Preliminary Results

Carclo PLC 18 June 2001 CARCLO PLC Preliminary Results for the Year ended 31 March 2001 Highlights * Carclo repositioning completed with the acquisition of CTP Alan and the disposal of the wire rope businesses. * Focused on global growth with new facilities in China and Czech Republic. * Turnover for ongoing operations was up 3% to £165 million (2000 - £160 million). * Operating profit for continuing operations was up 7% at £12.2 million (2000 - £11.4 million). * 44% increase in reported profit before tax at £8.6 million (2000 - £6.0 million). * Total dividend maintained at 11.0p. Commenting on the results, George Kennedy, Chairman said: 'Our operations made good progress in the first nine months of the year just finished, but trading was then affected by the slowdown in the US technology sector. This slowdown has spread into the broader economy as evidenced, in the final quarter, by a decline in order intake in card clothing. Our operations are proving resilient in these conditions and some encouraging signs of recovery are already evident. Across the group, new product introductions and new manufacturing initiatives in China and the Czech Republic are creating a momentum which should contribute to improved profitability in the second half and into the following year.' For further information, please contact: Carclo plc Ian Williamson, Chief Executive On 18 June: 020 7324 8888 Chris Mawe, Finance Director Thereafter: 01924 330500 Golin/Harris Ludgate Richard Hews 020 7324 8888 Trish Featherstone Chairman's statement Overview Sales in the year to 31 March 2001 from our continuing operations increased by 3% to £164.6 million compared to last year. Operating profits on the same basis increased by over 7% and reflect a creditable performance given what proved to be a difficult final quarter to the year. The transformation of Carclo continued with the withdrawal from commodity wire and wire ropes, leaving our specialist wire division focused on its world leading, high quality card clothing and nylon coated wire products. The development of the technical plastics division continued with the acquisition in December 2000 of Finespark (Horsham) Limited, trading as the Alan Group (subsequently rebranded as CTP Alan). This business brings significant strategic opportunities to the group through its capability in moulded connectors and a new facility in China. Profit before tax of £8.6 million was stated after exceptional charges totalling £1.1 million relating to the closure of Lee Smith Wires, the sale of our wire rope businesses and property disposals. Basic earnings per share increased by 139% to 10.5p, however this was distorted by the impact last year of the disposal of Lee Steel Strip. The underlying earnings per share, eliminating one off charges and goodwill, showed a reduction of 8.1% to 13.7p reflecting the dilutive impact of the disposal of Lee Steel Strip. Dividend Your board is recommending a final dividend of 7.56p per ordinary share, giving a dividend for the year of 11.0p (2000 - 11.0p). Subject to shareholders' approval, dividend warrants will be posted on 13 September 2001 to shareholders on the register on 10 August 2001. The shares will be traded excluding the right to the final dividend from 8 August 2001. Financial position Net debt at 31 March 2001 was £43.7 million, an increase of £15.6 million since 31 March 2000. This represents a gearing level of 64%. The net cash outflow in the year reflects corporate activity on acquisitions and the continuing share buy back programme. At 31 March 2001 the group had cash and unutilised assured medium term facilities of £63 million, sufficient to fund the significant growth opportunities in the technical plastics division such as a new facility in the Czech Republic which will be opened later this year. Employees The continuing success of the group is ultimately dependent upon our employees. I would therefore like to take this opportunity to thank all those employed by Carclo during 2000/01 for all their hard work. Outlook Our operations made good progress in the first nine months of the year just finished, but trading was then affected by the slowdown in the US technology sector. This slowdown has spread into the broader economy as evidenced, in the final quarter, by a decline in order intake in card clothing. Our operations are proving resilient in these conditions and some encouraging signs of recovery are already evident. In technical plastics we continue to enjoy growth in our medical businesses where we have good visibility of new product launches. Our automotive business is also making progress and our continuing emphasis on cost reductions is improving profitability. The teletronics sector remains uncertain, but it is encouraging that our US operations have started the year well with capacity utilisation coming back to the levels achieved this time last year. In specialist wire, order intake in card clothing is now recovering and, after a weak start to the new year, we expect to be back at prior year levels in the second quarter. Across the group, new product introductions and new manufacturing initiatives in China and the Czech Republic are creating a momentum which should contribute to improved profitability in the second half and into the following year. George Kennedy 18 June 2001 Chief executive's review Strategic progress This was a year of good strategic progress and creditable financial performance. We sold our wire rope businesses in the UK and New Zealand and completed the exit from commodity wire businesses in the UK. We acquired CTP Alan, increasing our involvement in precision connectors for data and telecommunications and bringing a new state of the art facility in China. Sales from continuing operations were up 3% and operating profits on the same basis were up by 7%. Growth would have been much stronger were it not for the decline in teletronics markets in the final quarter. Carclo technical plastics 2001 2000 ------ ------ Turnover £122.1m £116.6m Underlying operating profit £11.0m £11.0m Net assets £54.0m £48.2m Operating profit on turnover 9.0% 9.4% Operating profit on net assets 20.4% 22.8% Average number of employees 2,056 2,100 Carclo technical plastics now generates 75% of group turnover. Within technical plastics, optical-medical had an excellent year with strong growth in profits on slightly reduced sales as the mix shifted to high value medical products. Teletronics, despite the sharp slowdown in the fourth quarter, delivered improved profits on unchanged sales for the full year. Automotive sales were ahead of prior year, benefiting from new product introductions, but, as we signalled last year, profits were reduced by strong downward pressure on our selling prices. Last year we commented on the rapid growth in our mobile telephone component business. Sales in the prior year had reached some £10 million and we expected a further doubling of sales in the year just finished. Growth continued strongly in the first half of the year, our peak production month was July 2000, but activity dropped sharply in the second half. For the full year, sales were comparable with the prior year. Looking forward, the UK handset plants of Motorola and Ericsson are expected to close in 2001 and the UK will cease to be a major producer of handsets. Over the medium term we will continue to supply handset manufacturers outside the UK and we see a continuing long term business in the supply of highly technical optical and in-mould decorated components. CTP Alan has proven to be an excellent acquisition in terms of technology, people and capability. However, we experienced a sharp reduction in demand for data connector products at CTP Carrera in the USA in early January 2001. This reduction quickly spread to Europe and CTP Alan. Despite this CTP Alan traded at breakeven in its first four months within the group. New project activity, at both CTP Alan and CTP Carrera, remains at a high level and we are confident of a recovery in profitability. Carclo specialist wire 2001 2000 ------ ------ Turnover £42.5m £43.2m Underlying operating profit £3.4m £3.5m Net assets £29.0m £31.5m Operating profit on turnover 8.1% 8.0% Operating profit on net assets 11.8% 11.0% Average number of employees 904 1,171 Within specialist wire profits were level with the prior year, on sales slightly down. The card clothing business experienced quite a significant reduction in order intake in the final quarter as world economic activity and confidence dipped. The drop in demand was most noticeable in the USA but by February 2001 demand was also falling in key Asian markets. On a pleasing note our new factory in India ended the year at full capacity. During 2000 the card clothing companies were brought under a common 'ECC' brand in order to emphasise the world wide position of this business. Global strategy Globally, growth in technical plastics exceeds 10% and until 1997 the UK enjoyed growth in line with worldwide trends. Since the appreciation of sterling in 1996/97 the UK manufacturing sector has stagnated. Despite this difficult background, Carclo's UK operations, as technically advanced and well funded players, have continued to grow. Our strategy is to concentrate our manufacturing investment in the faster growing regions of Asia, the Americas and eastern Europe whilst continuing to invest in the core technology of our UK plastics operations. The acquisition of CTP Carrera in 1999 brought us world class manufacturing capabilities in the faster growing US market. CTP Carrera's profits are proving to be resilient in the face of the US slowdown. In December 2000 the acquisition of CTP Alan brought us a state of the art facility in Shanghai, which was opened at the end of March 2001. Later this year, we will open a new Carclo technical plastics facility on the Flextronics Industrial Park in Brno, Czech Republic. We are delighted to have been invited to the park by Flextronics, one of the largest and fastest growing EMS (Electronics Manufacturing Services) providers in the world. We have progressively increased our expenditure on research and development. Within Carclo technical plastics we have some exciting developments in optics, communications, medical and gear systems which have the potential to deliver very strong growth. The first of these, an automotive multiband antenna, will enter production this year. This antenna system combines radio, mobile telephone and satellite navigation in a single unit. It uses proprietary technology and is a key component of vehicle telematic systems. We now have a series of exciting developments which, we expect, will bear fruit in the years ahead. Shareholder value Over the last three years we have sustained a dividend which essentially distributed all retained earnings to shareholders. We are able to do this because our underlying cash flow is strong. Of the £22.6 million of pre exceptional EBITDA (earnings before interest, tax, depreciation and amortisation) generated last year, £2.9 million went to sustain the business (maintenance capex), £2.8 million went to our debt providers and £2.7 million went to governments in taxation leaving £14.2 million at the discretion of the board. Of this discretionary expenditure, £6.9 million was invested in growth and efficiency projects and £6.0 million was returned to shareholders as dividend. The external business environment is volatile and uncertain, but our businesses are in good shape and well positioned. Carclo technical plastics is now in the first rank of global players in exciting and fast growing markets. Our specialist wire operations are world leaders in their respective markets. The emphasis is now upon organic development through investment in technology and continued expansion of our global manufacturing capability. Ian Williamson 18 June 2001 Finance Director's review Profits 2001 2000 £m £m ------ ------ Turnover (continuing) 164.6 159.8 ------ ------ Divisional operating profit 14.4 14.4 Central costs, net of pension credit (0.8) (1.2) ------ ------ Underlying operating profit from continuing operations 13.6 13.2 Underlying operating profit on discontinued operations 0.2 2.1 Goodwill (1.0) (0.7) Other non recurring items (1.5) (5.6) Interest (2.7) (3.0) ------ ------ Profit before tax 8.6 6.0 Taxation (2.9) (3.5) ------ ------ Profit attributable to shareholders 5.7 2.5 Divisional operating margin from continuing operations 8.8% 9.0% Earnings per share 10.5p 4.4p Profit before tax was £8.6 million compared to £6.0 million in 1999/2000, an increase of 44%. The taxation charge on group profits fell to £2.9 million compared to £3.5 million in the prior year, which was adversely affected by the disposal of Lee Steel Strip. Accordingly profit attributable to ordinary shareholders increased to £5.7 million representing basic earnings per share of 10.5p (2000 - 4.4p). The group spent £0.4 million on rationalisation in the year (2000 - £1.2 million). Goodwill amortisation increased by £0.3 million compared to the prior year representing four months of ownership of CTP Alan acquired in December 2000 and the goodwill charged on the CTP Carrera deferred consideration. CTP Alan was acquired for £9.0 million, including debt assumed, resulting in goodwill of £5.7 million. During the year the group disposed of its remaining wire rope businesses, namely Brunton Shaw and John Shaw (NZ) Limited, and closed Lee Smith Wires Limited, our remaining commodity wire business. Together these are classified as discontinued operations in the profit and loss account. The disposals resulted in a £0.1 million loss. The closure of Lee Smith Wires resulted in an asset write down of £0.4 million and cash closure costs of £0.7 million bringing the total charge in the year to £1.1 million. Net interest payable in the period reduced by £0.3 million, due primarily to lower average borrowings resulting from the sale of Lee Steel Strip in November 1999 and the disposal of the wire rope businesses for £4.2 million. Group debt rose towards the year end with the acquisition of CTP Alan and the repurchase and cancellation of Carclo shares in the period December 2000 to March 2001. Excluding goodwill amortisation, the net interest charge was covered 5.2 times by pre exceptional operating profit (2000 - 5.1 times). Taxation Taxation reduced in the period to £2.9 million from £3.5 million in 1999/2000. The tax rate on group profits in the year reduced to 34% (2000 - 58%) reflecting a return to the normal level of taxation following the charge for goodwill arising on the disposal of Lee Steel Strip in 1999. Earnings per share Underlying earnings per share have reduced by 8.1% to 13.7p. The effect of corporate activity and share buy backs on the underlying EPS growth is analysed below: Pence % ------ ------ Underlying EPS - 2000 14.9 Acquisitions (0.2) (1.3%) Disposals (1.5) (10.1%) Share repurchase for cancellation 0.5 3.3% ------ ------ Underlying EPS - 2001 13.7 (8.1%) Banking At 31 March 2001, in addition to subsidiary company overdraft facilities, the group had assured medium term facilities with our four UK relationship banks amounting to £68.0 million. The group has $35 million of fixed rate indebtedness secured under a United States Private Placement ('USPP') the proceeds of which have been used to hedge overseas currency assets or swapped into sterling. Maturity of the USPP ranges between 2006 and 2010 and the medium term facilities come up for renewal between 2001 and 2010. Net debt & gearing 2001 2000 £m £m ------ ------ Underlying cash flow 21.4 19.4 Interest and tax (5.5) (6.0) Maintenance capital expenditure (2.9) (3.5) ------ ------ Free cash flow 13.0 9.9 Other non operating (0.3) (0.2) Equity dividends (6.0) (6.2) ------ ------ Cash flow available for corporate activities 6.7 3.5 Capital expenditure for expansion and efficiency (6.9) (3.7) (Purchase)/sale of businesses (9.0) 5.3 Purchase of own shares (net) (4.5) (1.8) Exchange movement (1.9) 0.3 ------ ------ (Increase)/decrease in debt in period (15.6) 3.6 The group generated operating cash flows in the year of £21.4 million after investing £0.8 million in additional working capital. Taxation and interest payments amounted to £5.5 million and capital expenditure amounted to £9.8 million or 112% of depreciation (2000 - 104%). Of this, £2.9 million related to maintenance expenditure with the balance expended on expansion and efficiency related projects, therefore the dividend payment of £6.0 million was covered 2.2 times by free cash flow (2000 - 1.6 times). The group has undertaken three corporate transactions in the year, selling John Shaw (NZ) Limited in July 2000 and the ropery business of Brunton Shaw Limited in September 2000 for net proceeds of £3.9 million. These proceeds were partly used to fund the acquisition of CTP Alan in December 2000 for total consideration including debt of £ 9.0 million. CTP Carrera has now completed its earn out period and deferred consideration of £3.8 million was paid in June 2000. The final payment of £1.9 million was made in May 2001 bringing total consideration for the acquisition, including debt assumed, to £23.8 million. Capital expenditure for expansion and efficiency projects amounted to £6.9 million and included the building and commissioning of three new plants located in Scotland, the USA and in China. The total cost of this investment amounted to £2.9 million. A further share buy back of 3.9 million ordinary shares at a cost of £4.5 million was undertaken in the year. After using surplus cash of £6.7 million to fund the above transactions, the remainder was financed by drawing down assured medium term loan facilities. Net debt at the period end therefore increased by £15.6 million, representing gearing of 64% (2000 - 39%). Following a period of rationalisation and consolidation of the businesses within the specialist wire division, the group now has a number of surplus properties with a net book value at 31 March 2001 of £6.1 million. These properties are being actively marketed with a view to converting these assets into cash in due course. Foreign currency The group adopts a strategy of hedging its overseas denominated assets with corresponding borrowing. At the balance sheet date, 100% of the group's foreign currency net assets, excluding goodwill previously written off or capitalised, was covered by currency borrowings. The re-translation of net assets denominated in foreign currencies at the balance sheet date has therefore not had a material effect on the net assets of the group. The principal rates used in translating the results of overseas companies are shown below: 2001 2000 ------ ------ US Dollar 1.514 1.605 Euro 1.594 1.581 Our net Euro denominated profit streams are modest in group terms and re-translation of these profits is not material to the group as a whole. With a growing proportion of the group's operating profits and cash flows generated in the United States, the re- translation of overseas subsidiary results into sterling can impact the profit for the period. Dividends and shareholders' funds The board is recommending a final dividend payment of 7.56 pence per share. This is unchanged from last year. The total dividend for the year amounts to 11.0p (2000 - 11.0p). The dividend is covered 1.0 times by post tax profits (2000 - 0.4 times). Shareholders' funds reduced from £72.9 million to £68.1 million. This includes the repurchase of shares for £ 4.5 million, a £0.5 million loss on the retranslation of overseas assets and a transfer to reserves from the profit and loss account of £0.1 million. New accounting standards Three new accounting standards, FRS 17 (Retirement Benefits), FRS 18 (Accounting Policies) and FRS 19 (Deferred Taxation) have been published in the year. In line with most UK publicly quoted companies, these standards will be implemented, as appropriate, between the 2002 and 2004 year ends. Christopher Mawe 18 June 2001 Consolidated profit and loss account year ended 31 march 2001 2000 £000 £000 ------- ------- Turnover Continuing operations: ongoing 162,003 159,772 acquisitions 2,640 - Discontinued operations 6,497 31,521 ------- ------- 171,140 191,293 ------- ------- Operating profit Continuing operations: ongoing - before rationalisation costs 13,642 13,243 - rationalisation costs (393) (1,101) ------- ------- - after rationalisation costs 13,249 12,142 acquisitions (10) - Discontinued operations 211 2,026 ------- ------- Operating profit before goodwill amortisation 13,450 14,168 Goodwill amortisation (1,038) (748) ------- ------- Operating profit 12,412 13,420 ------- ------- Continuing operations: ongoing 12,306 11,394 acquisitions (105) - Discontinued operations 211 2,026 ------- ------- Operating profit 12,412 13,420 Disposal of subsidiary undertakings (101) (3,875) Loss on termination of operations (1,102) (538) Profit on sale of properties 98 - ------- ------- Profit before interest 11,307 9,007 Net interest payable 2,680 3,012 ------- ------- Profit on ordinary activities before taxation 8,627 5,995 Taxation 2,938 3,484 ------- ------- Profit on ordinary activities after taxation 5,689 2,511 Preference dividends (non equity) - 32 ------- ------- Profit attributable to ordinary shareholders 5,689 2,479 Ordinary dividends 5,624 6,016 ------- ------- Surplus/(deficit) for the year 65 (3,537) ======= ======= Earnings per ordinary share Basic and diluted 10.5p 4.4p Underlying 13.7p 14.9p ------- ------- Dividend per ordinary share 11.0p 11.0p ------- ------- Consolidated balance sheet as at 31 March 2001 2000 £000 £000 £000 £000 ------ ------ ------ ------ Fixed assets Intangible assets 24,676 20,008 Tangible assets 61,508 57,918 Investments 1,369 1,072 ------ ------ 87,553 78,998 Current assets Stocks 18,076 19,884 Debtors 38,030 40,332 Pensions prepayment due after more than one year 11,561 11,106 Cash at bank and in hand 10,797 11,672 ------ ------ 78,464 82,994 ------ ------ Creditors - amounts falling due within one year Bank loans and overdrafts 10,046 8,935 Trade and other creditors 31,054 35,175 Taxation 1,662 1,031 Dividends 5,621 6,016 ------ ------ 48,383 51,157 ------ ------ Net current assets 30,081 31,837 ------ ------ Total assets less current liabilities 117,634 110,835 Creditors - amounts falling due after more than one year 43,488 32,051 Provisions for liabilities and charges 6,081 5,890 ------ ------ Total net assets 68,065 72,894 ====== ====== Capital and reserves Called up share capital 2,594 2,788 Share premium 41,772 41,722 Revaluation reserve 2,268 2,080 Other reserves 1,330 1,134 Profit and loss account 20,101 25,170 ------ ------ Shareholders' funds 68,065 72,894 ====== ====== Cash flow statement year ended 31 March 2001 2000 £000 £000 ------- ------- Cashflow from operating activities 20,656 18,908 Returns on investments and servicing of finance (2,811) (3,059) Taxation (2,672) (2,937) Capital expenditure and financial investment (9,402) (9,565) Acquisitions and disposals (6,752) 10,318 Equity dividends paid (6,020) (6,183) ------- ------- Cash (outflow)/ inflow before use of liquid resources and funding (7,001) 7,482 Financing Issue of shares 52 - Repurchase of own shares (4,491) (1,817) Increase in debt 11,078 1,254 Capital element of finance lease rentals (760) (994) ------- ------- (Decrease)/increase in cash in period (1,122) 5,925 ======= ======= Reconciliation of net cash flow to movement in net debt (Decrease)/increase in cash in period (1,122) 5,925 Cash inflow from increase in debt and lease financing (10,318) (260) ------- ------- Change in net debt resulting from cash flows (11,440) 5,665 Exchange movement (1,878) 336 Loans and finance leases acquired with subsidiary undertaking (2,238) (2,367) ------- ------- Movement in net debt in period (15,556) 3,634 Net debt at beginning of period (28,115) (31,749) ------- ------- Net debt at end of period (43,671) (28,115) ======= ======= Turnover, operating profit and net assets employed year ended 31 March 2001 2000 Operating Net Operating Net Turnover profit Assets Turnover profit Assets £000 £000 £000 £000 £000 £000 ----------------------------------------------------------------- By class of business Continuing operations Technical plastics division 119,456 11,046 50,772 116,573 11,000 48,238 Specialist wire division 42,547 3,432 28,978 43,199 3,462 31,470 ------- ------ ------ ------- ------ ------ 162,003 14,478 79,750 159,772 14,462 79,708 Rationalisation costs (note 1) (393) (1,101) ------- ------ ------ ------- ------ ------ 162,003 14,085 79,750 159,772 13,361 79,708 Acquisitions - Technical Plastics division 2,640 (10) 3,194 - - - Discontinued (note 2) 6,497 211 - 31,521 2,151 4,492 Rationalisation costs - (125) ------ ------ 82,944 84,200 Unallocated assets (note 3) (14,879) (11,306) ------- ------ ------- ------ 171,140 68,065 191,293 72,894 ------- ------ ------ ------- ------ ------ Divisional operating profit 14,286 15,387 Central administration costs (1,136) (1,179) Pension cost - regular cost (2,538) (2,590) - credit in respect of surplus 2,838 2,550 Goodwill amortisation (note 4) (1,038) (748) ------ ------ Group operating profit 12,412 13,420 ====== ====== By geographical area Continuing operations United Kingdom 122,321 10,471 59,029 122,489 10,038 63,195 United States of America 31,193 4,193 17,330 28,714 4,814 14,288 Rest of World 8,489 (186) 3,391 8,569 (390) 2,225 ------- ------ ------ ------- ------ ------ 162,003 14,478 79,750 159,772 14,462 79,708 Rationalisation costs (note 1) (393) (1,101) ------- ------ ------ ------- ------ ------ 162,003 14,085 79,750 159,772 13,361 79,708 Acquisitions - United Kingdom 2,640 (10) 3,194 - - - Disposals - United Kingdom 6,184 164 - 30,275 1,838 3,863 - Rest of World 313 47 - 1,246 188 629 ------ ------ 82,944 84,200 Unallocated assets (note 3) (14,879) (11,306) ------- ------ ------- ------ 171,140 68,065 191,293 72,894 ------- ------ ------ ------- ------ ------ Divisional operating profit 14,286 15,387 Central administration costs (1,136) (1,179) Pension cost - regular cost (2,538) (2,590) - credit in respect of surplus 2,838 2,550 Goodwill amortisation (note 4) (1,038) (748) ------ ------ Group operating profit 12,412 13,420 ====== ====== Geographical segment - by destination United Kingdom 89,040 100,708 Rest of Europe 28,520 33,470 Rest of World 53,580 57,115 ------- ------- 171,140 191,293 ======= ======= Notes 1. The rationalisation costs in the year relate to both divisions and were principally employee costs in nature. 2.The discontinued businesses were formerly in the specialist wire division. 3.Unallocated net liabilities include interest bearing assets and liabilities, investments, taxation balances, capitalised goodwill and head office net assets. 4.Goodwill amortisation relates to businesses within the technical plastics division.

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