Carclo plc Full Year Trading Update (7769J)

TIDMCAR

RNS Number : 7769J

Carclo plc

29 April 2022

29 April 2022

Carclo plc

("Carclo" or the "Group")

Full Year Trading Update

Carclo, a global manufacturer, principally of fine tolerance injection moulded plastic parts and aerospace components, today provides an update on trading for the financial year ended 31 March 2022 ("FY 2022").

The Board is pleased to report that the business expects to report a strong performance for the year, with revenue growth ahead of, and underlying profits in line with, its expectations despite the challenging macroeconomic backdrop. In addition, the Group balance sheet has strengthened considerably throughout the course of the year, in part driven by a reduction in the IAS 19 pension deficit. We have continued to invest in capital equipment to support long-term growth, largely financed by an increase in net debt.

The impact of the pandemic continued to be felt throughout the year albeit less through the direct impacts of lockdowns and plant closures, and more through the secondary effects of labour shortages and significant cost inflation. During the second half, whilst demand has remained robust, the business faced more challenging conditions in terms of recruiting labour in the US as well as cost escalations across raw materials, energy, packaging, freight and other overheads. Whilst the impact of raw material cost increases can largely be passed on to customers (albeit with some time lag) the overall impact of these increases reduced margins in the second half particularly in the US operations. Price increases are being negotiated with customers and this will continue into FY 2023 to offset the impact of the non-material cost increases. Latterly the war in Ukraine has added to these inflationary pressures.

The safety and wellbeing of the Carclo team has continued to be foremost in the minds of the Board and in addition to the measures introduced at the start of the pandemic a range of further actions have been taken to support colleagues through these challenging times. The Board is grateful for the positivity, resilience and dedication shown by colleagues again this year.

In the first full trading year with a refreshed Board, the new leadership team has focused on refining the Group's medium-term strategy. Having received the final proceeds from the exit from the LED technology business, the organisational structure has been simplified to focus purely on CTP and Aerospace growth. Going forward the business will continue to execute on the growth strategies developed for each of these divisions, with further significant investment in capability and capacity planned for FY 2023.

In addition, the Board has continued to build positive relationships with pension trustees and banks. As well as additional employer contributions made towards reducing the pension deficit, a range of other scheme initiatives have been introduced aimed at enhancing members' benefits whilst reducing the deficit, and these are expected to continue to contribute positively in the coming years.

Carclo Technical Plastics (CTP)

The CTP division performed well with demand continuing to grow for medical and diagnostic products. The first half of the year was strong, followed by a second half year performance impacted by cost inflation noted above.

The new large customer contract reported in previous trading updates has now entered production in the UK after an extended period of prove out; the US production line is still in the prove out stage but is expected to commence production in the early part of FY 2023.

Despite the challenging backdrop, the division has been awarded significant new tooling contracts by an existing large customer and consequently it is anticipated that new production lines will be installed in CTP businesses around the globe in line with our long-term strategy. This will in turn lead to continuing long term revenue growth. As a result, it is anticipated that capital investment in the division will remain significant in FY 2023.

In addition to this large tooling order the division continued to deliver on its longer-term growth strategy, introducing 17 additional new product lines across four of our global sites. We have also secured five new significant accounts in target sectors including pharmaceutical accounts in the Czech Republic and US, a medical account in India, and China accounts added in the diabetes and diagnostics sectors.

To date the war in Ukraine has not directly impacted any operations other than through the impact of oil and energy price increases feeding through into inflation. COVID-19 continues to have the potential to impact the division through restrictions on labour movement, currently these impacts are notably affecting our India and China Operations.

The division also benefited from a US Government Loan related to COVID-19 disruption being forgiven in the year; the resulting profit was disclosed separately in the Interim Accounts income statement.

Aerospace

The Aerospace division has continued to show good resilience, remaining both profitable and cash generative in the year. Order intake remained somewhat subdued in the first half but has improved significantly in the second half and in particular in the last quarter of the year. Additional business development resources have been recruited with the objective of accelerating growth as the industry recovers from the impact of the pandemic. The order growth has come both from existing customers placing larger orders as well as new customers. Margins have been maintained despite significant cost increases in the second half.

As with CTP, the war in Ukraine has the potential to cause disruption to customer supply chains but to date this has not had a material impact on the division.

The division starts the new financial year with a healthy order book and expects to see good revenue and profit growth in FY 2023.

Governance

The Group has operated with a refreshed Board over the last 12-month period, bringing strong and relevant experience to the streamlined and re-focused Group. This complemented the new Tripartite Agreement established with the Group's bank and pension trustees to form a stable basis on which to continue to drive renewed growth for the business.

Outlook

Demand in the Group's key markets remains strong coming into the new financial year and this underpins continued confidence in strong underlying revenue growth. However, the Group is seeing significant headwinds largely due to the continued impact of COVID-19, in particular in our China and India operations. In addition, we remain mindful of the general market uncertainty related to the impact of the war in Ukraine. The margin pressures that have been experienced in the CTP division in the second half of FY 2022 are expected to continue into the new financial year and it is anticipated that trading in the early months of FY 2023 will remain challenging. A number of initiatives are underway to mitigate these impacts with the benefits of these making an increasing contribution to margins over the course of FY 2023. For the Aerospace division, the strong order intake in Q4 and the increased focus on business development positions the division well for FY2023, with further growth expected in the current year and beyond.

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 global provider of value-adding engineered solutions for the medical, optical and aerospace industries.

LEI: 21380078MEM399JPI956

Enquiries:

   Carclo plc                             01924 268040 

Nick Sanders - Executive Chair

   FTI Consulting                    020 3727 1340 

Nick Hasell / Susanne Yule

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