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Carclo belatedly manages expectations

January's profit warnings have already fed through to operational changes – too little, too late?
June 5, 2018

Back in January, Carclo (CAR) warned that financial performance for 2018 would be “significantly lower than previously planned”, which took the sting out of these figures. However, the resultant operational review of the technical plastics (CTP) division was probably overdue, given the 23 per cent contraction in the segment’s underlying operating profit. Contract delays and operational inefficiencies undermined profitability, along with a steep rise in exceptional items, although earnings were flattered by unfavourable corporate tax adjustments in the prior year.

IC TIP: Hold at 88p

Many of the findings of the review have already been put into practice, including a reorganisation of divisional management and optimisation of manufacturing processes, although you’re left wondering why it took a profit warning to galvanise the board. Complacency may have been a factor, perhaps partly the result of “historically strong revenue streams”, but it’s also manifested in “an ongoing reliance upon winning new tooling and automation contracts”, rather than an intensified focus on supporting the operating margin, down 2.5 percentage points at CTP to 7.4 per cent.

The defined pension obligation stood at around £200m, a 5 per cent fall on the prior year, although net debt crept up by £5.5m to £31.5m. Meanwhile, cash resources stood at £13m, down from £19.3m at the September half year, perhaps incidental, although it’s worth noting that £29.3m of the group’s £30m revolving loan facilities was drawn at the period-end – a renegotiation will likely ensure in early 2019.   

CARCLO (CAR)   
ORD PRICE:88pMARKET VALUE:£65m
TOUCH:87-88p12-MONTH HIGH:180pLOW: 62.4p
DIVIDEND YIELD:nilPE RATIO:8
NET ASSET VALUE:71p*NET DEBT:60%
Year to 31 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201497.34.85.52.65
2015108-24.5-33.22.75
20161193.93.30.90
201713810.511.5nil
20181468.211.6nil
% change+6-22+1-
Ex-div:-   
Payment:-   
*Includes intangible assets of £25.3m, or 35p a share