position of the Group, coupled with restrictions on the payment of dividends contained within the refinancing agreement and the lack of distributable reserves, the Board is not recommending the payment of a dividend for the 2020 financial year (2019: nil).  The Board intends to recommence dividend payments only when it becomes confident that a sustainable and regular dividend can be introduced. Under the terms of the restructuring agreement the Group is not permitted to make a dividend payment to shareholders up to the period ending in July 2023..

Alternative performance measures

In the analysis of the Group's financial performance, position, operating results and cash flows, alternative performance measures are presented to provide readers with additional information. The principal measures presented are underlying measures of earnings including underlying operating profit, underlying profit before tax, underlying profit after tax, underlying EBITDA and underlying earnings per share.

This results statement includes both statutory and adjusted non-GAAP financial measures, the latter of which the Directors believe better reflect the underlying performance of the business and provides a more meaningful comparison of how the business is managed and measured on a day-to-day basis. The Group's alternative performance measures and KPIs are aligned to the Group's strategy and together are used to measure the performance of the business and form the basis of the performance measures for remuneration. Underlying results exclude certain items because if included, these items could distort the understanding of the performance for the year and the comparability between the periods. A reconciliation of the Group's non-GAAP financial measures is shown on page 44.

We provide comparatives alongside all current year figures. The term "underlying" is not defined under IFRS and may not be comparable with similarly titled measures used by other companies.

All profit and earnings per share figures in this preliminary statement relate to underlying business performance (as defined above) unless otherwise stated. A reconciliation of underlying measures to statutory measures is provided below:

The exceptional items comprise:

Post balance sheet events and going concern

Post balance sheet events

On 14 August 2020 the Group concluded a restructuring with the Company's main creditors being its bank, HSBC and the pension scheme to secure the continued support of those parties through to July 2023. 

The debt facilities now available to the Group comprise a term loan of £34.5 million, of which £3.0 million will be amortised by 30 September 2022, and a £3.5 million revolving credit facility maturing on 31 July 2023. The additional £3.0 million provides the Group with additional headroom to deal with uncertainty in short-term cash flows due to the current economic climate.

In addition, a new schedule of contributions has been agreed with the pension trustees covering the period to September 2037 or until such time as a new Schedule of Contributions and Recovery Plan has been agreed

in respect of the Scheme.

The bank facilities are subject to four covenants to be tested on a quarterly basis:

1. underlying interest cover;

2. net debt to underlying EBITDA;

3. core subsidiary underlying EBITA; and

4. core subsidiary revenue.

Core subsidiaries are defined as Carclo Technical Plastics Ltd; Bruntons Aero Products Ltd; Carclo Technical Plastics

(Brno) s.r.o; CTP Carrera Inc and Jacottet Industrie SAS, with CTP Taicang Co. Ltd and Carclo Technical Plastics Pvt Co Ltd being treated as non-core for the purposes of these covenants.

In addition, the pension scheme has the benefit of a fifth covenant to be tested on 1 May each year up to and including 2023. In the year to 31 March 2021 the test is met by the payment of the agreed schedule of contributions. In subsequent years the test requires any shortfall of pension deficit recovery contributions when measured against PPF priority drift (which is a measure of the increase in the UK Pension Protection Fund's potential exposure to the Group's pension scheme liabilities) to be met by a combination of cash payments to the scheme plus a notional (non-cash) proportion of the increase in the underlying value of the CTP and Aerospace businesses based on an EBITDA multiple for those businesses which is to be determined annually.

Under the terms of the restructuring agreement the Group is not permitted to make a dividend payment to shareholders of Carclo plc up to the period ending in July 2023.

Going concern

The base case financial projection was prepared taking into account the anticipated effect of the ongoing COVID-19 pandemic using the experience of the Group's performance in the first quarter of the 2020/21 financial year. The forecast also takes into account the impact of significant new tooling orders secured after the balance sheet date in the medical diagnostic sector which are expected to have a material positive impact on earnings and cash generation over both the next twelve months and future years as the business moves into follow-on volume production.

Sensitivity testing has been carried out based on a number of reasonably possible scenarios including taking into account an estimate of the reasonably possible impact on the Group of a second wave of the COVID-19 pandemic, and a no deal Brexit.

A severe downside scenario was also considered as part of the sensitivity analysis, addressing additional significant reductions in sales volumes. Such a scenario is considered remote and the Group has the capacity to take additional mitigating actions to ensure that the Group remains financially viable, including further reducing operating expenditures as necessary.

On the basis of this forecast and sensitivity testing, the Board has determined that it is reasonable to assume that the Group will continue to operate within the facilities available to it and to adhere to the covenant tests to which it is subject throughout the twelve-month period from the date of signing the financial statements and as such it has adopted the going concern assumption in preparing the financial statements.

Matt Durkin Jones

Chief Financial Officer

25 August 2020

Consolidated income statement

year ended 31 March

The Group initially applied IFRS 16 at 1 April 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying IFRS 16 is recognised in retained earnings at the date of initial application. See note 6.

\* The 2019 comparative information has been re‑presented due to a discontinued operation, namely the LED Technologies segment comprising two Wipac businesses which was disposed of during the period, as detailed in note 4.

Consolidated statement of comprehensive income

year ended 31 March

Consolidated statement of financial position

as at 31 March

The Group initially applied IFRS 16 at 1 April 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying IFRS 16 is recognised in retained earnings at the date of initial application. See note 6.

Approved by the Board of Directors and signed on its behalf by

Consolidated statement of changes in equity

\* The Group initially applied IFRS 16 at 1 April 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying IFRS 16 is recognised in retained earnings at the date of initial application. See note 6.

Consolidated statement of cash flows

year ended 31 March

Notes on the accounts

1. Notes on the preliminary statement

Basis of preparation

Whilst the financial information included in this preliminary statement has been prepared on the basis of the requirements of IFRSs in issue, as adopted by the European Union and effective at 31 March 2020, this statement does not itself contain sufficient information to comply with IFRS. The Group expects to publish full consolidated financial statements on 4 September 2020.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2020 or 2019 but is derived from those accounts. Statutory accounts for 2019 have been delivered to the registrar of companies, and those for 2020 will be delivered in due course. The auditor has reported on those accounts. Their report for 2020 was (i) unqualified and (ii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006. The auditor's report for the accounts of 2019 was (i) unqualified, (ii) contained a material uncertainty in respect of going concern to which the auditor drew attention by way of emphasis without modifying their report and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The financial statements are prepared on the going concern basis.

Net debt as of 31 March 2020 was £27.4m, representing a decrease from £38.5m at 31 March 2019. The decrease was driven in the main by proceeds from the disposal of the LED division.

On 14th August 2020 we concluded a restructuring with the Company's main creditors being its bank, HSBC and the

Pension Scheme to secure the continued support of those parties through to July 2023.

The debt facilities available to the Group now comprise a term loan of £34.5m, of which £3.0m will be amortised by

30 September 2022 and a £3.5m revolving credit facility maturing on 31 July 2023.

Further a schedule of contributions has been agreed with the pension trustee through to September 2037.

The bank facilities are subject to four covenants to be tested on a quarterly basis:

1. Underlying interest cover;

2. Net debt to underlying EBITDA;

3. Core subsidiary underlying EBITA;

4. Core subsidiary revenue.

Core subsidiaries are defined as Carclo Technical Plastics Ltd; Bruntons Aero Products Ltd; Carclo Technical Plastics (Brno) s.r.o; CTP Carrera Inc and Jacottet Industrie SAS, with CTP Taicang Co. Ltd and Carclo Technical Plastics Pvt Co Ltd being treated as non-core for the purposes of these covenants.

In addition, the Pension Scheme has the benefit of a fifth covenant to be tested on 1 May each year up to and including 2023. In the year to 31 March 2021 the test is met by the payment of the agreed schedule of contributions.

In subsequent years the test requires any shortfall of pension deficit recovery contributions when measured against PPF priority drift (which is a measure of the increase in the UK Pension Protection Fund's potential exposure to the Group's pension scheme liabilities) to be met by a combination of cash payments to the scheme plus a notional (non-cash) proportion of the increase in the underlying value of the CTP and Aero businesses based on an EBITDA multiple for those businesses which is to be determined annually.

The Directors have prepared cash flow and covenant forecasts to cover the 12 month period from the date of signing these financial statements taking into account the Group's available debt facilities and the terms of the arrangements with the Bank and the Pension Scheme. These demonstrate that the Group has sufficient headroom in terms of liquidity and covenant testing through the forecast period.

The Directors have performed sensitivity testing based on a number of reasonably possible scenarios including taking into account the current view of reasonably possible impacts of the COVID-19 pandemic on the Group, covering reductions in customer demand; impacts to manufacturing operations arising from outbreaks impacting the local workforce; national and regional lockdown measures; and other indirect impacts to supply chains arising from the pandemic. The Directors also considered the potential impact to the Group of a no deal Brexit with the possibility of increases to costs arising from changes to import and export tariffs as well as additional administrative costs to deal with changes to how our UK‑based operations process transactions with the EU after January 1st, 2021.

A severe downside scenario was also considered as part of the sensitivity analysis, addressing additional

significant reductions in sales volumes. Such a scenario is considered remote and the Group has the capacity to take

additional mitigating actions to ensure that the Group remains financially viable, including further reducing operating

expenditures as necessary.

On the basis of this forecast and sensitivity testing, the Board has determined that it is reasonable to assume that the Group will continue to operate within the facilities available to it and to adhere to the covenant tests to which it is subject throughout the 12 month period from the date of signing the financial statements and as such it has adopted the Going Concern assumption in preparing the financial statements.

Directors' liability Neither the Company nor the Directors accept any liability to any person in relation to this report except to the extent that such liability could arise under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or mistaken statement or omission shall be determined in accordance with section 90(A) of the Financial Services and Markets Act 2000.

Responsibility statement of the Directors in respect of the annual report The Directors at the date of this statement confirm that to the best of their knowledge:

· the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

· the strategic report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

2. Accounting policies

The accounting policies set out in the last published financial statements for the year to 31 March 2019 have been applied consistently to all periods presented in this preliminary statement, unless otherwise stated.

Judgements made by the Directors, in the application of these accounting policies that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in the Annual Report and Accounts.

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 2019. The following new standards and amendments to standards are mandatory and have been adopted for the first time for the financial year beginning 1 April 2019:

IFRS 16 Leases (effective date 1 January 2019)The standard replaces IAS 17 'Leases', IFRIC 14 'Determining whether and Arrangement contains a lease', SIC-15 'Operating Leases-Incentives' and SIC-27 'Evaluating the Substance of Transactions Involving the Legal Form of a Lease'. The standard applies a single recognition and measurement approach for all applicable leases under which the Group is the lessee.

The Group has lease contracts for property and equipment. Before the adoption of IFRS 16, leases in which substantially all the risks and rewards of ownership were retained by the lessor were classified as operating leases; all other leases were classified as finance leases. Under the previous standard, lease payments on operating leases were recognised as rental costs in the consolidated income statement. There was no recognition of the associated assets or liability in the consolidated statement of financial position, except to the extent that there were any prepaid or accrued rents.

Upon adoption of IFRS 16, for all leases where the Group is a lessee, the Group recognises a right-of-use asset and a lease liability in its consolidated statement of financial position. The consolidated income statement includes depreciation in relation to the right-of-use assets and a finance charge in relation to the lease liabilities.

The Group does not act as a lessor.

The Group applied IFRS 16 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 1 April 2019. Accordingly, the comparative information presented for 2019 is not restated - i.e. it is presented, as previously reported, under IAS 17 and related interpretations. The nature and effect of the changes, and of the practical expedients used by the Group, are disclosed in note 6.

Annual Improvements to IFRS Standards 2015-2017 Cycle (Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23) (effective date 1 January 2019);

IFRIC 23 Uncertainty over Income Tax Treatments (effective date 1 January 2019);Amendments to IFRS 9: Prepayment Features with Negative Compensation (effective date 1 January 2019);

Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures (effective date 1 January 2019); and

Amendments to IAS 19: Plan Amendment, Curtailment or Settlement (effective date 1 January 2019).

These standards have not had a material impact on the Consolidated Financial Statements unless indicated.

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 2020. The Group has elected not to adopt early these standards which are described below.

Amendments to References to Conceptual Framework in IFRS Standards (effective date 1 January 2020);

Amendments to IFRS 3: Definition of a Business (effective date 1 January 2020);

Amendments to IAS 1 and IAS 8: Definition of Material (effective date 1 January 2020); and

IFRS 17 Insurance Contracts (effective date 1 January 2021).

The above are not expected to have a material impact on the financial statements unless indicated.

There are no other IFRS or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.

3 Segment reporting

During the period the Group was organised into three, separately managed, business segments - Technical Plastics, Aerospace and LED Technologies. 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, electronics, optics and automotive safety products. This business operates internationally in a fast growing and dynamic market underpinned by rapid technological development. This segment now includes the Optics business formerly included within LED Technologies.

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

The LED Technologies segment has been presented as a discontinued operation as detailed in note 4. It developed innovative solutions in LED lighting, and was a leader in the development of high power LED lighting for the premium automotive industry.

The Central segment relates to central costs, non-trading companies and eliminations of intra-group revenue. Central costs and non-trading companies were previously reported as unallocated.

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 Group's geographical segments are based on the location of the Group's assets. Sales to external customers disclosed in geographical segments are based on the geographical location of its customers.

Analysis by business segment

The segment results for the year ended 31 March 2020 were as follows -