Final Results

Carclo plc 12 June 2006 12 June 2006 Preliminary results for the year ended 31 March 2006 Key points The financial highlights for the year to 31 March 2006 are summarised below: • Underlying operating profits from continuing operations, before rationalisation and exceptional bad debt charges, increased to £4.5 million (2005 - £4.4 million). • Profit before tax was £1.7 million (2005 - £3.7 million) with earnings per share of 1.2 pence compared to 7.3 pence per share last year. • Margins have improved following the significant rationalisation programmes undertaken in recent years and the focus on medical product applications. • Profits have advanced strongly in the Czech Republic and China. • Conductive Inkjet Technology ('CIT'), which won the Plastic Industry award for the best technology achievement in 2005, is now an established stand alone development company. CIT became a subsidiary of Carclo in the year following the acquisition of an additional 20% equity stake which was funded by way of a share placing. • ECC Card Clothing disposed of in the year, generating net cash inflows of £5.2 million. • CTP Gills Cables, a manufacturer of control cables for the automotive industry, and the 50% holding in CTP Suprajit were disposed of profitably after the year end. • Carclo's focus on debt reduction has been successful with net debt reducing by £5.1 million to £20.8 million. Debt will further reduce subsequent to the completion of the CTP Gills Cables disposal and the receipt of deferred consideration on the ECC Card Clothing disposal. • The board has recommended a total dividend of 1.2 pence per share for the year (2005 - 1.2 pence). Commenting on the results, Christopher Ross, chairman said- 'Our strategy is clear and it is working. Our medical and optical businesses continue to exploit new opportunities, our businesses in low cost regions continue to grow and are delivering good profit margins and we have increased our investment in new technologies and know how. We continue to reduce our exposure to automotive markets, as evidenced by the disposal of the automotive control cables business following the year end, and to reduce group debt. The board remains encouraged by the progress of CIT and has begun to review its options for the future funding of CIT and for the optimisation of shareholder value from this investment. The last few years have been characterised by reducing turnover but increasing margins as the group focuses on specialist businesses where we have key technological competencies. This trend will continue into the new financial year. The improvement already seen in the quality of the group's earnings underpins the board's confidence in the future progress of the group.' For further information, please contact: Carclo plc On 12 June: 020 7067 0700 Ian Williamson, chief executive Thereafter: 01924 268040 Robert Brooksbank, finance director Weber Shandwick Square Mile 020 7067 0700 Richard Hews / James White A presentation for analysts will be held 9.00a.m. at the offices of Weber Shandwick Square Mile, Fox Court, 14 Gray's Inn Road, London WC1X 8WS Notes to editors • Carclo plc is a global supplier of technical plastic products. It is a public company whose shares are quoted on the London Stock Exchange. • 70% of sales are derived from the supply of fine tolerance, injection moulded plastic components, which are used in medical, telecom and electronics products. This business, Carclo Technical Plastics, operates internationally in a fast growing and dynamic market underpinned by rapid technological development. • 30% of sales are derived from the supply of systems to the automotive and aerospace industries. • Carclo's strategy is to grow rapidly in low cost manufacturing regions and to develop new technologies and products to underpin future growth. Chairman's statement Overview The year under review was one of significant change for Carclo. The composition of the group changed with the disposal of Carclo's original core business, ECC Card Clothing, further investment in Conductive Inkjet Technology ('CIT') and the disposal following the year end of CTP Gills Cables together with our share of CTP Suprajit in India. The board also changed with the retirement of three non executive directors and my appointment as chairman. Even the way in which the financial accounts are presented has changed this year with the adoption of International Financial Reporting Standards ('IFRS'). What has not changed is our strategy. We have continued to grow our specialist medical and optical businesses, expand our businesses in the Czech Republic and China and invest in CIT and other innovative developments. Underlying operating profits from continuing operations, before rationalisation and exceptional bad debt charges, were ahead of the prior year at £4.5 million (2005 - £4.4 million). This was despite a 5.2% reduction in sales. Whilst sales reduced in our automotive businesses, profits increased sharply in our low cost region businesses and in our medical and optical operations. After exceptional charges of £2.4 million (2005 - £0.3 million) the group reported a profit before tax of £1.7 million (2005 - £3.7 million). The exceptional charges last year were net of profits on the disposal of surplus properties of £1.5 million compared to a loss in the year under review of £0.2 million. Cash flow and dividend Our balance sheet continues to strengthen. Debt reduced in the year by £5.1 million to £20.8 million in line with our previously stated target for group debt. The sale of the ECC Card Clothing business generated a net cash inflow of £5.2 million. These disposal proceeds and business cash generation allowed us to make additional contributions to the group pension schemes of £3.4 million. Additionally we raised £3.0 million from a share placing which funded the acquisition of a further 20% of CIT at a net cost of £1.5 million as well as contributing to its further investment needs during the year. Following the year end the group's automotive control cables business has been disposed of at a profit and it is expected to generate cash inflows of £3.2 million, before costs, in the financial year just commenced. Over the next two years the deferred payments on the ECC Card Clothing and CTP Gills Cables disposals, together with the sale of two large freehold properties released by these disposals, should generate additional cash inflows of approximately £6.0 million. These will give the group an increasing level of resources to fund investment in growth and in new technologies. The board is recommending an unchanged final dividend for the full year of 0.8 pence per share, giving a total dividend for the year at 1.2 pence per share. This dividend is now well covered by underlying earnings per share and when we have greater certainty on the new pensions funding requirements we will determine the appropriate level of dividend for the group going forward. Subject to shareholder approval, dividend payments will be posted on 14 September 2006 to shareholders on the register at close of business on 11 August 2006. The shares will be traded excluding the right to the dividend from 9 August 2006. Employees Another demanding year has seen employee numbers reduce by 480 to 1,239. Of this reduction 301 employees left the group with the disposal of ECC Card Clothing. In addition Carclo Precision Products businesses reduced numbers by 93 as the manufacture of automotive systems was progressively outsourced to low cost regions. I would like to thank all those employed by Carclo in the year under review for their significant contribution. The board On 1 January 2006 I was pleased to take over the position of chairman from George Kennedy who retired from the board. I would like to place on record the board's gratitude to George for the guidance and leadership he has given since joining the board in 1993, particularly since becoming chairman in 1997. Barbara Richmond stepped down from the Carclo board on 31 March 2006, having served six years as a non executive director. I should like to take this opportunity to thank Barbara for her valuable contribution to the strategic development and governance of the group. Michael Derbyshire and Bill Tame were appointed non executive directors effective 1 January 2006. Michael is currently chairman of Racal Acoustics Global Limited and Allied Textiles Limited both private equity backed companies. Michael will chair the Carclo remuneration committee. Bill is finance director of Babcock International Group plc and has assumed the Carclo roles of senior independent director and chairman of the audit committee. Outlook Our strategy is clear and it is working. Our medical and optical businesses continue to exploit new opportunities, our businesses in low cost regions continue to grow and are delivering good profit margins and we have increased our investment in new technologies and know how. We continue to reduce our exposure to automotive markets, as evidenced by the disposal of the automotive control cables business following the year end, and to reduce group debt. The board remains encouraged by the progress of CIT and has begun to review its options for the future funding of CIT and for the optimisation of shareholder value from this investment The last few years have been characterised by reducing turnover but increasing margins as the group focuses on specialist businesses where we have key technological competencies. This trend will continue into the new financial year. The improvement already seen in the quality of the group's earnings underpins the board's confidence in the future progress of the group. Christopher Ross 12 June 2006 Chief executive's review Strategic overview I write after another good year of progress. Our strategy is : • to grow our specialist businesses including medical plastics and LED optics Medical diagnostics is the fastest growing part of our business in the UK and USA and LED optics sales doubled in the year. Within Carclo Technical Plastics almost half of sales will be to medical and optical markets in the 2006/07 budget year. • to continue our expansion in low cost regions Profits advanced strongly at our Czech Republic and China operations which are enjoying sustained growth. • to increase our investment in new technologies and proprietary know how CIT is progressing very well and is now a stand alone development company working on an increasingly wide range of commercial applications for its technology. At the same time Carclo Technical Plastics has continued to develop its expertise in surface coatings with particular emphasis on medical diagnostic devices. Our focus on the growing areas of medical and optics has required us to carefully review the other businesses within the group. At the beginning of the year we sold ECC Card Clothing and immediately after the year end we disposed of CTP Gills Cables ('Gills') to our joint venture partner in India, Suprajit Engineering Limited. Neither of these businesses fitted with our long term strategy and these divestments release resources for re-investment in the growth businesses within the group. This is unlikely however to mark the end of our involvement with India. Our relationship with Suprajit Engineering is excellent and we are jointly evaluating an investment in a new technical moulding facility in Bangalore, India. To maximise value for Carclo, both of these disposals involve performance related deferred payments and retention by Carclo of substantial freehold property. On a proforma basis (adjusting for the proceeds from the disposal of Gills) debt at the year end would have been £17.6 million. Over the next two years we expect to receive approximately £6.0 million in cash from the ECC Card Clothing and Gills disposals - which will substantially reduce the remaining debt on the group balance sheet. Accordingly, the management task is changing and we now have the market, financial resources and technological opportunity to accelerate growth. As Carclo's core businesses have been transformed over the last few years, we have actively sought to develop a new generation of managers. The transition is now complete, these teams are ready for the challenge and I am confident that they will deliver the growth we expect. Operating review _______________________________________________________________________________ Carclo Carclo Technical Precision Plastics Products 2006 2005 2006 2005 _______________________________________________________________________________ Turnover - continuing operations £54.3m £59.1m £22.6m £22.2m Underlying operating profit * £2.6m £2.3m £3.0m £3.0m Net assets £42.9m £44.1m £6.7m £7.2m Underlying operating margin 4.7% 3.9% 13.2% 13.6% Return on capital employed * 6.0% 5.2% 44.7% 42.3% Average number of employees 929 1,058 227 239 _______________________________________________________________________________ * before rationalisation costs and exceptional bad debts Carclo Technical Plastics Underlying operating profits in Carclo Technical Plastics increased to £2.6 million (2005 - £2.3 million) on sales of £54.3 million (2005 - £59.1 million). The decline in sales reflects our continuing strategy to reduce our automotive exposure and to allow much improved margins in medical and optical to drive profits forward. We expect sales to stabilise in the year just started as we build volumes on the new medical programmes which we have won. Overall, margins improved by 0.8% to 4.7%. This remains well short of our medium term goal of approaching 10% operating margins in Technical Plastics. The second half performance however was much better than the first half, with operating margins approaching 7%, and we are confident that this momentum will continue in the year just started. Although we continue to adjust the cost base by modest rationalisation of capacity, the pace of rationalisation is reducing and, with improved stability in our operations, productivity and efficiency are rising. Our operations in low cost regions, the Czech Republic and China, delivered excellent growth and profitability. This organic growth is set to continue as we benefit from the continuing transfer of our customers' assembly operations from the USA and Europe. Carclo Precision Products Sales and profits in Carclo Precision Products were essentially unchanged from the previous year. Wipac benefited from growth in the communications business but specialist lighting sales were down slightly on the prior year. Our aerospace cable business performed well and is enjoying modest growth in sales. Looking forward we expect Wipac sales to be marginally down in the coming year as certain lighting contracts reach the end of their model life. Discontinued operations Discontinued operations include two months of ECC Card Clothing and a full year of Gills. Gills performed better than in the previous year but operating profits still only just covered the rationalisation costs incurred in preparing for the closure of the main UK production site. Gills had a successful year in winning new contracts for the Indian factory which commenced operation at the very end of the year and did not contribute to the financial results. Pensions Carclo has two defined benefit pension schemes with combined liabilities which are large compared with the size of Carclo. Funding of the schemes has a direct effect on shareholders in terms of the market value of Carclo and on management in terms of the time which is committed to managing these liabilities. Most members of the schemes were once employees of companies acquired by Carclo during the 1980's and early 1990's. These companies were mainly in the wire and steel industries and employment, at the point of acquisition, was already in decline. The pension schemes are therefore very mature - approximately three quarters of liabilities relate to pensions in payment. The number of pensioners is not increasing and the monthly pension payroll has been rising a little faster than the rate of inflation. Under IAS 19 'Employee Benefits' the group has a gross pension deficit of £22.4 million, down from £26.6 million a year ago. This deficit is calculated by projecting the pension payments decades into the future using very long term assumptions. The total is then discounted back to the present using the ten year corporate bond yield as a discount factor. This valuation of the liability is then compared with the current market value of the assets. The pension schemes are invested in a mix of assets - in our case 44% UK equities, 32% corporate bonds and the balance in Government PFI projects, property and cash. This mix of investments should produce a long term return better than bonds alone. When the scheme actuary and trustees look at funding on a scheme specific basis, they allow for a 1% excess return from the investment portfolio above the corporate bond yield. Allowing for this excess return, the schemes are broadly in balance i.e. there is no deficit. Somewhat perversely, IAS 19 recognises the 'excess return' in our income statement but ignores it in the calculation of the balance sheet deficit. I find it much more helpful to look at the cash flows of the schemes. The pension payroll of the larger scheme amounts to £5.9 million per annum. The recurring income from the assets covers approximately 85.0% of the out goings. If the company, as sponsor, covers this modest cash flow deficit and meets the running costs of the scheme, then the assets backing the scheme need never be sold to fund current liabilities. Over the last three years Carclo has been injecting significantly more than this in deficit correction payments. The clear conclusion that I draw from this analysis is that the funding of Carclo's pension liability is in a healthier state than would appear from the IAS 19 accounts. Pension funding is a manageable issue for Carclo. Ian Williamson 12 June 2006 Technological innovations Conductive Inkjet Technology ('CIT') Our 70% owned subsidiary, Conductive Inkjet Technology Limited, continues to make very good progress. CIT is now a stand alone development company based alongside the Cambridge Science Park, and with a dedicated team of chemists and engineers. During the year, most of our effort has been focused on the development of MetalJet 6000 - a high speed web printing line. The MetalJet 6000 specification is aimed at the emerging market for RFID tags - where CIT's unique technology offers a breakthrough on cost and performance. We have now completed development of MetalJet 6000 and commercialisation is in progress through our partner Preco Industries. We expect Preco to secure the first orders for MetalJet 6000 before the end of 2006. These initial contracts are likely to be in conventional smart card and flexible circuit applications with the higher volume RFID applications following later as the RFID market develops. CIT's resources are now being applied to much broader fields of application of the technology. This includes supporting Carclo Technical Plastics on the first production application of CIT for an existing customer commencing volume production in the autumn of this year. CIT has also received funding from partners for joint development programmes across a wide range of applications - four key examples include semiconductor manufacturing, a high volume consumer product, aerospace composites and flat panel displays. We have also demonstrated 'invisible conductors' using CIT technology. By using UV laser technology we can write conductive tracks down to 5 micron widths - well below that visible to the naked eye. We are leading a consortium with Cambridge Display Technology and Exitech, the laser equipment manufacturer, to produce novel displays using this very advanced technology. The consortium has been awarded a £0.24 million grant by the Department of Trade and Industry's Technology Programme to accelerate the development of CIT's 'invisible conductors'. Soluble capsules Our joint project with Stanelco to develop injection moulded capsules for controlled release drug delivery has also made good progress. We now have a committed launch customer and, on completion of the regulatory approvals early next year, the capsules will be commercially launched in the veterinary market. We continue to seek a partner for the human application of this technology. These products can be viewed on the Carclo web site www.carclo-plc.com. Through this project we have learned a great deal about how to overcome the moulding issues with soluble polymers and in particular with Stanelco's Starpol 10/50. We are confident that more product applications will develop around these new thermoplastic materials. Surface coatings and microfluidics Our research and development has been focused on surface coatings and microfluidics for some years. Our initial work was with thick film coatings - initially derived from our optical plastics know how. We have developed a world leading competence in selectively applying such coatings - using digital inkjet technology. We remain on track to commence high volume production using this technology for a prestige automotive instrumentation project. It was our work in thick film coatings that led us to the invention of conductive inkjet technology. Over the last year, we have been investigating thin film coatings for use in life sciences and medical diagnostics. We have established a technical and marketing collaboration with Plasso Technology Limited - a spin out from Sheffield University - a leader in plasma polymerisation for surface treatment of injection moulded plastics. We have already undertaken a number of joint development projects with major customers in the diagnostics field. Carclo Technical Plastics' key competence is in very fine tolerance injection moulding. We produce hundreds of millions of components with fine orifices (metered dose inhalers, cuvettes and probe tips) and micro-channels (microfluidics diagnostics devices such as the Genosis Fertell male fertility test device). We have undertaken in-house research on microfluidics and have additionally developed collaborations with leading research companies in this field. This work is aimed at the emerging technology of 'lab on a chip' for 'point of care' diagnostic devices. This is a natural development for Carclo Technical Plastics - we are already a world leader in manufacturing disposables for diagnostic testing. This is the fastest growing part of our business and the move to 'point of care' testing away from laboratory based testing plays to our strengths in injection moulding, surface coatings, and optical design. Finance director's review ________________________________________________________________________________ 2006 2005 £million £million ________________________________________________________________________________ Turnover - continuing 76.6 80.8 _____________________ Divisional operating profit 5.5 5.3 Central costs (1.0) (0.9) _____________________ Underlying operating profit from continuing operations 4.5 4.4 Underlying operating profit from discontinued operations 0.5 0.7 Exceptional items (2.4) (0.3) Net interest (0.9) (1.1) _____________________ Profit before tax 1.7 3.7 Taxation - - Loss on disposal of discontinued operation (1.1) - _____________________ Profit attributable to ordinary shareholders 0.6 3.7 Ordinary dividend (0.6) (0.6) _____________________ Surplus for the year - 3.1 _____________________ Divisional operating margin from continuing operations 7.2% 6.6% Basic earnings per share 1.2p 7.3p Underlying earnings per share 7.8p 7.4p Financial summary In the financial year the group generated underlying operating profit from continuing operations of £4.5 million (2005 - £4.4 million) benefiting from a more robust second half performance. This increase in underlying operating profit was despite a 5.2% decrease in turnover from continuing operations to £76.6 million (2005 - £80.8 million). The continuing improvement in underlying profitability is being driven primarily by the expansion of our Czech Republic and Chinese technical plastics businesses but also by our determined focus on reducing the cost base of our UK and USA businesses. Profit before tax from continuing operations was £1.7 million (2005 - £3.8 million) and this reflects the impact of the cost of our continued rationalisation programme as well as our prudent provisioning against trade debts relating to two significant customer insolvencies. In addition, the group did not have the benefit this year of windfall profits from property disposals. In our expanded consolidated income statement we have disclosed separately the financial results of the group's discontinued operations. These include the full year's trading results of CTP Gills Cables Ltd, the disposal of which was completed on 12 May 2006, as well as two months trading at the ECC Card Clothing businesses, the sale of which was completed on 22 June 2005. At the year end net debt was £20.8 million (2005 - £25.9 million). The £5.1 million reduction in net debt was principally due to the receipt of the proceeds from the disposal of the ECC Card Clothing businesses. Despite the reduced average level of debt, net bank interest payable has remained at £1.4 million due to the impact of significant increases in bank base rates in the USA. The group tax charge for the year was nil (2005 - nil) as the group continues to benefit from the utilisation of tax losses and group tax planning strategies. The profit attributable to ordinary shareholders was £0.6 million (2005 - £3.7 million). The board is recommending a maintained dividend for the year of 1.2 pence per ordinary share. During the year the High Court approved the conversion of £41.8 million of share premium account into distributable reserves in the parent company accounts. Exceptional items Non-recurring rationalisation costs for the year totalled £1.0 million (2005 - £1.0 million). Rationalisation costs relating to continuing operations were £0.8 million and the majority of these costs relate to the sustained re-structuring of our UK and USA technical plastics businesses in order to progressively drive down the group's cost base and achieve a leaner manufacturing organisation. Site closure costs in relation to continuing operations amounted to £0.6 million (2005 - £0.8 million) and this relates to the cost of closing our Eaglescliffe manufacturing facility resulting in increased profitability in our UK technical plastics business in the second half of the financial year. Site closure costs in relation to discontinued operations totalled £0.3 million and this represents the cost of initiating the closure of our control cable manufacturing operations prior to the disposal of the business. The group disposed of two surplus properties in the second half of the financial year generating disposal proceeds of £1.0 million. The combined loss on disposal of £0.2 million was due to the sale of the Wilmington facility in the USA at below its book value. Unusually, the group experienced two major customer insolvencies during the financial year reflected by the £0.375 million exceptional bad debt provision. As detailed in our Interim Report, £0.125 million has been provided in respect of Delphi Corporation which filed for Chapter 11 protection in October 2005. Whilst the full amount of the trade debt currently remains outstanding, we expect to recover approximately 75% of the outstanding receivable. The remaining £0.250 million exceptional bad debt provision represents a full provision against the outstanding trade receivable in respect of LG Philips Displays Slovakia s.r.o, which is currently undergoing a court approved financial re-structuring. Net debt and gearing 2006 2005 £million £million _______________________________________________________________________________ Underlying cash flow 9.9 10.1 Interest and tax (1.4) (0.9) Capital expenditure, other than for expansion (2.3) (2.6) _____________________ Free cash flow 6.2 6.6 Pension payments above regular cost (3.4) (1.5) Other non recurring (0.8) - Issue of share capital 3.0 - Equity dividends (0.6) (0.6) _____________________ Cash flow available for corporate activities 4.4 4.5 Capital expenditure for expansion - (1.5) Development expenditure (0.9) - Acquisitions and disposals 2.7 (1.0) Exchange movement (1.1) 0.2 _____________________ Decrease in debt in year 5.1 2.2 _____________________ Net debt comprises interest bearing loans and liabilities less cash and cash deposits. Net borrowings reduced by £5.1 million in the year to £20.8 million (2005 - £25.9 million). This corresponds to a gearing of 48.4% (2005 - 67.2%) and is after excluding the pension deficit, net of attributable deferred tax, of £15.7 million in determining the group's net assets. Underlying cash flow from operations was £9.9 million (2005 - £10.1 million). Free cash flow was £6.2 million (2005 - £6.6 million). Free cash flow is after the £0.7 million cash cost of regular pension contributions but before the MFR deficit correction payment and additional pension contribution relating to the ECC Card Clothing disposal which totalled £3.4 million. Group capital expenditure of £2.4 million (2005 - £4.0 million) was lower than anticipated reflecting the fact that the group's businesses are not yet in a plant and machinery replacement cycle. Other non recurring cash out flows of £0.8 million included the cash impact of rationalisation and closure costs of £1.9 million, partially offset by proceeds from the disposal of fixed assets of £1.1 million. The retranslation of the group's USA dollar denominated borrowings resulted in negative impact on debt of £1.1 million due to the relative strength of the USA dollar versus the pound at 31 March 2006 compared with 31 March 2005. The disposal of the ECC Card Clothing businesses generated net cash proceeds of £5.2 million. The group also raised funds of £3.0 million from the placing of an additional 3.8 million shares which were issued in order to fund the acquisition of an additional 20% of the shares in Conductive Inkjet technology ('CIT') for a net £1.5 million. The total funding requirement for CIT during the year was £1.3 million, £0.9 million of which was incurred after the joint venture became a 70% owned subsidiary of the group. Disposal of the CTP Gills Cables business and Carclo's 50% shareholding in the Indian control cable joint venture, CTP Suprajit Automotive Private Ltd, is expected to generate additional funds of £3.2 million over the next financial year. In addition, the group expects to receive £0.6 million of deferred variable consideration from the disposal of its ECC Card Clothing businesses during the next financial year. The group's surplus property portfolio has a net book value of £5.0 million (including the surplus properties retained following the disposal of the ECC Card Clothing and CTP Gills Cables businesses) and it is the group's strategy to continue to realise proceeds from the sale of these surplus properties. Financing The group has assured medium term facilities of £29.6 million (2005 - £35.3 million) with an average life of 1.5 years. The group is comfortably ahead of its banking covenants and is set to further reduce net debt. Pensions These accounts have been prepared for the first time under the provisions of IAS 19 'Employee Benefits'. Under IAS 19 the operating charge to income for the year was £0.8 million (2005 - £0.8 million). IAS 19 also provides that a financing charge or credit, being the difference between the interest charge on the pension scheme liability and the expected return on scheme assets, is also recognised in the consolidated income statement. In the financial year just ended this resulted in a credit of £0.5 million (2005 - £0.4 million) being reflected under 'Other finance revenue and expense'. An additional pensions curtailment charge of £0.3 million is included as part of the £1.1 million loss on disposal of discontinued operations, as a result of the ECC Card Clothing business ceasing to participate in the group pension schemes. Under IAS 19 the combined pension schemes deficit must be included in the group balance sheet. As at 31 March 2006 the IAS 19 deficit was £15.7 million, net of tax (2005 - £18.6 million). The improvement in the schemes deficit has resulted from a strong investment performance by the schemes assets. This has more than compensated for the increase in the schemes liabilities caused by a significant decrease in the discount rate assumption (reflecting falling bond yields) and a tightening of the mortality assumptions, reflecting actual scheme mortality experience. The actual cash contributions into the schemes amounted to £4.1 million (2005 - £2.3 million). In addition to the regular cash contributions of £0.7 million, MFR deficit correction payments of £1.6 million were also made to the schemes. An additional contribution of £1.8 million was paid into the schemes on the disposal of the ECC Card Clothing business. The payment of this 'debt on employer', which was based on a scheme specific calculation, was agreed with the Pensions Regulator in order to achieve clearance for the disposal of the business. International accounting standards The results for the year ended 31 March 2006 are the first set of financial results to be prepared under International Financial Reporting Standards ('IFRS') adopted in the EU and the prior period information included in these reports and accounts has been restated on a comparable basis. A summary of the financial impact of the group's IFRS conversion is included at note 35 to the accounts. A full analysis of the financial impact was issued on 4 October 2005 and is available from Carclo's head office or on the corporate web site www.carclo-plc.com. The most significant impact of adopting IFRS was that the group's net assets reduced from £48.2 million to £19.9 million as at 31 March 2005. This reduction was primarily due to the impact of reflecting the pensions deficit on the balance sheet under IAS 19 'Employee Benefits'. As a consequence the group agreed a revision of its banking covenants with its lending banks in order to bring them into line with the newly adopted International Accounting Standards. Conductive Inkjet Technology ('CIT') During the year, the group acquired an additional 20% of the shares in CIT for £1.6 million, thereby increasing its shareholding to 70%. The acquisition was funded by a vendor placing of 1,975,309 new ordinary Carclo shares at a price of 81 pence per share. An additional £1.5 million was raised from a cash placing of a further 1,851,851 new ordinary shares also at 81 pence per share in order to provide funding for the ongoing development of the CIT programme. Prior to the date of the acquisition CIT was reflected in the group accounts as a joint venture under the equity method in accordance with IAS 31 'Interests in Joint Ventures'. From 28 July 2005, the date of the acquisition of the additional 20%, CIT has been accounted for as a subsidiary in accordance with IFRS 3 'Business Combinations'. Following the acquisition, the intangible asset represented by the intellectual property owned by CIT has been included in the group balance sheet at fair value. Consequently, the intangible assets in the group balance sheet have increased by £5.9 million. Under the provisions of IAS 38 'Intangible Assets' the fair value of these intangible assets will be amortised over their useful lives. The total investment in CIT during the year was £1.3 million (2005 - £1.0 million) and the group has continued to capitalise these costs as development expenditure. Business disposals On 22 June 2005 the group completed the disposal of its card clothing businesses generating net cash inflows of £5.2 million after transaction costs and net cash transferred with the business. The transaction resulted in a loss on disposal of £1.1 million, the majority of which was due to the costs of undertaking the transaction. The group has utilised the proceeds from the disposal to reduce debt and to make an additional payment of £1.8 million into the Carclo group pension schemes. Further deferred consideration of up to £1.7 million is based upon the achievement of certain performance criteria in the two years to 31 May 2007. It is anticipated that the first tranche of this deferred consideration of £0.6 million will be received during the current financial year. Properties with a combined net book value of £2.2 million were also retained and leased to the purchaser. Outline planning permission has been granted for the residential development of the group's Plover Mills site in Huddersfield. It is currently intended that this site, which has a net book value of £1.7 million, will be sold after the expiry of the current lease on 31 December 2006. On 12 May 2006 the group disposed of the business and operating assets of CTP Gills Cables Ltd, its UK control cable manufacturing business, as well as its 50% shareholding in CTP Suprajit Automotive Private Ltd, its Indian Joint Venture. An aggregate cash inflow of £3.6 million, before costs, is anticipated from this transaction. Consideration of £1.4 million was received on completion and £0.4 million will be received in due course as the repayment of a term loan. The group also expects to receive an additional deferred payment estimated to be in the region of £0.4 million and due in May 2008. This deferred element of the consideration is based on the performance of the UK business during the two years to May 2008. The group will also retain and realise for cash the trade debtors of the UK business, estimated to be £1.4 million. The proceeds from the disposal will be utilised to reduce the group's debt and it is also intended that an additional payment of up to £1.2 million will be made into the Carclo group pension schemes representing the scheme specific debt on employer triggered by the sale of the business. Robert Brooksbank 12 June 2006 Consolidated income statement year ended 31 March 2006 2005 _________________________________________________________________ Continuing Discontinued Total Continuing Discontinued Total operations operations £000 operations operations £000 £000 £000 £000 £000 ________________________________________________________________________________ Revenue 76,617 11,389 88,006 80,835 26,839 107,674 ________________________________________________________________________________ Underlying operating profit Operating profit before exceptional costs 4,542 478 5,020 4,402 710 5,112 - rationalisation costs (799) (165) (964) (384) (654) (1,038) - exceptional bad debts (375) - (375) - - - _____________________________________________________________ After exceptional costs 3,368 313 3,681 4,018 56 4,074 ________________________________________________________________________________ Operating profit 3,368 313 3,681 4,018 56 4,074 Site closure costs (615) (254) (869) (763) - (763) (Loss) / profit on sale of properties (237) - (237) 1,462 - 1,462 _____________________________________________________________ Profit before financing costs 2,516 59 2,575 4,717 56 4,773 Finance revenue 383 - 383 152 32 184 Finance expense (1,728) (50) (1,778) (1,478) (190) (1,668) Other finance revenue - retirement benefits 9,041 - 9,041 8,525 - 8,525 Other finance expense - retirement benefits (8,522) - (8,522) (8,133) - (8,133) _____________________________________________________________ Profit/(loss) before tax 1,690 9 1,699 3,783 (102) 3,681 Income tax (expense)/income - - - (129) 174 45 _____________________________________________________________ Profit after tax but before loss on discontinued operation 1,690 9 1,699 3,654 72 3,726 Loss on disposal of discontinued operation, net of tax - (1,082) (1,082) - - - _____________________________________________________________ Profit/(loss) after tax 1,690 (1,073) 617 3,654 72 3,726 ============================================================= Attributable to: Equity holders of the parent 1,725 (1,073) 652 3,654 72 3,726 Minority interest (35) - (35) - - - _____________________________________________________________ Profit for the period 1,690 (1,073) 617 3,654 72 3,726 ============================================================= Earnings per ordinary share Basic 3.2 p (2.0) p 1.2 p 7.2 p 0.1 p 7.3 p Diluted 3.2 p (2.0) p 1.2 p 7.2 p 0.1 p 7.3 p Dividend per ordinary share Arising in respect of the year 1.2 p 1.2 p Paid in the year 1.2 p 1.2 p Consolidated statement of recognised income and expense year ended 31 March 2006 2005 £000 £000 ________________________________________________________________________________ Foreign exchange translation differences 749 743 Net (loss) / gain on hedge of net investment in foreign subsidiary (16) 3 Actuarial losses on defined benefit schemes 593 (6,900) Other - (75) Taxation on items taken directly to equity (178) 2,076 _________________ Income and expense recognised directly in equity 1,148 (4,153) Profit for the period 617 3,726 _________________ Total recognised income and expense for the period 1,765 (427) ================= Attributable to: Equity holders of the parent 1,800 (427) Minority interest (35) - _________________ Total recognised income and expense for the period 1,765 (427) ================= Consolidated balance sheet as at 31 March 31 March 2006 31 March 2005 £000 £000 _______________________________________________________________________________ Assets Intangible assets 24,868 15,365 Property, plant and equipment 29,899 36,250 Investments 11 10 Investment in joint venture - - Deferred tax assets 8,681 9,945 Trade and other receivables 1,100 - _________________________ Total non current assets 64,559 61,570 Inventories 7,634 13,685 Trade and other receivables 16,736 22,193 Cash and cash deposits 11,258 9,938 Assets classified as held for sale 2,078 - _________________________ Total current assets 37,706 45,816 _________________________ Total assets 102,265 107,386 _________________________ Liabilities Interest bearing loans and borrowings 26,765 30,350 Deferred tax liabilities 3,851 3,547 Retirement benefit obligations 22,383 26,559 _________________________ Total non current liabilities 52,999 60,456 Trade and other payables 13,027 19,626 Current tax liabilities 2,353 1,702 Dividends payable 220 204 Interest bearing loans and liabilities 5,249 5,468 Liabilities associated with assets classified as held for sale 1,223 - _________________________ Total current liabilities 22,072 27,000 _________________________ Total liabilities 75,071 87,456 _________________________ Net assets 27,194 19,930 ========================= Equity Ordinary share capital issued 2,789 2,594 Share premium 2,768 41,772 Other reserves 4,160 2,170 Translation reserve 1,479 746 Retained earnings 14,833 (27,352) _________________________ Total equity attributable to equity holders of the parent 26,029 19,930 Minority interest 1,165 - _________________________ Total equity 27,194 19,930 ========================= Consolidated statement of cash flows year ended 31 March 2006 2005 £000 £000 _______________________________________________________________________________ Cash flows from operating activities Profit before interest and taxation 2,575 4,773 Adjustments for: Pension fund contributions in excess of service costs (3,364) (1,548) Depreciation charge 3,734 4,555 Amortisation of intangible assets 63 77 Exceptional bad debt provision 375 - Loss / (profit) on disposal of property 237 (1,462) Loss / (profit) on disposal of other plant and equipment 32 (142) Impairment of assets on site closures 124 - Cash flows on closures charged in prior year (190) (878) Share based payment charge (6) 49 ___________________ Operating profit before changes in working capital 3,580 5,424 Changes in working capital (excluding the effects of acquisition and disposal of subsidiaries) Decrease / (increase) in inventories 898 (69) Decrease in trade and other receivables 3,121 3,035 Decrease in trade and other payables (2,932) (2,087) ___________________ Cash generated from operations 4,667 6,303 Interest paid (1,766) (1,603) Tax recovered - 541 ___________________ Net cash from operating activities 2,901 5,241 Cash flows from investing activities Proceeds from sale of property, plant and equipment 1,073 2,212 Interest received 395 193 Disposal of subsidiary, net of cash disposed of 5,201 - Acquisition of subsidiary, net of cash acquired (1,503) - Acquisition of share in joint venture (129) (95) Acquisition of property, plant and equipment (2,271) (3,940) Acquisition of intangible - computer software (64) (72) Acquisition of trade investment (1) - Development expenditure (861) - Loan to joint venture (833) (921) ___________________ Net cash from investing activities 1,007 (2,623) Cash flows from financing activities Proceeds from the issue of share capital 2,963 - Repayment of borrowings (4,548) (487) Payment of finance lease liabilities (17) (96) Dividends paid (644) (613) ___________________ Net cash from financing activities 2,246 (1,196) Net increase in cash and cash equivalents 1,662 1,422 Cash and cash equivalents at beginning of period 5,014 3,579 Effect of exchange rate fluctuations on cash held 58 13 ___________________ Cash and cash equivalents at end of period 6,734 5,014 =================== Cash and cash equivalents comprise: Cash at bank and in hand 11,258 9,938 Bank overdrafts (4,524) (4,924) ___________________ 6,734 5,014 =================== Segmental reporting At 31 March 2006, the group is organised into two main business segments: Technical Plastics and Precision Products. A third business segment, ECC Card Clothing, was disposed of on 22 June 2005. The primary segment reporting format is determined to be business segments as the group's risks and returns are affected predominantly by differences in the products and services provided. Secondary information is reported geographically. The operating business segments are organised and managed separately. The Technical Plastics segment supply fine tolerance, injection moulded plastic components, which are used in medical, telecom and electronics products. This business operates internationally in a fast growing and dynamic market underpinned by rapid technological development. The Precision Products segment supplies systems to the automotive and aerospace industries. 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. The group's geographical segments are based on the location of the group's assets. Sales to external customers disclosed in geographical segments are based on the geographical location of its customers. Analysis by business segment The segment results for the year ended 31 March 2006 were as follows: Technical Precision Unallocated Eliminations Continuing Discontinued Group Plastics Products expenses total total £000 £000 £000 £000 £000 £000 £000 _______________________________________________________________________________________________ Income Statement Total revenue 54,328 22,586 - (297) 76,617 11,389 88,006 Less inter-segment revenue (297) - - 297 - - - ____________________________________________________________________________ Total external revenue 54,031 22,586 - - 76,617 11,389 88,006 Expenses (51,477) (19,609) (989) - (72,075) (10,911) (82,986) ____________________________________________________________________________ Underlying operating profits 2,554 2,977 (989) - 4,542 478 5,020 Rationalisation costs (538) (144) (117) - (799) (165) (964) Exceptional bad debts (375) - - - (375) - (375) ____________________________________________________________________________ Operating profit 1,641 2,833 (1,106) - 3,368 313 3,681 Site closure costs (615) - - - (615) (254) (869) Loss on sale of properties - - (237) - (237) - (237) ____________________________________________________________________________ Profit before financing costs 1,026 2,833 (1,343) - 2,516 59 2,575 =========================================== Net finance costs (826) (50) (876) Tax - - - _______________________________ Profit for the period 1,690 9 1,699 =============================== Balance Sheet Investments - - 11 - 11 - 11 Property, plant and equipment 20,188 5,340 4,371 - 29,899 - 29,899 Intangible assets 15,807 23 9,038 - 24,868 - 24,868 Other segment assets 18,965 5,453 9,733 - 34,151 - 34,151 Assets classified as held for sale - - 447 - 447 1,631 2,078 Cash, other financial assets and investments 2,588 667 8,003 - 11,258 - 11,258 ____________________________________________________________________________ Total assets 57,548 11,483 31,603 - 100,634 1,631 102,265 Trade and other payables 7,784 4,136 1,107 - 13,027 - 13,027 Other segment liabilities - - 220 - 220 - 220 Tax liabilities 1,191 238 4,775 - 6,204 - 6,204 Borrowings and other financial liabilities 5,675 443 25,896 - 32,014 - 32,014 Retirement benefit liabilities - - 22,383 - 22,383 - 22,383 Liabilities in respect of assets held for sale - - - - - 1,223 1,223 ____________________________________________________________________________ Total 14,650 4,817 54,381 - 73,848 1,223 75,071 liabilities ____________________________________________________________________________ Net assets 42,898 6,666 (22,778) - 26,786 408 27,194 ============================================================================ Other segmental information Capital expenditure on property, plant and equipment 1,836 338 105 - 2,279 85 2,364 Capital expenditure on other intangible assets 16 25 23 - 64 - 64 Depreciation 2,517 566 117 - 3,200 534 3,734 Amortisation of intangible assets 58 2 3 - 63 - 63 Analysis by business segment The segment results for the year ended 31 March 2005 were as follows: Technical Precision Unallocated Eliminations Continuing Discontinued Group Plastics Products expenses total total £000 £000 £000 £000 £000 £000 £000 ________________________________________________________________________________________________ Income Statement Total revenue 59,117 22,195 - (477) 80,835 26,839 107,674 Less inter-segment revenue (477) - - 477 - - - ______________________________________________________________________________ Total external revenue 58,640 22,195 - - 80,835 26,839 107,674 Expenses (56,360) (19,167) (906) - (76,433) (26,129) (102,562) ______________________________________________________________________________ Underlying operating profits 2,280 3,028 (906) - 4,402 710 5,112 Rationalisation costs (384) - - - (384) (654) (1,038) ______________________________________________________________________________ Operating profit 1,896 3,028 (906) - 4,018 56 4,074 Loss on termination of operations (763) - - - (763) - (763) Profit on sale of properties - - 1,462 - 1,462 - 1,462 ______________________________________________________________________________ Operating profit before financing costs 1,133 3,028 556 - 4,717 56 4,773 =========================================== Net finance costs (934) (158) (1,092) Tax (129) 174 45 ________________________________ Profit for the period 3,654 72 3,726 ================================ Balance Sheet Investment - - 10 - 10 - 10 Property, plant and equipment 21,509 5,457 4,905 - 31,871 4,379 36,250 Intangible assets 15,180 51 134 - 15,365 - 15,365 Other segment assets 21,246 5,946 10,779 - 37,971 7,852 45,823 Assets classified as held for sale - - - - - - - Cash, other financial assets and investments 2,591 704 5,813 - 9,108 830 9,938 ______________________________________________________________________________ Total assets 60,526 12,158 21,641 - 94,325 13,061 107,386 Trade and other payables 9,224 4,433 1,483 - 15,140 4,486 19,626 Other segment liabilities - - 204 - 204 - 204 Tax liabilities 1,119 358 3,772 - 5,249 - 5,249 Borrowings and other financial 6,054 201 29,515 - 35,770 48 35,818 liabilities Retirement benefit - - 26,559 - 26,559 - 26,559 liabilities ______________________________________________________________________________ Total 16,397 4,992 61,533 - 82,922 4,534 87,456 liabilities ______________________________________________________________________________ Net assets 44,129 7,166 (39,892) - 11,403 8,527 19,930 ============================================================================== Other segmental information Capital expenditure on property, plant and equipment 3,053 334 116 - 3,503 536 4,039 Capital expenditure on other intangible assets 27 - 31 - 58 - 58 Depreciation 2,710 572 101 - 3,383 1,172 4,555 Amortisation of intangible assets 59 - 18 - 77 - 77 Analysis by geographical segment by destination The analysis of results by geographical destination for the year ended 31 March 2006 was as follows: United Kingdom North America Rest of world Group Total £000 £000 £000 £000 Revenue Total external revenue 38,214 17,761 32,031 88,006 Less revenue attributable to discontinued operations (3,950) (1,439) (6,000) (11,389) __________________________________________________________ Revenue from continuing operations 34,264 16,322 26,031 76,617 ========================================================== The analysis of results by geographical destination for the year ended 31 March 2005 was as follows: United Kingdom North America Rest of world Group Total £000 £000 £000 £000 Revenue Total external revenue 47,077 22,521 38,076 107,674 Less revenue attributable to discontinued operations (5,738) (4,129) (16,972) (26,839) __________________________________________________________ Revenue from continuing operations 41,339 18,392 21,104 80,835 ========================================================== Analysis by geographical segment by origin The business operates in three main geographical regions - the United Kingdom, North American and in lower cost regions such as the Czech Republic and China. The analysis of results by geographical origin for the year ended 31 March 2006 was as follows: United Kingdom North America Rest of world Group Total £000 £000 £000 £000 Revenue Total external revenue 67,646 14,565 5,795 88,006 Less revenue attributable to discontinued operations (9,773) (692) (924) (11,389) _______________________________________________ Revenue from continuing operations 57,873 13,873 4,871 76,617 _______________________________________________ Other segment information Segment assets 28,440 9,810 11,722 49,972 Unallocated assets (22,778) - - (22,778) _______________________________________________ Total assets 5,662 9,810 11,722 27,194 =============================================== Capital expenditure on property, plant and equipment 1,537 515 312 2,634 Capital expenditure on other intangible assets 48 16 - 64 Depreciation 2,711 540 483 3,734 Amortisation of intangible assets 5 58 - 63 The analysis of results by geographical origin for the year ended 31 March 2005 was as follows: United Kingdom North America Rest of world Group Total £000 £000 £000 £000 Revenue Total external revenue 77,885 19,402 10,387 107,674 Less revenue attributable to discontinued operations (16,964) (3,284) (6,591) (26,839) _______________________________________________ Revenue from continuing operations 60,921 16,118 3,796 80,835 _______________________________________________ Other segment information Segment assets 31,908 12,536 15,378 59,822 Unallocated assets (39,892) - - (39,892) _______________________________________________ Total assets (7,984) 12,536 15,378 19,930 =============================================== Capital expenditure on property,plant and equipment 1,471 671 1,897 4,039 Capital expenditure on other intangible assets 31 27 - 58 Depreciation 3,385 564 606 4,555 Amortisation of intangible assets 18 59 - 77 Notes 1. The financial statements set out above do not constitute the company's statutory accounts for the years ended 31 March 2006 and 31 March 2005, but is derived from those accounts. Statutory accounts for the year ended 31 March 2005 have been delivered to the Registrar of Companies and those for the year ended 31 March 2006 will be delivered following the company's annual general meeting. 2. The auditors have reported on those accounts; their reports were unqualified and did not contain a statement under S 237 (2) or S 237 (3) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock Exchange EN FR SSWFFUSMSELM

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