REG - Carclo plc - Trading Statement

CarcloAnnouncement

14/04/2023 07:00

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RNS Number : 1808W  Carclo plc  14 April 2023

THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED TO CONSTITUTE
INSIDE INFORMATION AS STIPULATED UNDER THE MARKET ABUSE REGULATION (EU NO.
596/2014) WHICH IS PART OF UK LAW BY VIRTUE OF THE EUROPEAN UNION WITHDRAWAL)
ACT 2018. UPON THE PUBLICATION OF THIS ANNOUNCEMENT, THIS INSIDE INFORMATION
IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN

 

14 April 2023

 

Carclo plc

 

("Carclo" or the "Group")

 

Full Year Trading Update

 

Carclo, a preferred and trusted partner of global customers, providing
high-precision critical components to the life sciences, aerospace, optics,
and technology industries, today provides an update on trading for the
financial year ended 31 March 2023 ("FY 2023").

During FY 2023, the Company encountered multiple significant challenges,
including the dissolution of a major manufacturing contract, the adverse
effects of rising input costs on margins, and increasing interest rates. In
response to this altered landscape, the Board shifted the Group's strategy to
focus on operational excellence and cash generation. Although the final
quarter of FY 2023 has shown early signs of the new strategy's benefits, the
overall full-year profit performance is anticipated to be below the previous
year. As a result of the new focus on cash generation, the Group expects to
deliver an improvement in net debt compared to the position at the half year,
whilst having continued to make significant pension deficit repair
contributions. The suppressed Manufacturing Solutions margins and reduced
Design & Engineering activity within our Carclo Technical Plastics (CTP)
business have only been partially counterbalanced by increased manufacturing
volumes in CTP and a robust performance from our Aerospace division.

Redefined Strategy

During the latter half of FY2023 it became clear that the cash-intensive
top-line growth strategy was unsustainable in the current economic climate. As
a result, the Board has refocused the Group's strategy on margin expansion
through operational excellence and balance sheet strengthening via cash
generation. Our investment priorities now lie in supporting existing projects
and continuous improvement with a swift return on investment. While we have
already begun implementing this new strategy and there is still much to
accomplish, we are witnessing early positive indications of enhanced margins
and cash generation as FY2023 concludes.

 

Banking Arrangements

The Board continues to work with its lending bank, HSBC, to ensure that there
is appropriate ongoing financial support for the business as it implements the
new strategy.  HSBC remain supportive and the Group successfully reached an
agreement with them to reset the interest cover covenant for 31 March 2023.
 Discussions are continuing with HSBC regarding the setting of appropriate
covenants for the forthcoming financial year.

 

Carclo Technical Plastics (CTP)

The CTP division achieved a robust revenue performance, despite facing
significant headwinds during the year. Activity in the Design &
Engineering segment reduced from the very high level of the prior year, but
remained above historical norms. The Manufacturing Solutions segment delivered
significant revenue growth, primarily from our existing customers in the life
sciences sector, demonstrating our ability to grow organically in our chosen
markets.

 

However, significant margin challenges offset this revenue growth,
particularly the unprecedented increase in input costs, including soaring
energy prices. While we have been able to pass on some of the higher costs to
customers, the time delay in doing so has caused a significant drop in
operating margins during the year. The effect of the lower margins was only
partially mitigated by increased manufacturing volumes and we therefore expect
the divisional underlying operating profit to be materially lower than the
prior year.

 

We previously announced the dissolution of a significant manufacturing
contract and are engaged in ongoing discussions with the customer to reach a
commercial agreement for this contract.

 

Our current focus is on margin recovery through operational efficiency and
optimisation. We have begun our factory specialisation journey in the EMEA
region, with our UK facility concentrating on long production runs and our
Czech facility focusing on short and medium-run products, prioritising
flexibility and rapid changeovers. We are now implementing this factory
specialisation strategy in the US. Our Chinese and Indian operations
demonstrate strong growth potential and enhance our global presence. We expect
a steady recovery in operating margins in the near term as our new strategy
starts to yield results.

 

Aerospace

Our Aerospace division is witnessing a robust recovery as the aviation
industry rebounds, with sales approaching pre-COVID levels. The division's
unique market position ensures margin resilience amid inflation, and we expect
solid profits and operating cash flow for FY2023. Our focus lies in expanding
sales within existing markets and creating high-precision, safety-critical
solutions for specialised sectors.

 

Governance

The Board is dedicated to maintaining high governance standards and regulatory
compliance. We have restructured the Board, separating the roles of
Non-Executive Chairman and Chief Executive, in line with the Corporate
Governance Code. Rachel Amey's recent appointment as a Non-Executive Director
strengthens the Board, as her financial expertise will help ensure adherence
to best practice in financial controls and governance.

 

Outlook

We remain dedicated to providing sustainable earnings growth and value
creation for our stakeholders, despite the persistent challenges caused by
inflationary pressures. Our new strategy emphasises cash generation,
stability, operational excellence, and optimising our global footprint. We are
implementing measures to enhance manufacturing and supply chain efficiency
while minimising environmental impact. Our endeavours to optimise our global
footprint will enable us to serve our customers better, support growth in key
markets, and improve financial performance.  We expect the business to
deliver a substantially improved performance over the medium term as our focus
shifts to enhancing margins and return on capital.

 

 

 

About Carclo plc

Carclo plc is a public company whose shares are quoted on the Main Market of
the London Stock Exchange. The Group is a preferred and trusted partner of
global customers, offering high-precision critical components that meet the
needs of life sciences, aerospace, optics, and technology industries.

 

LEI: 21380078MEM399JPI956

 

Enquiries:

Carclo plc                             01924 268040

Frank Doorenbosch - Chief Executive Officer

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