Carclo Regulatory News (CAR)

Carclo plc

("Carclo" or the "Group")

Preliminary Results for the year ended 31 March 2021

Carclo plc, the global solution provider focused on fine tolerance injection moulded plastic parts for the medical, diagnostics, electronics, optics and automotive safety markets, and aerospace components, announces its results for the financial year ended 31 March 2021 ("2020/21").

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

Continuing operations

Highlights

· Resilient revenue performance despite COVID-19

o Revenue from continuing operations decreased by 2.7% to £107.6 million (2020: £110.5 million)

o Underlying operating profit from continuing operations decreased by £2.5 million to £4.8 million (2020: £7.3 million)

· Net cash from operating activities from continuing operations was £8.4 million (2020: £6.9 million)

· Statutory operating profit from continuing operations increased to £9.3 million (2020: £1.8 million)

· Net exceptional gain in the year of £4.5 million, reflects a £6.5 million pension credit, primarily from the introduction of flexible early retirement benefits, offset by £2.0 million restructuring costs

· Group stabilised and simplified after LED Technologies business disposal

· New Board recruited

· Three-year agreement on financing and pension contributions provides a stable platform for the business to move forward

· Continuing to invest in support of strong growth momentum in the Technical Plastics business

1. Underlying operating profit is defined as operating profit adjusted to exclude all exceptional items. A reconciliation to statutory figures in given on pages 35 and 36.

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

"Despite a challenging period for the Group, the continuing businesses performed strongly in 2020/21 and ended the year on an improving trend.

Following the exit of the loss-making LED business and the completion of a three-year agreement with the Group's lending bank and pension trustees, Carclo now has a more stable platform from which to develop the business. The management structure has been simplified and the senior management and Board significantly strengthened.

Whilst COVID-19 continues to create some uncertainty over our near-term performance, the Board believes that the operating businesses within the Group have attractive long-term growth opportunities, particularly within the medical diagnostics market where the CTP business is well positioned.

Alongside investing to deliver its organic growth strategy, the Board is working closely with Carclo's pension trustees on 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.

We are encouraged by our trading performance during the first quarter and the Board expects to see good progress in the current year."

Further Information

Forward-looking statements

Certain statements made in this annual report and 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 36. A reconciliation to statutory numbers is included on pages 35 and 36. 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.

Executive Chairman's Statement

As for many companies, the last year has been one of disruption and uncertainty for Carclo.

The COVID-19 pandemic significantly impacted our businesses around the world, and the aftermath of the exit from our LED operations in the prior year continued to affect the Group.

Our priorities have been to ensure the safety and wellbeing of our people and the communities that we operate in and to safeguard the long-term sustainability of the business.

Despite these challenges, I am pleased to report that the Group has restructured, refinanced and created a streamlined and simplified business model. It has stabilised its operations and our performance is steadily improving.

Our largest division, Carclo Technical Plastics ("CTP") recovered well despite temporary plant closures in the first quarter due to the pandemic with our customers and also suppliers experiencing significant operational disruption throughout the year. Notwithstanding these factors, I am pleased to report that CTP total sales were broadly the same as the prior year - a tremendous achievement by the team in a very challenging economic environment.

Our Aerospace division was severely impacted by the downturn in the sector as a whole resulting in a significant reduction in order intake throughout the year. In response we rapidly adjusted our cost base to mitigate the impact of reduced post-COVID volumes and applied the government support schemes available to the business. These actions resulted in a positive cash generation for the division despite the worst economic conditions in the sector for decades, and the business remained profitable albeit at a lower level than in prior years.

The residual impact of the divestment of the Wipac division and related restructuring, refinancing and rationalisation of activities continued to be felt in the first half of the year, consuming significant Board and management time as well as incurring a high level of advisor costs. This is now behind us, with the second half of the year benefiting from the Group's new streamlined and simplified structure and a clear focus on operational and strategic improvement.

During the second half of the year, following the implementation of the new tripartite agreement, the Group has embarked on a series of proactive restructuring and rationalisation activities. These are expected to benefit the Group through the restructuring of inter-company arrangements, divisionalising and decentralising its structures and activities for greater cost-effectiveness. The establishment of the new tripartite agreement has fostered a renewed and close working relationship with the pension trustees on strategic initiatives to reduce the pension scheme deficit while preserving members' benefits. Progress has already been made in the year in establishing flexible early retirement options for members and further benefits from these positive strategic initiatives are expected to accrue in 2021/22.

In the second half of the year we introduced rigorous and regular business review processes, encompassing a broader range of new financial and non-financial KPIs. Focus is maintained and progress tracked on a weekly as well as monthly basis through financial and operational management meetings.

As previously reported, the Group concluded a tripartite agreement with its lending bank and pension trustees on 14 August 2020. This agreement provides lending facilities through to 31 July 2023 and an agreement not to alter the contributions to the Group's pension funds for the same period. There is now a focus on strong communications between bank, pension trustees and Company management, with quarterly tripartite meetings to review progress and performance, which is greatly strengthening the understanding and relationship between the three parties. This has provided a solid foundation for the business to move forward and to develop strategies for each of its divisions.

These strategies are focused on delivering profitable organic growth and operational improvement, supported by targeted investment. CTP is already starting to make solid progress against these objectives having secured a number of new contracts in the medical sector, while our focus on cash generation along with working capital improvement are starting to deliver results and facilitate growth. Recovery in the Aerospace business will take longer as we expect activity levels in this sector will remain below 2019 levels for the next three to four years. However, the overall impact on the Group business is low due to the much smaller scale of the Aerospace division.

Financial performance

Group revenue from continuing operations decreased by 2.7% to £107.6 million (2020: £110.5 million), underpinned by a strong divisional performance from CTP in the context of the COVID-19 pandemic. Revenue including discontinued operations decreased by 26.5% to £107.6 million (2020: £146.3 million).

Group underlying operating profit from continuing operations was 33.8% lower at £4.8 million (2020: £7.3 million) with basic underlying earnings per share from continuing operations 51.0% lower at 2.4 pence (2020: 4.9 pence). Statutory basic earnings per share was 10.1 pence (2020: 15.5 pence loss). The Group's net debt including IFRS 16 lease liabilities increased £0.2 million to £27.6 million (2020: £27.4 million) with positive operational cash generation from continuing operations and further proceeds from the disposal of the discontinued LED Technologies operation offsetting capital expenditure which was funded by a mixture of cash and lease liabilities.

The underlying operating profit margin from continuing operations decreased to 4.5% (2020: 6.6%), reflecting reduced activity levels in the Aerospace business and increased central costs due to PPF levy cost increases and foreign exchange movements. Underlying earnings before interest, taxation, depreciation and amortisation from continuing operations decreased to £10.8 million (2020: £13.4 million).

Return on capital employed increased from 10.1% to 13.5%.

Statutory operating profit including discontinued operations was £9.3 million (2020: £4.4 million loss) with statutory profit before tax and profit on disposal of discontinued operations of £6.6 million (2020: £7.0 million loss).

COVID-19

The pandemic inevitably had a significant impact on our business throughout the year. However, our CTP division broadly maintained total sales year on year despite the downturn. The Group has absorbed the full impact of COVID-19 within its trading results without setting aside any provisions or charges as exceptional items.

Our priority has been to keep our people and communities safe whilst maintaining business operations as far as possible. Measures to protect our employees have been regularly reviewed and updated and best practice shared across our sites around the world. The wearing of personal protective equipment, temperature testing, social distancing in the workplace and working from home measures have all been introduced as we adapted and changed to the evolving situation.

The pandemic not only impacted our businesses but the sectors in which they operate, and these impacts will be detailed further in the annual report.

Our people

I am proud of the way that the Carclo team worldwide has responded to the pandemic and I would like to thank them all for their efforts under the most challenging of conditions.

Our people are of course our greatest strength and in this year we have initiated work to strengthen our commitment to the ongoing development of our teams across each country in which we operate.

New apprenticeship and employee development accreditation schemes have been launched in our US operations and similar initiatives will be rolled out across the Group in 2021/22.

As well as training and career development opportunities, work has begun on providing health and wellbeing support for our employees and I look forward to reporting more on this in future periods. Some great examples of best practice have emerged and our intent is to implement these more broadly around the Group.

We are also increasing our focus on workforce diversity to ensure that we attract and retain the best people wherever we operate.

Board changes

Peter Slabbert and David Toohey indicated their intention not to seek re-election as Non-Executive Directors after both serving the Group over the last six years, and they retired from the Board on 31 March 2021 and 30 April 2021 respectively. I would like to thank both Peter and David for their contribution to the business.

I am pleased that we have been able to recruit Eric Hutchinson and Frank Doorenbosch to the Board. They bring a wealth of business and specific industry experience that will be invaluable as we execute our strategies going forward. Eric was appointed on 7 January 2021 and became Chair of the Audit Committee in March 2021, taking over from Peter Slabbert. Frank was appointed on 1 February 2021, and took over as Chair of the Remuneration Committee in April 2021 following David's departure.

I was appointed as a Non-Executive Director and Chairman-elect on 18 August 2020. Joe Oatley held the position of interim Non-Executive Chairman until 30 September 2020 when I became Non-Executive Chairman and following a restructuring, subsequently became the Executive Chairman on 5 October 2020, following Antony Collins stepping down as interim CEO. Joe reverted to his role as a Non-Executive Director and Chairman of the Nomination Committee and was also appointed as Senior Independent Director on 30 September 2020. I would like to thank Joe for taking on these additional responsibilities during some difficult times.

Following Matt Durkin-Jones' departure as interim CFO on 17 December 2020, on 1 March 2021 Phil White joined the Board as the permanent CFO after a short period as interim CFO. Phil also brings a wealth of knowledge and experience to the business and he is working alongside me on driving improvements across the Group.

I am pleased that after a period of difficulty for the Group culminating in the disposal of the Wipac division, we have recruited a strong new Board with very relevant experience to guide the business forward.

Health, safety and environment

In parallel to the measures taken to manage the impact of the pandemic, the business has continued to work on continually improving the health and safety performance of our operations and I am pleased to report a 46% reduction in the number of incidents across the Group and a 20% reduction in lost time accidents. Further development of our health and safety strategies will continue in the current financial year.

Our Environmental policy has been enhanced and further improvement measures are planned as part of our overall ESG approach.

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 2020/21 (2020: £nil).

Governance

Since joining the Board in August 2020, 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.

Brexit

As a result of the protracted and last-minute negotiations between UK and EU governments on the terms of the UK's exit from the EU, some operational disruption was experienced by both the CTP and Aerospace businesses. The main impacts were delays in shipping goods across borders, with shipping times increasing in some cases from three days to three weeks. This was particularly acute in January and whilst the impact diminished somewhat in the following months, shipping times remain significantly longer than was the case pre-Brexit. In addition to delays, shipping costs have also increased and this appears to be a permanent reset of the market. However, we do not consider Brexit to have had a material impact on the business to date.

Pensions

The management team has worked closely with the pension trustees to establish a positive and proactive working relationship with the common aim of maintaining scheme benefits whilst reducing the scheme deficit over time. In addition to the substantial company contributions, the pension trustees during the year have worked with the Company management and initiated a range of measures on investment strategy and pension offerings to scheme members. Specifically, this included the introduction of a Bridging Pension Option whereby scheme members may opt to start taking pensions payments prior to full retirement, providing greater flexibility of pensions choice to members. The management team and pension trustees are continuing to work collaboratively to identify further opportunities for improvement.

Divisional review

Carclo Technical Plastics ("CTP")

Despite the challenges presented by the pandemic the CTP division performed well.

In the early part of the financial year the division experienced significant disruption through employee absence, customer shutdowns and supply chain delays. The management quickly introduced protocols to protect our employees and adapted flexible working patterns to maintain production through the most severe periods.

As a result of CTP's reputation for delivery and quality, the division secured three new large medical customers. Two of these customers operate in the diagnostic field and the other in pharmaceuticals. Demand for new COVID products was high and is expected to remain so for some time, whilst demand for some non-COVID medical products reduced as a result of treatments being delayed.

As a result of these new business wins, demand for new tooling increased over the prior year and is an encouraging leading indicator of future growth. Investment in new technology moulding machines also continued at a high level as the division gears up for increased demand for medical and diagnostic products (both COVID and non-COVID related).

As well as securing new customers, the division also saw increased demand from existing customers in the medical sector.

Overall demand for optical products slowed in the first half due to the impact of the pandemic on large building projects but this was partially offset by increased activity in the aftermarket and home improvement sector. Sales improved in the second half as markets began to recover. The division also developed a number of new products for the optical sector which will be released in 2021/22.

Aerospace 

In common with much of the sector, the impact of the pandemic on our Aerospace business has been significant. As a result of the steep reduction in commercial aerospace activity in particular, the business experienced a large reduction in orders in the first quarter and this situation persisted for the remainder of the financial year. In response to the crisis the management team took immediate action to reduce costs and to take the benefit of government support schemes in both the UK and France. As a result of this action the business has remained profitable and cash generative throughout the year in the face of an unprecedented aerospace sector downturn post-COVID.

A range of actions have been implemented to find new growth opportunities both within the aerospace sector and in other industrial sectors and these show some potential for the future.

While it is anticipated that the recovery of sales to pre-pandemic levels will take some years to achieve, the overall impact on the Group as a whole is less significant due to the lower contribution to Group sales and therefore net income from the Aerospace division.

Strategy

The Group's strategy is to focus on being the supplier of choice in our core markets, which will deliver sustainable growth in earnings.

Further planning work has been completed in both operating divisions to underpin the achievement of this strategic goal and action plans have been defined and launched.

Each division will become "standalone" and will have the resources to operate independently of central functions as far as possible.

The central team will focus on Group strategy, capital allocation, finance, IT and governance and will work with the pension trustees to reduce the current deficit in the Group defined benefit pension funds.

CTP will continue to focus on its core markets of medical, diagnostics, electronics, optics and automotive safety, with the objective of diversifying its customer base in these sectors in each of the regions in which we operate.

This will be underpinned by further investment in capital equipment with an emphasis on new technology and increased automation and by a rigorous operational improvement plan.

This includes projects initiated in the Aerospace division to win business with new customers in the aerospace and other safety-critical industries.

Nick Sanders

Executive Chairman

30 June 2021

Finance Review

Trading performance

Revenue from continuing operations decreased by 2.7% to £107.6 million (2020: £110.5 million) with CTP revenue of £102.5 million, down 0.6% (2020: £103.1 million) and Aerospace revenue of £5.1 million, down 31.7% (2020: £7.5 million). Revenue from discontinued operations was £nil (2020: £35.8 million). Overall Group revenue decreased by 26.5% to £107.6 million (2020: £146.3 million) following the disposal of the loss-making Wipac LED Technologies division in the prior year.

Underlying operating profit1 from continuing operations decreased by £2.5 million to £4.8 million (2020: £7.3 million). £1.1 million of the profit reduction arose from Aerospace underlying operating profit of £0.6 million (2020: £1.7 million), due to the heavy impact on the market sector from COVID-19 restrictions. CTP underlying operating profit of £9.2 million was broadly unchanged (2020: £9.3 million) and central costs of £4.9 million (2020: £3.6 million) increased by £1.3 million due to PPF levy cost increases and foreign exchange movements.

After exceptional items, operating profits for continuing operations increased to £9.3 million (2020: £1.8 million). The £4.5 million of net exceptional gains in the year reflects a pension past service credit of £6.5 million primarily from introducing a new flexible retirement option to the defined benefit pension scheme members, offset by £2.0 million of restructuring and refinancing costs. These exceptional costs were largely incurred to support the establishment of a three-year tripartite financing and funding agreement and platform for financial stability between the principal bank and pension scheme trustees in August 2020.

The £5.5 million prior year exceptional costs for the continuing business mainly related to restructuring and rationalisation costs and impairment provisions against the Aerospace business.

Underlying earnings before interest, taxation, depreciation and amortisation ("underlying EBITDA") from continuing operations decreased to £10.8 million (2020: £13.4 million). The 2020 comparative including discontinued operations was £11.3 million. The return on sales from continuing operations (defined as underlying EBITA divided by revenue) was 4.7% (2020: 6.8%).

Discontinued underlying operating losses were £0.1 million (2020: £2.9 million), having completed the exit from the Wipac LED Technologies business in the prior year.

Group underlying profit before tax from continuing operations was £2.2 million (2020: £4.9 million) after net interest of £2.7 million (2020: £2.4 million). Total Group interest including discontinued operations was £2.7 million (2020: £2.6 million), comprising net bank interest of £1.6 million (2020: £1.2 million), pension finance charges of £0.8 million (2020: £1.1 million) and leasing and other interest charges of £0.3 million (2020: £0.3 million).

The Group underlying tax charge from continuing operations totalled £0.5 million (2020: £1.4 million), an underlying effective tax rate from continuing operations of 21.0% (2020: 27.8%). 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. The overall effective rate has reduced in the year after taking account of provisions for tax uncertainties no longer required and timing differences.

Basic underlying earnings per share from continuing operations were 2.4 pence (2020: 4.9 pence).

As set out in note 6, exceptional items incurred for continuing operations totalled £4.5 million credit, of which a £2.0 million charge relates to the costs of external advisors of the Company, its lending bank and the Group pension scheme related to the refinancing process completed in the year, and a £6.5 million credit primarily relates to past service gains from the defined benefit pension scheme after the introduction of flexible early retirement benefits.

The exceptional credit associated with the discontinued operations totalled £1.2 million, reflecting further disposal receipts from the administrator of the discontinued Wipac LED Technologies business.

Statutory operating profit was £9.3 million (2020: £4.4 million loss). Statutory profit before tax was £6.6 million (2020: £7.0 million loss) and statutory profit after tax was £7.4 million (2020: £11.4 million loss), giving a statutory basic earnings per share of 10.1 pence (2020: 15.5 pence loss). The statutory tax charge was £0.5 million, compared with a tax charge in 2020 of £1.4 million on higher profits chargeable to tax and adverse prior year movements on timing differences and provisions. A reconciliation of statutory to underlying non-GAAP financial measures is provided on pages 35 and 36.

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

Net debt

Net debt excluding lease liabilities was £20.5 million (2020: £22.1 million). Net debt including lease liabilities was £27.6 million (2020: £27.4 million).

Net cash from operating activities from continuing operations was £8.4 million (2020: £6.9 million).

In the year, the Group invested £10.5 million in property, plant, equipment and software (2020: £7.3 million) in its continuing operations, mainly in CTP's UK and USA operations. This represented 177% of the Group depreciation and software amortisation charge from continuing operations (2020: 121%).

At 31 March 2021, total UK bank facilities were £35.6 million, of which £3.5 million related to a revolving credit facility and £32.1 million in term loan facilities, of which £3.0 million are scheduled for repayment by September 2022. The three-year bank facility agreement established in August 2020 lasts until July 2023, with a commitment to agree the next refinancing arrangements by 30 June 2022.

The last triennial actuarial valuation of the Group pension scheme was carried out as at 31 March 2018, reporting an actuarial technical provisions deficit of £90.4 million. The next triennial actuarial valuation results as at 31 March 2021 are not expected to be finalised until June 2022, but the actuary's update of the 2018 triennial valuation to 31 March 2021, based on the 2018 actuarial assumptions adjusted for changes in market conditions, reported a deficit of £89.9 million, indicating the scheme to be 65% funded on a continuing basis. By way of comparison, the statutory accounting method of valuing the Group pension scheme deficit under IAS19 resulted also in a small improvement in the net liability of £37.3 million (2020: £37.6 million).

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. In terms of sensitivity, based on the 2020/21 results, a 10% increase in the value of sterling against these currencies would have decreased reported profit 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 2020/21 (2020: £nil). The Board intends to recommence dividend payments only when it becomes confident that a sustainable and regular dividend can be re-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 pages 35 and 36.

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 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 4 May 2021, a further £0.2 million was received by HSBC from the Administrators of Wipac Ltd and has been applied as a repayment against the Group's term loan. At 31 March 2021 no asset has been recognised for this nor for further potential post balance sheet proceeds which would also be used to repay the Group's term loan. Management's best estimate of the contingent asset at 31 March 2021 in respect of these remaining potential proceeds is £0.35 million, the receipt of the £0.2 million does not change this.

At 31 March 2021, the Group has recognised £2.1 million ($2.9 million) in loans and borrowings in respect to a Paycheck Protection Program loan. The loan was received from Commercial Bank and Trust of Pennsylvania as a promissory note, underwritten by the US Government Small Business Administration ("SBA"). On 5 May 2021, CTP USA received confirmation of forgiveness of the loan by the SBA, resulting in its conversion from a loan to a grant. The full amount will be recognised in the income statement in the year ending 31 March 2022.

Going concern

Cash flow and covenant forecasts have been prepared to cover the twelve-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.

Sensitivity testing has been carried out based on a number of reasonably possible scenarios, taking into account the current view of impacts of the continuing COVID-19 pandemic on the Group and possible political uncertainty, including: the impact of change in the US administration, Brexit and other possible overseas trading issues.

Severe downside sensitivities modelled included a range of scenarios modelling the financial effects of loss of business from discrete sites, an overall fall in gross margin of 1% across the Group, a fall in Group sales of 5% matched by a corresponding fall in cost of sales of the same amount, the loss of COVID-related sales from large customers, delays in the timing of commencement of significant new medical projects, reduction in revenue from specific customers, minimum wage increases and exchange risk. These sensitivities attempt to incorporate the risks arising from national and regional impacts of the global pandemic from local lockdowns, impacts on manufacturing and supply chain and other potential increases to direct and indirect costs. The Group has the capacity to take 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.

Phil White

Chief Financial Officer

30 June 2021

Consolidated income statement

for the year ended 31 March 2021

Consolidated statement of comprehensive income

for the year ended 31 March 2021

Consolidated statement of financial position

as at 31 March 2021

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

Consolidated statement of changes in equity for the year ended 31 March 2021

Consolidated statement of cash flows

for the year ended 31 March 2021

Notes on the preliminary statement

1 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 pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union ("Adopted IFRSs") and effective at 31 March 2021, this statement does not itself contain sufficient information to comply with IFRS. The Group expects to publish full consolidated financial statements on 26 July 2021.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2021 or 31 March 2020 but is derived from those accounts. Statutory accounts for 2019/20 have been delivered to the registrar of companies, and those for 2020/21 will be delivered in due course. The auditor has reported on those accounts. Their report for 2020/21 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 2019/20 was (i) unqualified and (ii) 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.

Despite the challenges presented by the COVID-19 pandemic, Group performance has enabled significant capital investment to be made whilst retaining a stable financial position, with net debt excluding lease liabilities as of 31 March 2021 falling to £20.5 million (2020: £22.1 million).

On 14th August 2020 Carclo plc 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 made available to the Group comprised 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. Repayments amounting to £1.6 million have been made in the period to 31 March 2021 (these are not part of the £3 million due to be amortised by 30 September 2022). In accordance with the agreement, as repayments are made, the term loan facility reduces first, meaning that, at 31 March 2021, the term loan facility available is £32.1 million (after exchange variances). £3.5 million remains available on the revolving credit facility.

A schedule of contributions has been agreed with the pension trustees through to July 2023. Beyond 2023 a schedule of contributions for £3.5 million annually is in place until 31 October 2040, but is reviewed and reconsidered between the Employer and the trustees at each triennial actuarial valuation, the next being after the results of the 31 March 2021 triennial valuation are known.

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. Based on our current base case forecasts, these covenant tests are expected to be met for all periods.

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 was 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 reviewed cash flow and covenant forecasts to cover the twelve 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 reviewed sensitivity testing based on a number of reasonably possible scenarios, taking into account the current view of impacts of the continuing COVID-19 pandemic on the Group and possible political uncertainty, including the impact of change in the US administration, Brexit and other possible overseas trading issues.

Severe downside sensitivities modelled included a range of scenarios modelling the financial effects of loss of business from discrete sites, an overall fall in gross margin of 1% across the Group, a fall in Group sales of 5% matched by a corresponding fall in cost of sales of the same amount, the loss of COVID-related sales from large customers, delays in the timing of commencement of significant new medical projects, reduction in revenue from specific customers, minimum wage increases and exchange risk. These sensitivities attempt to incorporate the risks arising from national and regional impacts of the global pandemic from local lockdowns, impacts on manufacturing and supply chain and other potential increases to direct and indirect costs. The Group has the capacity to take 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.

Directors' liabilityNeither 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 reportThe 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 2020 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 note 3.

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 following new standards and amendments to standards are mandatory and have been adopted for the first time for the financial year beginning 1 April 2020:

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 9 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures: Amendments arising from the Interest Rate Benchmark Reform - Phase 1 (effective 1 January 2020).

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

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 2021. The Group has elected not to adopt early these standards which are described below.

IFRS 16 Leases: Amendments in relation to COVID-19 related rent concessions (effective date 1 June 2020);

IFRS 4 Insurance Contracts: Amendments in relation to the temporary exemption from applying IFRS 9 (effective date 25 June 2020);

IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures, IFRS 4 Insurance Contracts and IFRS 16 Leases: Amendments arising from the Interest Rate Benchmark Reform - Phase 2 (effective date 1 January 2021);

IAS 16 Property, Plant and Equipment: Amendments in relation to proceeds before intended use (effective date 1 January 2022);

IAS 37 Provisions, Contingent Liabilities and Contingent Assets: Amendments in relation to the cost of fulfilling a contract when assessing onerous contracts (effective date 1 January 2022);

IFRS 3 Business Combinations: Amendments to update references to the Conceptual Framework (effective date 1 January 2022);

Annual Improvements to IFRSs (2018-2020 cycle) (effective date 1 January 2022);

IAS 1 Presentation of Financial Statements: Amendments in relation to the classification of liabilities as current or non-current (effective date 1 January 2023);

IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Material Judgements: Amendments in relation to the disclosure of accounting policies (effective date 1 January 2023);

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Amendments in relation to the definition of accounting estimates (effective date 1 January 2023);

IFRS 17 Insurance Contracts (effective date 1 January 2023); and

Amendments to IFRS 17 Insurance Contracts (effective date 1 January 2023).

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

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 Accounting estimates and judgements

The preparation of the financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses.

The estimates and assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods.

The following are the critical judgements and key sources of estimation uncertainty that the Directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the financial statements. Management has discussed these with the Audit Committee. These should be read in conjunction with the significant accounting policies provided in the Annual Report and Accounts.

Going concern

Note 1 contains information about the preparation of these financial statements on a going concern basis.

Key judgements -

Management has exercised judgement over the likelihood of the Group being able to continue to operate within its available facilities and in accordance with its covenants for the twelve months from the date of signing these financial statements. This determines whether the Group should operate the going concern basis of preparation for these financial statements.

Impairment of assets

Note 11 contains information about management's estimates of the recoverable amount of cash generating units and their risk factors.

Key judgements -

Management has exercised judgement over the underlying assumptions within the valuation models. These are key factors in their assessment of whether there is any impairment in related goodwill or other assets. Management has also exercised judgement to determine the Group's cash‑generating units to which goodwill is allocated and against which impairment testing is performed.

Key sources of estimation uncertainty -

The Group tests whether goodwill has suffered any impairment and considers whether there is any indication of impairment on an annual basis. Goodwill at 31 March 2021 amounts to £21.1 million (2020: £22.0 million), as set out in more detail in note 11.

The recoverable amounts may be based on either value in use calculations or fair value less costs of disposal calculations. The former requires the estimation of future cash flows and the choice of a discount rate in order to calculate the present value of the future cash flows. The latter method requires the estimation of fair value.

Details of the sensitivity of assumptions is included in note 11.

Pension assumptions

Note 13 contains information about management's estimate of the net liability for defined benefit obligations and their risk factors. The pension liability at 31 March 2021 amounts to £37.3 million (2020: £37.6 million).

Key sources of estimation uncertainty -

The value of the defined benefit pension plan obligation is determined by long-term actuarial assumptions. These assumptions include discount rates, inflation rates and mortality rates. Differences arising from actual experience or future changes in assumptions will be reflected in the Group's consolidated statement of comprehensive income. The Group exercises judgement in determining the assumptions to be adopted after discussion with a qualified actuary. Details of the key actuarial assumptions used and of the sensitivity of these assumptions are included within Note 13.

A Bridging Pension Option ("BPO") was introduced in the year to 31 March 2021 with a rule change and member announcement creating a legal and constructive obligation and thus constituting a plan amendment. Having taken actuarial advice, management has exercised judgement that 40% of members will take the BPO. This estimate impacts on the past service credit recognised as an exceptional item in the income statement.

Lease break options

The Annual Report and Accounts contain information about lease break options.

Key judgement -

Management has applied judgement when determining the expected certainty that a break option within a lease will be exercised.

Revenue recognition

As revenue from tooling contracts is recognised over time, the amount of revenue recognised in a reporting period depends on the extent to which the performance obligations have been satisfied.

Key judgements -

The revenue recognised on certain contracts in the continuing Technical Plastics segment required management to use judgement to apportion contract revenue to the tooling performance obligations. The revenue recognised on premium automotive lighting tooling contracts in the prior year discontinued operations required management to use judgement to apportion contract revenue to milestones and in certain cases to estimate when milestones had been achieved.

In the current year, management of the Technical Plastics segment has had to apply judgement in determining, to which contract a significant modification relates and therefore against which performance objectives the increase in revenue should be allocated. Management determined that it relates to the tooling contract and as such the additional revenue has been recognised in part this year, with the expectation that the balance will be recognised in the year to 31 March 2022.

Key sources of estimation uncertainty -

Revenue recognised on certain contracts in the continuing Technical Plastics segment required management to estimate the remaining costs to complete the tooling performance obligation in order to determine the percentage of completion and revenue to recognise in respect of those performance obligations.

In the current year, management of the Technical Plastics division have been required to estimate the likelihood of a variable consideration component in respect to a large tooling contract becoming payable. Management determined that it was not highly probable that a proportion of the revenue will not reverse and therefore at 31 March 2021, none of the £0.7 million has been recognised in revenue. If all the required milestones are met, then this revenue will be recognised in the year ended 31 March 2022.

Recognition of deferred tax assets

Information about the deferred tax assets recognised in the consolidated statement of financial position is included in the Annual Report and Accounts.

Key judgement -

Management has exercised judgement over the level of future taxable profits in the UK against which to relieve the Group's deferred tax assets. On the basis of this judgement no UK deferred tax assets have been recognised at the period end.

Classification of exceptional items

Note 6 contains information about items classified as exceptional.

Key judgements -

Management has exercised judgement over whether items are exceptional as set out in the Group's accounting policies within the Annual Report and Accounts.

Government grants

As set out in note 7, £2.1 million ($2.9 million) of government COVID-19 support loans have been classified within interest bearing loans and borrowings.

Key judgements -

Management has made a judgement that there was insufficient certainty as to whether conditions attached to £2.1 million of government loans in support of COVID-19 interruption had been met at 31 March 2021 and therefore the proceeds have been presented as loans and borrowings in the consolidated statement of financial position and no associated government grant income has been recognised during the period. Subsequent to the balance sheet date, the Group received confirmation of loan forgiveness and conversion of the funding from loan to grant was judged to have occurred at that point, after the balance sheet date. See note 16 for more information.

4 Segment reporting

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

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

The Central segment relates to central costs, non-trading companies and eliminations of intra-group revenue.

The LED Technologies segment presented as a discontinued operation was a leader in the development of high-power LED lighting for the premium automotive industry and was disposed of in the year to 31 March 2020.

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.

Analysis by business segment

The segment results for the year ended 31 March 2021 were as follows -

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