REG - Carclo plc - Final Results
12/07/2023 07:00
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RNS Number : 7215F Carclo plc 12 July 2023
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Carclo plc
("Carclo" or the "Group")
Unaudited Preliminary Results for the year ended 31 March 2023
Carclo plc, a preferred and trusted partner of global customers, providing
high-precision critical components to the life sciences, aerospace,
specialised optics, and technology industries, announces its results for the
financial year ended 31 March 2023 ("FY22/23").
The key financial performance measures for the year are as follows:
Year ended Year ended
31 March 31 March
2023 2022
£000 £000
Continuing operations
Revenue 143,445 128,576
Underlying operating profit 5,939 6,096
Exceptional items (4,710) 721
Covid-19 related US government grant income - 2,087
Operating profit 1,229 8,904
Discontinued operations
Profit on discontinued operations, net of tax - 693
Underlying earnings per share - basic - continuing operations 0.4p 3.1p
Basic earnings per share - continuing operations (5.4)p 7.0p
Net debt excluding lease liabilities 22,490 21,535
Net debt 34,360 32,405
IAS 19 retirement benefit liability 34,493 25,979
Continuing operations
Revenue
CTP 136,814 123,869
Aerospace 6,631 4,707
Total 143,445 128,576
Underlying operating profit
CTP 7,321 8,393
Aerospace 1,520 677
Central (2,902) (2,974)
Total 5,939 6,096
Financial performance:
A shift in strategy prioritising operational performance improvement and
increased cash generation against a backdrop of high inflation and rising
interest rates.
· Revenue from continuing operations increased by 11.6% (3.8% at
constant currency) to £143.4 million (FY21/22: £128.6 million).
· Underlying operating profit from continuing operations £5.9
million (FY21/22: £6.1 million).
· Cash generated from operations was £7.8 million (FY21/22: £6.8
million).
· Statutory operating profit from continuing operations
£1.2 million (FY21/22: £8.9 million including £2.1 million one-off credit
arising from the forgiveness of US government Covid-19 support loans).
· Net exceptional cost in the year of £4.7 million (FY21/22:
£0.7 million gain), reflects £3.4 million rationalisation costs, £0.9
million costs arising from cancellation of future supply agreement, £0.9
million doubtful debt and related inventory provision, £0.3 million costs in
respect to legacy claims, partially offset by a £0.8 million gain on disposal
of surplus properties.
· Net debt of £34.4 million (31 March 2022: £32.4 million), £1.5
million of the increase is explained by movements in foreign exchange. After
increasing in H1, adjusting for currency effects, net debt reduced by £2.1
million during H2, reflecting the start of the delivery of the revised
strategy.
Strategic highlights:
· Fortifying our financial position for long-term success -
Optimising resources, enhancing cash flow, and fuelling long-term success.
· Factory specialisation and standardisation - Driving operational
excellence for enhanced efficiency and satisfaction.
· Organic growth through strategic partners - Strengthening
relationships for mutual success.
· Embracing sustainability for a greener future - Innovating,
reducing waste and driving positive environmental impact.
· Empowering unity, driving breakthroughs - Harnessing the power of
collaboration, diversity and common purpose to redefine industry standards.
Sustainability highlights:
· Leading the way in sustainability - Launching of a worldwide
initiative "Project Zelda" (Carclo's landmark sustainability initiative) to
harness our power to reduce waste, increase energy efficiency and contribute
to a greener, more sustainable world and create a positive societal ripple
effect via local community involvement.
· Strengthening supply chain sustainability - Uniting with EcoVadis
to prioritise sustainability, foster eco-friendly supply chain practices and
drive positive environmental change.
· Engaging communities, creating lasting social value - Investing
in local communities, fostering social inclusion and supporting initiatives
that contribute to long-term societal well-being.
Commenting on the results, Frank Doorenbosch, Chief Executive Officer said:
“This year has undoubtedly presented Carclo with its fair share of
challenges, testing our mettle and resilience. However, I am proud to say that
we have risen above these obstacles and proven our ability to adapt and thrive
in a dynamic and evolving business landscape. Despite the headwinds of
inflation, rising interest rates, and other economic challenges, our
unwavering commitment to excellence has enabled us to achieve a slight
increase in revenue, reaching £143.4 million, an increase of 11.6% on the
prior year and 3.8% at a constant currency rate.
Our success can be attributed to our strategic approach, which includes agile
pricing adjustments to mitigate the impact of inflation and energy surcharges.
Furthermore, our commitment to operational excellence has been exemplified
through the implementation of factory specialisation measures, allowing us to
enhance efficiency, streamline processes, and optimise our performance across
our diverse range of offerings, including Design & Engineering and
Manufacturing Solutions.
In addition to navigating economic challenges, we have proactively addressed
debt positions, rationalisation costs, and legacy issues, such as the
successful settlement of the cancellation of a supply contracted framework
agreement. Our improvement in cash conversion underscores our financial
resilience and highlights the effectiveness of our strategic initiatives in
managing inflation impacts and energy costs.
Looking ahead, I am filled with confidence and optimism for Carclo’s future.
Our strategy, centered around factory specialisation, process standardisation,
operational excellence, financial stability, and sustainability, positions us
for continued success. I am immensely grateful to the exceptional Carclo team
whose unwavering dedication and relentless pursuit of excellence have
propelled us forward in this challenging year. Together, we will continue to
achieve positive results and drive our ongoing success.”
Further Information
Please contact:
Frank Doorenbosch, Chief Executive Officer, Carclo plc +44 (0)1924 268040
David Bedford, Chief Financial Officer, Carclo plc +44 (0)1924 268040
Forward-looking statements
Certain statements made in this annual report and accounts
are forward-looking statements. Such statements are based on current
expectations and are subject to a number of risks and uncertainties that could
cause outcomes to differ materially from those expected.
Alternative performance measures
Alternative performance measures are defined in the glossary on page 46. A
reconciliation to statutory numbers is included on page 45. The Directors
believe that alternative performance measures provide a more useful comparison
of business trends and performance. The term “underlying” is not defined
under IFRS and may not be comparable with similarly titled measures used by
other companies.
Chief Executive Officer Review
Introduction
As I look back on the past financial year, it is evident that Carclo
encountered a range of external challenges that required us to be resilient
and adaptable. Yet, we approach the future with unwavering optimism. Despite
the obstacles we faced, we have embraced a strategic transformation, and we
are already witnessing promising early signs of progress. Our steadfast
strategy, supported by a revitalised leadership team, sets the stage for
long-lasting success and sustainability.
The year in review
The past fiscal year presented us with numerous challenges, including rising
debt costs, significant increases in input expenses, reduced demand for
Covid-19 testing products and a tight labour market in key manufacturing
locations. These hurdles prompted us to embark on a strategic transformation
and reinforce our leadership team. As part of this transformative journey, we
take pride in highlighting the increased diversity within our Board and senior
executive team. We firmly acknowledge that diversity brings valuable fresh
perspectives, fosters innovation and enhances decision-making.
Our strategic transformation focuses on operational excellence, robust
financial health and the standardisation of processes and equipment to
optimise asset utilisation, enhance efficiency and reduce complexity. We are
energised and committed to deliver exceptional value to all stakeholders.
Additionally, we are dedicated to sustainability, aiming to reduce waste and
energy consumption while actively engaging with local communities.
Despite the economic challenges we faced, our revenues demonstrated
resilience, increasing 3.8% at constant currency. This growth can be
attributed to our successful collaboration on growth projects with our
strategic customers. However, our margins, particularly in the CTP division,
were impacted by time delay of passing on higher input costs. In addition,
we absorbed some of these costs to uphold our commitment to our valued
customers.
Encouragingly, we are beginning to witness the positive outcomes of our
strategic actions, particularly within our EMEA manufacturing solutions
business. This has resulted in stronger margins in the latter half of the
year. The final quarter of FY22/23 revealed promising results from our new
strategy where our EMEA manufacturing platform showcased improved operational
performance in the second half of FY22/23, with higher asset utilisation and
increased cash generation. These positive developments underline the
effectiveness of our strategic approach.
Although our overall underlying operating profit performance for the year
amounted to £5.9 million, which was lower than the previous year’s figure
(FY21/22: £6.1 million), it is important to note that these results were
achieved within a demanding economic climate. Despite the challenges, we
remained focused on profitability and positioning the company for future
growth.
The restructuring costs associated with our strategic shift were substantial
but necessary for the long-term sustainability of our business. While we faced
these challenges, we managed to improve our cash conversion rate from 42.6% in
FY21/22 to 84.0% in FY22/23. As a result, our net debt at the end of the year
remained relatively stable, compared to the previous year-end, considering
constant currency factors. This achievement is particularly commendable given
our ongoing commitments to bank interest, pension contributions, and growth
capital expenditures.
I am delighted to report that the implementation of our new strategy and our
focused efforts on cash generation yielded positive results. We were able to
generate robust operational cash in the second half of the year, which
significantly improved our position compared to the figures as of 30 September
2022. Since March 31, 2023, we have repaid £3.7 million of term loans ahead
of schedule and reduced our RCF balance from £3.5 million to £2 million,
leaving £1.5 million undrawn as of the end of June 2023.
These achievements underscore our dedication to strengthening our financial
position and maintaining a solid foundation for future growth. Despite the
challenges we faced, our commitment to effective financial management and cash
generation strategies has paid off, positioning us favourably as we move
forward.
Strategy
Recognising the shifting dynamics of our business environment, we have
undertaken a rigorous strategic review. The result is a renewed blueprint for
Carclo’s future, one that is flexible, robust and aligned with our mission.
At the heart of our strategy lies an uncompromising commitment to the safety
and well-being of our workforce, customers and communities. We firmly believe
that our success is underpinned by the health and prosperity of all our
stakeholders. Hence, protecting and fostering this is not just a priority,
it’s woven into our operational DNA.
Recognising the evolving dynamics in our business environment, the core of our
strategy is anchored on operational excellence and robust financial health.
Central to our tactical blueprint is the group-wide standardisation of our
processes and equipment, an initiative aimed at optimising asset utilisation,
enhancing efficiency, and reducing the cost of complexity.
In the short term, our focus is on achieving stability and maximising return
from our existing resources. To that end, we are instituting stringent asset
management practices including meticulous tracking, optimised deployment, and
regular performance reviews, coupled with an investment in cost-efficient
technologies and process improvements. By simplifying operations, we are
effectively reducing the cost of complexity, increasing our agility and
responsiveness.
In parallel, we’re fostering an ethos of knowledge-sharing and
cross-functional collaboration to disseminate and implement best practices
throughout the organisation. This strategic blend of resource maximisation,
process standardisation, and collective learning not only drives up
operational performance and reduces costs, but also enhances employee
and customer satisfaction through the consistent and reliable delivery of
high-quality products and services.
Our new direction includes a keen focus on product and factory specialisation,
allowing each of our facilities to hone in on their unique strengths and
minimise the cost of complexity. This approach sharpens our focus, ramps up
efficiency, and elevates performance, thereby ensuring we deliver seamlessly
to our global clientele across the entire gamut of our offerings – Design
& Engineering and Manufacturing Solutions.
Our long-run facilities are 100% geared towards process optimisation and
integrating advanced back-end automation, thereby enhancing throughput and
quality. On the other hand, our medium-run facilities are tasked with
increasing their agility, efficiently managing changeovers between runs and
developing flexible automation systems to ensure continuity and productivity.
The first region where we have completed the factory specialisation is EMEA,
where the strategy is delivering the expected results. The next region we are
addressing is the USA, albeit with different dynamics, where the focus will
allow us to build a winning model.
We are keen to shape Carclo into an engaging organisation with high energy
drive, committed to high quality execution, when precision matters. To be
ready to meet the evolving demands of our customers and the marketplace. Our
strategy includes diversifying our portfolio whilst aiming for steady top-line
growth.
We are committed to fortifying our balance sheet and decreasing our debt, with
an emphasis on cash generation, prudent management of working capital and
enhancing equipment utilisation. We are channelling our capital investments
towards measures that improve safety, efficiency, yield and quality. Through
enhanced project flexibility, leveraging on our well invested but
underutilised machine park we will deliver growth.
When it comes to pricing, we are not racing to the bottom. Instead, we are
committed to delivering exceptional value, underpinned by the high-quality and
comprehensive support we offer.
Our team forms the heart of Carclo, their growth being a cornerstone of our
strategy. We’re prioritising investments in their professional enhancement,
creating dedicated Educational and Excellence Centres regionally. This
initiative empowers our engineers with robust training and skills development
programs, propelling process enhancements, automation advancements, and
innovative product line creation. We believe that nurturing their talents and
fostering a culture of innovation will be pivotal to our collective success.
As part of our commitment to sustainability, we’ve launched our worldwide
initiative, “Zelda”. Its primary objectives are to reduce waste sent to
recycling by 50% within two years and decrease energy consumption per unit of
production by 15% over three years through energy optimisation. Moreover, we
are devoted to creating a positive societal ripple effect via local community
involvement.
We believe in being candid about our sustainability journey, and will
consistently share updates on our achievements, challenges, and milestones.
Divisional performance
CTP Division
We have divided our CTP division into two separate businesses. Our Design
& Engineering business is responsible for handling global customer
development projects, while our Manufacturing Solutions business comprises our
worldwide network of facilities, specialising in a comprehensive range of
manufacturing services, encompassing injection moulding, assembly and supply
chain solutions. Our CTP division has undertaken a substantial restructuring
effort in the EMEA region to better align with customer needs and successfully
navigate challenges such as rising input costs and labour shortages. The
execution of our strategy, which includes standardising machines, processes,
and global quality standards, coupled with clear factory specialisation, has
revitalised our operational results in the region. We are now focused on
implementing these strategies in the US region to further strengthen our
position.
Through an unwavering commitment to operational excellence and a
customer-centric approach, we are dedicated to achieving sustained
profitability and creating long-term value. These principles guide our actions
as we strive to exceed customer expectations, drive efficiency, and optimise
our performance. By aligning our operations with customer needs and
consistently delivering exceptional products and services, we aim to
re-establish Carclo as a trusted industry leader and maximise value for our
stakeholders.
Design & Engineering (D&E):
In FY22/23, our Design & Engineering (D&E) business demonstrated
robust revenue performance, generating total revenues of £20.1 million. While
sales were lower compared to last year’s exceptional figures, they remained
significantly higher than the average of the previous three years. This
reflects the strength of our ongoing focus on the life sciences sector and
strategic partnerships with existing customers.
By maintaining this strategic direction, we built a strong order book by the
end of the year, positioning us favourably for continued success in the
future. This is a testament to our ability to deliver value-added solutions
and meet the evolving demands of our clients.
To further augment our capabilities and support our technical talent, we are
establishing a state-of-the-art training facility at our Roseytown location in
Pennsylvania. This facility serves as a dedicated space not only for
validation purposes but, more importantly, for in-house training on
manufacturing lines, mould technology, and material behaviour. It enables our
team to continually refine their skills and expertise, empowering them to
consistently deliver best-in-class solutions to our valued clients. This
investment in our team’s development reinforces our commitment to excellence
and ensures that we stay at the forefront of innovation in the industry.
Manufacturing Solutions (MS):
Our Manufacturing Solutions (MS) business serves as our global manufacturing
and assembly platform, strategically divided into three regions: Americas,
EMEA, and APAC. We have embarked on a focused journey of factory
specialisation, emphasising operational excellence and minimising the
complexities that arise in manufacturing processes.
In the first phase of our EMEA strategic reset, we are already witnessing the
potential of our manufacturing platform through enhanced operational
efficiency, increased asset utilisation, and improved labour efficiency. These
early successes reinforce our confidence in the effectiveness of our strategic
approach. In the Americas, our leadership team faces challenges posed by input
cost increases and labour shortages. Addressing these challenges remains our
team’s primary focus, and we are intensifying our efforts to execute the
strategic positioning and factory specialisation of our US manufacturing
platform.
Despite the hurdles faced, the MS business achieved modest revenue growth in
FY22/23 at constant currency. Our revenues increased to £116.7 million
(£104.9 million at constant currency). This growth was primarily driven by
customer price increases that offset inflationary pressures and higher energy
costs. By diligently managing these factors, we were able to maintain a
positive revenue trajectory while navigating a challenging market environment.
Through our steadfast commitment to operational excellence and strategic focus
on factory specialisation, we are confident in our ability to enhance our MS
business’ performance, drive efficiencies, and maximize value for our
stakeholders.
Aerospace Division
The Aerospace division has demonstrated a remarkable improvement in profit
performance year-on-year, benefiting from the post-Covid-19 market recovery.
Our revenue experienced impressive growth, reaching £6.6 million in the
current fiscal year compared to £4.7 million in FY21/22, representing a
substantial increase of 40.9%. This resurgence in the Aerospace Division’s
performance is highly encouraging, highlighting our ability to adapt and
thrive in evolving market conditions.
While our progress in the Aerospace Division is noteworthy, we did experience
some challenges in our cash conversion rate due to constraints within the
supply chain of specialised metals. However, our commitment to delivering
high-quality products and services remains unwavering, positioning us for
continued success and growth in the aviation industry.
With the aviation sector on an upswing, we are well-positioned to leverage
this positive momentum. Our dedication to excellence, combined with our
relentless focus on meeting customer expectations, enables us to capitalise on
the opportunities that lie ahead. As we navigate challenges and pursue
opportunities, we remain committed to maintaining our reputation as a trusted
provider of superior products and services in the aerospace market.
Financing
Given the impact of rising interest rates and the high inflationary
environment, we have worked closely with our lending bank to secure
appropriate ongoing financial support for the business. We are pleased that we
continue to be supported by the bank who have agreed to a more appropriate set
of covenants during the period whilst we revitalise the business and implement
our new strategy. After receiving written confirmation from the bank we are
now awaiting the formal documentation to be signed, which is expected to be
completed before the publication of the Group’s Annual Report and Accounts.
Sustainability and Corporate Responsibility
We have clearly defined our sustainability strategy in our worldwide
initiative “Project Zelda”. We are first addressing the major contributors
to our ecological footprint, being raw material and electricity usage. The
team is focused on delivering a sustainable improvement in reducing, reusing
and upcycling the materials used within our production processes. Overall
targets to be reached in two years are:
* A 50% reduction of materials we send to recycling.
* A 10% reduction of the amount of KwH per kilo of products sold.
We are enhancing our various community engagement initiatives, we have
continued to invest in the growth and development of the regions in which we
operate, creating opportunities for education, skill development, and
employment.
Moving forward
The past year presented us with significant challenges, but it also marked a
transformative period of renewed focus. We have implemented a new strategy,
formed a new board, and established a diverse and dynamic leadership team,
all fuelled by a high level of energy and unwavering commitment to our
employees and customers. While there is still much work ahead, the early
results from our new strategy are promising, instilling a sense of optimism
and belief in a bright future.
Our positive outlook is supported by compelling evidence. We have successfully
renegotiated our banking covenants, securing financial stability as we
continue to implement our new strategic approach. Significant progress has
been made in our Mitcham operations, further strengthening our confidence in
the effectiveness of our initiatives. Furthermore, we have successfully
reached a settlement agreement with the cancellation of a supply contract,
reinforcing our ability to navigate challenges and capitalise on
opportunities.
In conclusion, we acknowledge that FY22/23 presented its fair share of
difficulties. However, we have already embarked on a new chapter and are
turning the page towards a future brimming with possibilities. We have full
confidence in our new strategy and leadership team, feeling that the best is
yet to come. We extend our heartfelt appreciation to the staff at Carclo for
their ongoing support during this transformative time. Together, we will
navigate this transition and forge a path towards sustained success.
Frank Doorenbosch
Chief Executive Officer
11 July 2023
Finance review
Our new strategy places a greater emphasis on operational performance
improvement and cash generation in response to the challenges posed by high
inflation and rising interest costs.
As we reflect on the past fiscal year, it's heartening to see how our Group
has navigated the economic landscape, delivering a robust 11.6% growth in
revenue (£143.4 million), or a solid 3.8% at constant currency, up from
£128.6 million in FY21/22. This demonstrates not only the resilience of the
markets we serve, but also the strength and continuity of our key customer
relationships.
Our underlying operating profit came in at £5.9 million, compared to £6.1
million (or £6.7 million at constant currency) in the previous year,
resulting in a return on sales of 4.1%, down slightly from 4.7% last year.
This shift in profitability was primarily influenced by escalating cost
inflation, most notably a sharp increase in energy costs, and the challenge
these pose in terms of timely pass-through to customers.
Exceptional net costs for the year amounted to £4.7 million, compared to
£1.4 million gain in FY21/22. The majority of these costs, £3.4 million to
be exact, were cash settled. These costs encompassed £3.4 million in
rationalisation expenses, £0.9 million stemming from the termination of
future supply agreements, £0.9 million in doubtful debt and associated
inventory provision, and £0.3 million related to legacy health claims. These
costs were partly offset by a gain of £0.8 million from the disposal of
surplus properties.
Overall, the financial year proved to be challenging but also demonstrated the
Group's resilience and adaptability. Moving forward, we continue to focus on
our commitment to creating long-term shareholder value and maintaining the
trust of our strategic customers.
Statutory operating profit is down £7.7 million on prior year to £1.2
million (FY21/22: £8.9 million).
During the year, we experienced an increase in net finance costs, primarily
due to rising interest rates, which amounted to £3.7 million (FY21/22: £3.0
million). This figure includes notional pension deficit interest charged of
£0.7 million (FY21/22: £0.7 million).
Taxation charge for the year was £1.4 million (FY21/22: £0.8 million). The
FY21/22 taxation charge benefited from a deferred tax credit of £0.7 million,
being the recognition of a deferred tax asset on the UK projected profits at
the time. However, this year, we have seen the reversal of that deferred tax
asset due to the effects of the restructuring plans.
Statutory loss/profit after tax was £4.0 million loss (FY21/22: £5.8 million
profit) on all operations, and £4.0 million loss (FY21/22: £5.1 million
profit) on continuing operations, giving a statutory loss per share on all
operations of 5.4 pence (FY21/22: 7.9 pence profit), and 5.4 pence loss on
continuing operations (FY21/22: 7.0 pence profit).
Underlying profit after tax fell to £0.3 million (FY21/22: £2.3 million),
giving an underlying EPS of 0.4 pence (FY21/22: 3.1 pence), on underlying
operating profit of £5.9 million, down 2.6% on prior year (FY21/22: £6.1
million).
Cash generated from operations was £7.8 million and 14.7% higher than the
prior year (FY21/22: £6.8 million), reflecting the change in strategy from a
focus on top-line growth to cash generation via operational improvements and
robust working capital control. Efficient management of working capital is a
key contributor to cash performance. In addition, during the year a sale and
leaseback raised £2.4 million after costs.
Cash generated by the Group was principally utilised to make capital
investment and lease repayments, pension deficit repair contributions,
scheduled bank loan repayments and interest payments. The Group’s full
cashflow statement is set out on page 18.
In recognition of the shift in strategic priorities we have refreshed the
Group’s key externally reported KPIs to those which we consider will best
demonstrate the progress being made towards achieving our strategic goals.
These are set out on pages 26 and 27 of the Annual Report and Accounts.
A reconciliation of statutory to underlying non-GAAP financial measures is
provided on page 45.
Net debt
During the year, we redirected our investment in capital expenditure towards a
rapid payback, focussing on our continuous improvement strategy aimed at
supporting asset performance and utilisation. Tangible additions were £5.8
million (FY21/22: £9.7 million) mainly in support of major customer
programmes. Of this investment, £3.5 million (FY21/22: £6.8 million) was
delivered via leasing.
Net debt, including IFRS16 lease liabilities, increased in the year by £2.0
million to £34.4 million (FY21/22: £32.4 million). Of this increase £1.5
million was due to foreign currency movements. Net debt excluding leases
increased £1.0 million to £22.5 million (FY21/22: £21.5 million).
Following the shift in strategic focus, improvements in our cash generation
have resulted in a reduction of net debt including lease liabilities during H2
of £2.5 million.
CTP division
CTP revenue of £136.8 million was up 10.5% (2.5% at constant currency)
(FY21/22: £123.9 million) with underlying volumes broadly flat.
CTP divisional operating profit before exceptional items was £7.3 million,
£1.1 million down on the prior year, excluding £2.1 million of non-recurring
income in the form of a US government Covid-19 grant.
In the face of high cost inflation, particularly in labour and energy prices,
our CTP division encountered significant hurdles. The tightened labour
markets, predominantly in the US, imposed further complications in the
recruitment and retention of labour. These challenges underline the rapidly
changing economic conditions we find ourselves grappling with, and underscore
the necessity of our ongoing strategic adaptations. Although there were delays
in passing on the impact of inflation to customers, CTP made significant
progress during H2 in implementing both temporary energy surcharges and
permanent pricing increases, resulting in an improved margin performance,
particularly in the final quarter of the year.
The Group was met with an unforeseen development in December 2022 when a
prospective new global OEM customer informed us, following the completion of
the design and engineering phase, due to a contraction in the end-market
demand for Covid-19 testing, the customer decided to suspend progression into
the production phase of the original ten-year Framework Agreement. However,
we moved swiftly and strategically to mitigate potential financial
implications. On 30 May 2023, we successfully signed a settlement agreement
that effectively neutralises the Group's financial exposure arising from the
premature termination of this contract. This settlement is a testament to our
resilience and flexibility in navigating unexpected circumstances.
Furthermore, we were able to quickly pivot and rapidly implement a plan to
repurpose the production capacity assigned to this project. The majority of
the capital investments, inclusive of infrastructure such as buildings, clean
rooms, and state-of-the-art equipment have been reallocated to enhance
projects with existing strategic partners. We also signed a mutually
satisfactory settlement agreement with the customer concerning working capital
and recompense for business disruption.
There is a considerable potential to elevate CTP's operational performance
even further, and we have taken steps to seize this opportunity. We've
initiated fresh strategies designed to bolster both asset utilisation and our
ability to meet customers' needs through factory specialisation. Our
commitment to ceaseless improvement propels these initiatives, backed by the
recent implementation of real-time operational data capture and reporting
systems. This approach enables us to react more swiftly to developments,
continuously refine our operations, and maintain our mission of delivering
superior customer value.
Aerospace division
In the Aerospace sector, we saw an impressive uptick in revenue to £6.6
million, a surge of 40.9% (or 39.4% at constant currency), compared to £4.7
million in FY21/22. This marks a return to near pre-Covid-19 levels for this
division, an accomplishment underpinned by strong operating profitability of
£1.5 million for the year, more than doubling the prior year's £0.7 million.
The market has demonstrated a robust recovery, and we have been agile in
leveraging this momentum, securing increased order volumes predominantly from
our existing customer base. Our strategy to strengthen and deepen
relationships with these customers has evidently paid off, underlining the
importance of customer retention in our overall growth plan.
Central costs
In terms of our overheads, we have seen a minor reduction in other Group and
central underlying costs, which amounted to £2.9 million for this fiscal
year, compared to £3.0 million in FY21/22. This slight decrease reflects our
ongoing commitment to prudent cost management and operational efficiency. We
will continue to seek ways to streamline our central expenses without
compromising our quality of service we deliver to the business.
Total Group
Bank facilities
On 2 September 2022 the Group successfully refinanced the facilities with the
Company's lender, concluding a first amendment and restatement agreement
relating to the multicurrency term and revolving facilities agreement dated 14
August 2020.
As at 31 March 2023, total UK bank facilities were £32.8 million, of which
£3.5 million related to a revolving credit facility (maturing on 30 June
2025) and £29.3 million in term loan facilities. £1.4 million of the term
facility will be amortised by 31 March 2024 and a further £2.2 million by 31
March 2025. The balance becomes payable by the maturity date, 30 June 2025.
As previously reported at the half-year, increasing interest rates had limited
the headroom on the Group's banking covenants, principally interest cover,
which prompted the Group to seek an adjustment of its banking covenants to
ensure sufficient funding.
Since then, we have worked closely with our bank, who have remained supportive
throughout, and agreed to adjust the interest cover covenant at both the
December 2022 and March 2023 testing points. As announced on 23 June 2023, we
are pleased to confirm that we have now agreed on revised covenants covering
the period to maturity at 30 June 2025, providing the required level of
certainty over our funding.
Moving forward, the Group remains committed to prioritising the strengthening
of its balance sheet and seeking alternative sources of bank financing for its
growing US operations in the medium term. We will continue to closely monitor
market conditions and work proactively with our bank to ensure our ongoing
financial stability and success.
Defined benefit pension scheme actuarial valuation
The last triennial actuarial valuation of the Group pension scheme was carried
out as at 31 March 2021. This reported a significantly reduced actuarial
technical provisions deficit of £82.8 million (FY21/22: £90.4 million based
upon the 31 March 2018 valuation).
The statutory accounting method of valuing the Group pension scheme deficit
under IAS 19 resulted in an increase in the net liability to £34.5 million at
31 March 2023 (31 March 2022: £26.0 million).
Over the year, the Group’s contributions to the scheme were £4.1 million
(FY21/22: £3.9 million).
During the year there was significant volatility in investment markets with
bond and gilt yields spiking in the aftermath of the September 22 “mini
budget”. The pension, which was maintaining an 80% liability hedge via
Liability Driven Investments (“LDI”) and bond holdings, experienced a
significant fall in the value of these assets, albeit less than the fall in
the equivalent of the liabilities being hedged. Other scheme assets including
property and global equity funds also experienced negative returns during the
period with the resulting increase in the IAS 19 deficit.
Treasury
The Group faces currency exposure on its overseas subsidiaries and on its
foreign currency transactions. In addition, as set out in the principal
risks and uncertainties as presented in the Annual Report and Accounts, the
plc is reliant on regular funding flows from the overseas subsidiaries to meet
banking, pension and administrative commitments. To manage this complexity,
we have enhanced the Group’s management of cash, debt and exchange risks by
strengthening our treasury function.
The Group reports trading results of overseas subsidiaries based on average
rates of exchange compared with sterling over the year. This income statement
translation exposure is not hedged as this is an accounting rather than cash
exposure and as a result the income statement is exposed to movements in the
US dollar, euro, renminbi, Czech koruna and Indian rupee. In terms of
sensitivity, based on the FY22/23 results, a 10% increase in the value of
sterling against these currencies would have decreased reported profit before
tax by £0.8 million.
Dividend
Given the restrictions on the payment of dividends contained within the
amended and restated bank facilities agreement and the absence of
distributable reserves required to make dividend payments, the Board is not
recommending the payment of a dividend for the financial year FY22/23
(FY21/22: £nil). Under the terms of the restructuring agreement, the Group is
not permitted to make a dividend payment to shareholders up to the period
ending June 2025.
Alternative performance measures
In the analysis of the Group’s financial performance, position, operating
results and cash flows, alternative performance measures are presented to
provide readers with additional information. The principal measures presented
are underlying measures of earnings including underlying operating profit,
underlying profit before tax, underlying profit after tax, underlying EBITDA
and underlying earnings per share.
This results statement includes both statutory and adjusted non-GAAP financial
measures, the latter of which the Directors believe better reflect the
underlying performance of the business and provides a more meaningful
comparison of how the business is managed and measured on a day-to-day basis.
The Group’s alternative performance measures and KPIs are aligned to the
Group’s strategy and together are used to measure the performance of the
business and form the basis of the performance measures for remuneration.
Underlying results exclude certain items because, if included, these items
could distort the understanding of the performance for the year and the
comparability between the periods. A reconciliation of the Group’s non-GAAP
financial measures is shown on page 45.
We provide comparatives alongside all current year figures. The term
“underlying” is not defined under IFRS and may not be comparable with
similarly titled measures used by other companies.
All profit and earnings per share figures relate to underlying business
performance (as defined above) unless otherwise stated. A reconciliation of
underlying measures to statutory measures for FY22/23 is provided below:
Exceptional
£000 Statutory items Underlying
CTP operating profit 4,569 (2,752) 7,321
Aerospace operating profit 1,520 - 1,520
Central costs (4,860) (1,958) (2,902)
Group operating profit from continuing operations 1,229 (4,710) 5,939
Net finance expense (3,749) - (3,749)
Group (loss) / profit before taxation from continuing operations (2,520) (4.710) 2,190
Taxation expense (1,437) - (1,437)
Group (loss)/profit for the period from continuing operations (3,957) (4,710) 753
Profit on discontinued operations, net of tax - - -
Group (loss) / profit for the period (3,957) (4,710) 753
Basic (loss) / profit per share (pence) (5.4)p (5.8)p 0.4p
The exceptional items comprise:
£000 Group (1)
Restructuring and rationalisation costs (3,404)
Costs arising from cancellation of future customer supply agreement (877)
Doubtful debt and related inventory provisions (896)
Costs in respect to legacy health related claims (302)
Profit on disposal of surplus property 769
Total exceptional items (4,710)
(1)There were no exceptional items in respect to discontinued operations in
the year to 31 March 2023.
Post balance sheet events and going concern
Post balance sheet events
Upon completion of the Design and Engineering phase of our supply contract, we
received an unexpected notice from a leading global OEM customer in December
2022. Citing a decline in the end-market demand for Covid-19 testing, they
chose not to advance into the project's production phase. However, by 30 May
2023, we reached a settlement agreement that largely mitigates the financial
risk the Group faced due to the early termination of the contract. The Group
has recognised an exceptional cost in the year to 31 March 2023 of £0.9
million, most of which is to recognise assets on balance sheet at recoverable
amount, see note 6 for further details. The Group will recognise an
exceptional gain in the income statement to 31 March 2024 of approximately
£0.6 million. Although the details of the agreement remain confidential,
full and final settlement was received on 21 June 2023.
On 22 June 2023 the Group’s lending bank, agreed to an adjustment of the
interest and the net leverage covenants related to the facilities due to
mature on 30 June 2025. On 1 June 2023, a voluntary repayment of £0.4 million
was made and on 30 June 2023, a further voluntary repayment of £3.3 million
was made.
Going concern
The financial statements are prepared on the going concern basis.
Group performance during the year has enabled capital investment to be made
whilst retaining a stable financial position with net debt excluding lease
liabilities as of 31 March 2023 increasing to £22.5 million (31 March 2022:
£21.5 million).
Net debt including lease liabilities at 31 March 2023 was £34.4 million (31
March 2022: £32.4 million), with the principal reason behind the increase
being foreign exchange movements of £1.5 million.
On 2 September 2022, the Group successfully refinanced with the Company's
bank, concluding a first amendment and restatement agreement relating to the
multi-currency term and revolving facilities agreement dated 14 August 2020.
The debt facilities available to the Group at 31 March 2023 comprise a term
loan of £29.3 million, of which £1.4 million will be amortised by 31 March
2024 and a further £2.2 million amortised by 31 March 2025. The balance
becomes payable by the termination date, 30 June 2025.
At 31 March 2023, the term loans were denominated as follows: sterling 14.2
million, US dollar 13.3 million and euro 4.9 million. The facility also
includes a £3.5 million revolving credit facility, denominated in sterling,
maturing on 30 June 2025.
Since the year-end there have been no significant changes to the Group's
liquidity position. The term loan balances stood at sterling 10.2 million, US
dollar 13.3 million and euro 4.9 million, totalling £27.0 million on 30 June
2023, with undrawn facilities of £1.5 million on the RCF.
As part of the original bank financing in August 2020 the Group became subject
to four bank facility covenant tests. The quarterly covenants to be tested
are:
* Underlying interest cover;
* Net debt to underlying EBITDA;
* Core subsidiary underlying EBITA; and
* Core subsidiary revenue.
Core subsidiaries are defined as Carclo Technical Plastics Ltd; Bruntons Aero
Products Ltd; Carclo Technical Plastics (Brno) s.r.o; CTP Carrera Inc and
Jacottet Industrie SAS, with CTP Taicang Co. Ltd and Carclo Technical Plastics
Pvt Co Ltd being treated as non-core for the purposes of these covenants.
Following a more than doubling of the base rate in the first half of FY22/23,
the Group reassessed its forecasts and concluded there was insufficient
headroom available to meet all the agreed banking covenants in the event of
certain downside scenarios taking place. Breach of any of these covenants
could lead to the creditors calling in their debt, leaving the plc insolvent.
As a result, at the half year, in recognition of a potential covenant breach,
the Group issued a material uncertainty warning over its ability to continue
trading as a going concern.
Since that time the Group has worked with the bank to amend the covenants and
agreed adjustments to the Group’s interest cover covenant for both the
December 2022 and March 2023 testing points.
In December 2022 the Group announced the cancellation of a new business
contract that would materially impact the results for FY22/23. Further
discussions were held with the bank and, following a review of the Group’s
3-year plan up to March 2026, on 22 June the bank agreed in writing to the
Group’s request to further amend the interest cover covenant to June 2025
and to an adjustment to the net debt to underlying EBITDA covenant to December
2023.
The revised banking covenants and thresholds are assumed to be in place
throughout the going concern assessment period. However, there remains
a material uncertainty over going concern until the formal documentation is
signed, which is expected to be completed before the publication of the
Group’s Annual Report and Accounts. A schedule of contributions is also in
place with the pension trustees with an agreed £3.5 million to be paid
annually until 31 October 2039. Additional contributions also agreed are 25%
of any surplus of 2023/24 underlying EBITDA over £18 million payable from 30
June 2024 to 31 May 2025, extending to 26% of any 2024/25 surplus payable from
30 June 2025 to 31 May 2026.
In addition, the pension scheme has the benefit of a fifth covenant to be
tested each year up to and including 2023. The test requires any shortfall
of pension deficit recovery contributions when measured against Pension
Protection Fund priority drift (which is a measure of the increase in the UK
Pension Protection Fund's potential exposure to the Group's pension scheme
liabilities), to be met by a combination of cash payments to the scheme, plus
a notional (non-cash) proportion of the increase in the underlying value of
the CTP and Aerospace segments based on an EBITDA multiple for those
businesses which is determined annually. This test will be completed on the
31 March 2023 audited financial statements and management expect this covenant
to be met.
The Group is subject to a number of key risks and uncertainties, as detailed
in the Principal risks and uncertainties section in the Annual Report and
Accounts. Mitigation actions are also considered in this section. These risks
and uncertainties have been considered in the base case and severe downside
sensitivities and have been modelled accordingly.
The Directors have reviewed cash flow and covenant forecasts to cover the
period, at least twelve months from date of signing the consolidated
financial statements, considering the Group's available debt facilities and
the terms of the arrangements with the Group's bank and the Group pension
scheme.
The base case forecast includes assumptions around sales, margins, working
capital and interest rates. The sensitivity analysis has considered the risks
facing the Group and has modelled the impact of each in turn, as well as
considering the impact of aggregating certain risk types and shows that the
Group is able to operate within its available facilities and meet its agreed
covenants as they arise. Furthermore, the Directors have reviewed sensitivity
testing, modelling a range of severe downside scenarios. These sensitivities
attempt to incorporate identified risks set out in the Principal risks and
uncertainties section of the Annual Report and Accounts.
Severe downside sensitivities modelled included a range of scenarios modelling
the financial effects of loss of business from: discrete sites, an overall
fall in gross margin of 1% across the Group, a fall in Group sales of 3%
matched by a corresponding fall in cost of sales of the same amount, and
interest rate risk.
The Group is not exposed to vulnerable sectors or vulnerable countries but
does have certain key customers, which create risks and uncertainties. These
risks and uncertainties are documented and the mitigating actions being taken
are covered in detail in the Principal risks and uncertainties section in the
annual report and accounts.
On the basis of this forecast and sensitivity testing, the Board has
determined that it is reasonable to assume that the Group will continue to
operate within the facilities available and will be able to adhere to the
covenant tests to which it is subject throughout at least the twelve-month
period from the date of signing the financial statements.
Accordingly, these financial statements are prepared on a going concern
basis.
David Bedford
Chief Financial Officer
11 July 2023
Consolidated income statement
for the year ended 31 March 2023
FY22/23 FY21/22
Notes £000 £000
Continuing operations:
Revenue 4 143,445 128,576
Underlying operating profit 5,939 6,096
Covid-19 related US government grant income 7 - 2,087
Exceptional items 6 (4,710) 721
Operating profit 4 1,229 8,904
Finance revenue 218 77
Finance expense 8 (3,967) (3,066)
(Loss) / profit before tax (2,520) 5,915
Income tax expense 9 (1,437) (809)
(Loss) / profit after tax but before profit on discontinued operations (3,957) 5,106
Discontinued operations:
Profit on discontinued operations, net of tax 5 - 693
(Loss) / profit for the period (3,957) 5,799
Attributable to:
Equity holders of the Company (3,957) 5,799
Non-controlling interests - -
(3,957) 5,799
(Loss) / Earnings per ordinary share 10
Basic - continuing operations (5.4) p 7.0 p
Basic - discontinued operations - p 0.9 p
Basic (5.4) p 7.9 p
Diluted - continuing operations (5.4) p 6.9 p
Diluted - discontinued operations - p 0.9 p
Diluted (5.4) p 7.9 p
Consolidated statement of comprehensive income
for the year ended 31 March 2023
FY22/23 FY21/22
£000 £000
(Loss) / profit for the period (3,957) 5,799
Other comprehensive (expense) / income
Items that will not be reclassified to the income statement
Remeasurement (losses) / gains on defined benefit scheme (10,577) 8,480
Deferred tax arising - -
Total items that will not be reclassified to the income statement (10,577) 8,480
Items that are or may in the future be classified to the income statement
Foreign exchange translation differences 1,129 1,840
Net investment hedge 818 440
Deferred tax arising (190) (127)
Total items that are or may in the future be classified to the income 1,757 2,153
statement
Other comprehensive (expense) / income, net of tax (8,820) 10,633
Total comprehensive (expense) / income for the year (12,777) 16,432
Attributable to -
Equity holders of the Company (12,777) 16,432
Non-controlling interests - -
Total comprehensive (expense) / income for the period (12,777) 16,432
Consolidated statement of financial position
as at 31 March 2023
FY22/23 FY21/22
Notes £000 £000
Non-current assets
Intangible assets 12 23,463 22,714
Property, plant and equipment 13 45,321 46,964
Deferred tax assets 1,185 1,403
Trade and other receivables - 115
Total non-current assets 69,969 71,196
Current assets
Inventories 15,203 16,987
Contract assets 5,763 7,700
Trade and other receivables 21,383 19,702
Cash and cash deposits 10,354 12,347
Non-current assets classified as held for sale 14 - 266
Total current assets 52,703 57,002
Total assets 122,672 128,198
Non-current liabilities
Loans and borrowings 15 39,668 41,804
Deferred tax liabilities 4,917 4,878
Contract liabilities - 3,099
Retirement benefit obligations 16 34,493 25,979
Total non-current liabilities 79,078 75,760
Current liabilities
Loans and borrowings 15 5,046 2,948
Trade and other payables 21,408 21,062
Current tax liabilities 372 170
Contract liabilities 4,689 3,755
Provisions 473 87
Total current liabilities 31,988 28,022
Total liabilities 111,066 103,782
Net assets 11,606 24,416
Equity
Ordinary share capital issued 17 3,671 3,671
Share premium 7,359 7,359
Translation reserve 9,243 7,486
Retained earnings (8,641) 5,926
Total equity attributable to equity holders of the Company 11,632 24,442
Non-controlling interests (26) (26)
Total equity 11,606 24,416
Approved by the Board of Directors and signed on its behalf by
Frank Doorenbosch David Bedford
11 July 2023 11 July 2023
Consolidated statement of changes in equity for the year ended 31 March 2023
Attributable to equity holders of the Company
Share Share Translation Retained Non-controlling Total
capital premium reserve earnings Total interests equity
£000 £000 £000 £000 £000 £000 £000
Balance at 1 April 2021 3,671 7,359 5,333 (8,426) 7,937 (26) 7,911
Profit for the year - - - 5,799 5,799 - 5,799
Other comprehensive income / (expense):
Foreign exchange translation differences - - 1,840 - 1,840 - 1,840
Net investment hedge - - 440 - 440 - 440
Remeasurement gains on defined benefit scheme - - - 8,480 8,480 - 8,480
Taxation on items above - - (127) - (127) - (127)
Total comprehensive income for the period - - 2,153 14,279 16,432 - 16,432
Transactions with owners recorded directly in equity
Share-based payments - - - 73 73 - 73
Taxation on items recorded directly in equity - - - - - - -
Balance at 31 March 2022 3,671 7,359 7,486 5,926 24,442 (26) 24,416
Balance at 1 April 2022 3,671 7,359 7,486 5,926 24,442 (26) 24,416
Loss for the year - - - (3,957) (3,957) - (3,957)
Other comprehensive income / (expense) income:
Foreign exchange translation differences - - 1,129 - 1,129 - 1,129
Net investment hedge - - 818 - 818 - 818
Remeasurement losses on defined benefit scheme - - - (10,577) (10,577) - (10,577)
Taxation on items above - - (190) - (190) - (190)
Total comprehensive income / (expense) for the period - - 1,757 (14,534) (12,777) - (12,777)
Transactions with owners recorded directly in equity:
Share-based payments - - - (33) (33) - (33)
Taxation on items recorded directly in equity - - - - - - -
Balance at 31 March 2023 3,671 7,359 9,243 (8,641) 11,632 (26) 11,606
Consolidated statement of cash flows
for the year ended 31 March 2023
FY22/23 FY21/22
Notes £000 £000
Cash generated from operations 18 7,778 6,780
Interest paid (2,955) (2,502)
Tax paid (1,051) (1,309)
Net cash from operating activities 3,772 2,969
Cash flows from / (used in) investing activities
Proceeds from sale of business, net of cash disposed - 693
Proceeds from sale of property, plant and equipment 1,390 20
Interest received 218 77
Purchase of property, plant and equipment (2,313) (4,804)
Purchase of intangible assets (104) (135)
Net cash used in investing activities (809) (4,149)
Cash flows from / (used in) financing activities
Drawings on new and existing facilities 359 1,575
Refinancing costs (250) -
Proceeds from sale and leaseback of property, plant and equipment 1,222 1,410
Repayment of borrowings excluding lease liabilities (1,800) (2,282)
Repayment of other loan facilities (102) -
Repayment of lease liabilities (4,104) (3,196)
Net cash used in financing activities (4,675) (2,493)
Net decrease in cash and cash equivalents (1,712) (3,673)
Cash and cash equivalents at beginning of period 12,347 15,485
Effect of exchange rate fluctuations on cash held (281) 535
Cash and cash equivalents at end of period 10,354 12,347
Cash and cash equivalents comprise:
Cash and cash deposits 10,354 12,347
10,354 12,347
Notes on the preliminary statement
1 Basis of preparation
The financial statements included in this preliminary announcement have been
prepared in accordance with the Disclosure and Transparency Rules of the UK
Financial Conduct Authority, and the principles of UK-adopted international
accounting standards, but do not comply with the full disclosure requirements
of these standards. The financial information for the year ended 31 March 2022
is derived from the statutory financial statements for that year which have
been delivered to the Registrar of Companies. The auditor reported on those
financial statements: their report was unqualified, did not draw attention to
any matters by way of emphasis and did not contain a statement under s498(2)
or (3) of the Companies Act 2006. The financial information has been prepared
on a going concern basis under the historic cost convention basis except that
derivative financial instruments, share options
and defined benefit pension plan assets are stated at their fair value.
The unaudited financial information contained in this announcement does not
constitute the statutory financial statements of the Group as at and for the
year ended 31 March 2023, but is derived from those financial statements,
which have been prepared in accordance with UK-adopted international
accounting standards. The financial statements themselves will be approved by
the Board of Directors and reported on by the auditor and then subsequently
delivered to the Registrar of Companies. The Group expects to publish full
consolidated statements on or around 28 July 2023. Accordingly, the financial
information for FY22/23 is presented as unaudited in this announcement.
The financial statements are prepared on the going concern basis.
Group performance during the year has enabled capital investment to be made
whilst retaining a stable financial position with net debt excluding lease
liabilities as of 31 March 2023 increasing to £22.5 million (31 March 2022:
£21.5 million).
Net debt including lease liabilities at 31 March 2023 was £34.4 million (31
March 2022: £32.4 million), with the principal reason behind the increase
being foreign exchange movements of £1.5 million.
On 2 September 2022, the Group successfully refinanced with the Company's
bank, concluding a first amendment and restatement agreement relating to the
multi-currency term and revolving facilities agreement dated 14 August 2020.
The debt facilities available to the Group at 31 March 2023 comprise a term
loan of £29.3 million, of which £1.4 million will be amortised by 31 March
2024 and a further £2.2 million amortised by 31 March 2025. The balance
becomes payable by the termination date, 30 June 2025.
At 31 March 2023, the term loans were denominated as follows: sterling 14.2
million, US dollar 13.3 million and euro 4.9 million. The facility also
includes a £3.5 million revolving credit facility, denominated in sterling,
maturing on 30 June 2025.
Since the year-end there have been no significant changes to the Group's
liquidity position. The term loan balances stood at sterling 10.2 million, US
dollar 13.3 million and euro 4.9 million, totalling £27.0 million on 30 June
2023, with undrawn facilities of £1.5 million on the RCF.
As part of the original bank financing in August 2020 the Group became subject
to four bank facility covenant tests. The quarterly covenants to be tested
are:
* Underlying interest cover;
* Net debt to underlying EBITDA;
* Core subsidiary underlying EBITA; and
* Core subsidiary revenue.
Core subsidiaries are defined as Carclo Technical Plastics Ltd; Bruntons Aero
Products Ltd; Carclo Technical Plastics (Brno) s.r.o; CTP Carrera Inc and
Jacottet Industrie SAS, with CTP Taicang Co. Ltd and Carclo Technical Plastics
Pvt Co Ltd being treated as non-core for the purposes of these covenants.
Following a more than doubling of the base rate in the first half of FY22/23,
the Group reassessed its forecasts and concluded there was insufficient
headroom available to meet all the agreed banking covenants in the event of
certain downside scenarios taking place. Breach of any of these covenants
could lead to the creditors calling in their debt, leaving the plc insolvent.
As a result, at the half year, in recognition of a potential covenant breach,
the Group issued a material uncertainty warning over its ability to continue
trading as a going concern.
Since that time the Group has worked with the bank to amend the covenants and
agreed adjustments to the Group’s interest cover covenant for both the
December 2022 and March 2023 testing points.
In December 2022 the Group announced the cancellation of a new business
contract that would materially impact the results for FY22/23. Further
discussions were held with the bank and, following a review of the Group’s
3-year plan up to March 2026, on 22 June the bank agreed to the Group’s
request to further amend the interest cover covenant to June 2025 and to an
adjustment to the net debt to underlying EBITDA covenant to December 2023.
The revised banking covenants and thresholds are assumed to be in place
throughout the going concern assessment period. However, there remains
a material uncertainty over going concern until the formal documentation is
signed, which is expected to be completed before the publication of the
Group’s Annual Report and Accounts.
A schedule of contributions is also in place with the pension trustees with an
agreed £3.5 million to be paid annually until 31 October 2039. Additional
contributions also agreed of 25% of any surplus of FY23/24 underlying EBITDA
over £18 million payable from 30 June 2024 to 31 May 2025, extending to 26%
of any FY24/25 surplus payable from 30 June 2025 to 31 May 2026.
In addition, the pension scheme has the benefit of a fifth covenant to be
tested each year up to and including FY23. The test requires any shortfall
of pension deficit recovery contributions when measured against Pension
Protection Fund priority drift (which is a measure of the increase in the UK
Pension Protection Fund's potential exposure to the Group's pension scheme
liabilities), to be met by a combination of cash payments to the scheme, plus
a notional (non-cash) proportion of the increase in the underlying value of
the CTP and Aerospace segments based on an EBITDA multiple for those
businesses which is determined annually. This test will be completed on the
31 March 2023 audited financial statements and management expect this covenant
to be met.
The Group is subject to a number of key risks and uncertainties, as detailed
in the Principal risks and uncertainties section in the Annual Report and
Accounts. Mitigation actions are also considered in this section. These risks
and uncertainties have been considered in the base case and severe downside
sensitivities and have been modelled accordingly.
The Directors have reviewed cash flow and covenant forecasts to cover the
period, at least twelve-months from the date of signing the consolidated
financial statements, considering the Group's available debt facilities and
the terms of the arrangements with the Group's bank and the Group pension
scheme.
The base case forecast includes assumptions around sales, margins, working
capital and interest rates. The sensitivity analysis has considered the risks
facing the Group and has modelled the impact of each in turn, as well as
considering the impact of aggregating certain risk types and shows that the
Group is able to operate within its available facilities and meet its agreed
covenants as they arise. Furthermore, the Directors have reviewed sensitivity
testing, modelling a range of severe downside scenarios. These sensitivities
attempt to incorporate identified risks set out in the Principal risks and
uncertainties section of the Annual Report and Accounts.
Severe downside sensitivities modelled included a range of scenarios modelling
the financial effects of loss of business from: discrete sites, an overall
fall in gross margin of 1% across the Group, a fall in Group sales of 3%
matched by a corresponding fall in cost of sales of the same amount and
interest rate risk.
The Group is not exposed to vulnerable sectors or vulnerable countries but
does have certain key customers, which create risks and uncertainties. These
risks and uncertainties are documented and the mitigating actions being taken
are covered in detail in the Principal risks and uncertainties section in the
Annual Report and Accounts.
On the basis of this forecast and sensitivity testing, the Board has
determined that it is reasonable to assume that the Group will continue to
operate within the facilities available and will be able to adhere to the
covenant tests to which it is subject throughout at least the twelve-month
period from the date of signing the financial statements.
Accordingly, these financial statements are prepared on a going concern
basis.
Directors’ liability
Neither the Company nor the Directors accept any liability to any person in
relation to this report except to the extent that such liability could arise
under English law. Accordingly, any liability to a person who has demonstrated
reliance on any untrue or mistaken statement or omission shall be determined
in accordance with section 90(A) of the Financial Services and Markets Act
2000.
Responsibility statement of the Directors in respect of the annual report
The Directors at the date of this statement confirm that to the best of their
knowledge:
* the financial statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole; and
* the strategic report includes a fair review of the development and performance
of the business and the position of the issuer and the undertakings included
in the consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
2 Accounting policies
The accounting policies set out in the last published financial statements for
the year to 31 March 2022 have been applied consistently to all periods
presented in this preliminary statement, unless otherwise stated.
Judgements made by the Directors, in the application of these accounting
policies that have significant effect on the financial statements and
estimates with a significant risk of material adjustment in the next year are
discussed in note 3.
Certain new standards, amendments and interpretations to existing standards
have been published that are mandatory for the Group’s accounting period
beginning on or after 1 April 2022. The following new standards and
amendments to standards are mandatory and have been adopted for the first time
for the financial year beginning 1 April 2022:
* IAS 16 Property, Plant and Equipment (Amendment): Proceeds before intended use
(effective date 1 January 2022);
* IAS 37 Provisions, Contingent Liabilities and Contingent Assets (Amendment):
Onerous contracts - Costs of Fulfilling a Contract (effective date 1 January
2022);
* IFRS 3 Business Combinations (Amendment): Reference to the Conceptual
Framework (effective date 1 January 2022); and
* Annual Improvements to IFRSs (2018-2020 cycle) (effective date 1 January 2022)
These standards have not had a material impact on the consolidated financial
statements.
Certain new standards, amendments and interpretations to existing standards
have been published that are mandatory for the Group’s accounting period
beginning on or after 1 April 2023. The Group has elected not to early adopt
these standards which are described below.
* IAS 1 Presentation of Financial Statements (Amendment): Classification of
liabilities as current or non-current, deferral of effective date and Exposure
Draft: Non-current liabilities with covenants (effective date 1 January 2023,
although the IASB has tentatively decided to defer the effective date further
to being not before 1 January 2024);
* IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2
Making Material Judgements (Amendment): Disclosure of accounting policies
(effective date 1 January 2023);
* IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
(Amendment): Definition of accounting estimates (effective date 1 January
2023); and
* IAS 12 Income Taxes: Deferred Tax related to assets and liabilities arising
from a single transaction (effective 1 January 2023).
The above are not expected to have a material impact on the financial
statements.
There are no other IFRS or IFRIC interpretations that are not yet effective
that would be expected to have a material impact on the Group.
3 Accounting estimates and judgements
The preparation of the financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income
and expenses.
The estimates and assumptions are based on historical experience and various
other factors that are believed to be reasonable under the circumstances.
These estimates and assumptions form the basis for making judgements about the
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of revision and future periods if the revision affects both current and future
periods.
The following are the critical judgements and key sources of estimation
uncertainty that the Directors have made in the process of applying the
Group’s accounting policies and that have the most significant effect on the
amounts recognised in the financial statements. Management has discussed
these with the Audit and Risk Committee. These should be read in conjunction
with the significant accounting policies provided in the Annual Report and
Accounts.
Going concern
Note 1 contains information about the preparation of these financial
statements on a going concern basis.
Key judgements –
Management has exercised judgement over the likelihood of the Group being able
to continue to operate within its available facilities and in accordance with
its covenants for at least twelve months from the date of signing these
financial statements. This determines whether the Group should operate the
going concern basis of preparation for these financial statements.
Impairment of assets
Note 12 contains information about management's estimates of the recoverable
amount of cash generating units and their risk factors.
Key judgements –
Management has exercised judgement over the underlying assumptions within the
valuation models and has applied judgement to determine the Group's cash
generating units to which goodwill is allocated and against which impairment
testing is performed. These are key factors in their assessment of whether
there is any impairment in related goodwill or other assets. Goodwill at 31
March 2023 amounts to £23.0 million (31 March 2022: £22.0 million)
Management have exercised judgement when considering if there have been
indicators of impairment. Where indications exist, management have estimated
recoverable amount as detailed below.
Key sources of estimation uncertainty –
The Group tests whether goodwill has suffered any impairment and considers
whether there is any indication of impairment on an annual basis. As set
out in more detail in notes 12 and 13, the recoverable amounts may be based on
either value-in-use calculations or fair value less costs of disposal
considerations. The former requires the estimation of future cash flows and
the choice of a discount rate in order to calculate the present value of the
future cash flows, the latter method requires the estimation of fair value.
Details of the sensitivity of assumptions is included in note 12.
Pension assumptions
Note 16 contains information about management's estimate of the net liability
for defined benefit obligations and their risk factors. The pension
liability at 31 March 2023 amounts to £34.5 million (31 March 2022: £26.0
million).
Key sources of estimation uncertainty –
The value of the defined benefit pension plan obligation is determined by
long-term actuarial assumptions. These assumptions include discount rates,
inflation rates and mortality rates. Differences arising from actual
experience or future changes in assumptions will be reflected in the Group’s
consolidated statement of comprehensive income. The Group exercises judgement
in determining the assumptions to be adopted after discussion with a qualified
actuary. Details of the key actuarial assumptions used and of the sensitivity
of these assumptions are included within note 6.
In the prior year, the Scheme introduced a right for members to Pension
Increase Exchange (PIE). Having taken actuarial advice, the Executive
management exercised judgement that, similar to the Bridging Pension Option
adopted in the year to 31 March 2021, 40% of members would take the PIE option
at retirement. There is no change to either assumption in the current year.
Any change in estimate would be recognised as remeasurement gains/(losses)
through the consolidated statement of comprehensive income.
Lease break options
The Annual Report and Accounts contain information about lease break options.
Key judgement –
Management has applied judgement when determining the expected certainty that
a break option within a lease will be exercised.
Revenue recognition
As revenue from design and engineering contracts is recognised over time, the
amount of revenue recognised in a reporting period depends on the extent to
which the performance obligations have been satisfied.
Key judgements –
The revenue recognised on certain contracts in the CTP segment required
management to use judgement to apportion contract revenue to the design and
engineering performance obligations.
Key sources of estimation uncertainty –
Revenue recognised on certain contracts in the CTP segment required management
to estimate the remaining costs to complete the design and engineering
performance obligation in order to determine the percentage of completion and
revenue to recognise in respect of those performance obligations.
Recognition of deferred tax assets
Information about the deferred tax assets recognised in the consolidated
statement of financial position is included in the Annual Report and Accounts.
Key judgement –
Management have exercised judgement over the level of future taxable profits
in the UK against which to relieve the Group's deferred tax assets. On this
basis management believe it is no longer appropriate to recognise deferred tax
assets (other than a £0.3 million deferred tax asset which is available to
off-set against a deferred tax liability of £0.3 million arising on historic
property revaluations) and at 31 March 2023 UK deferred tax assets of £0.7
million have been derecognised (31 March 2022: £0.7 million recognised).
Classification of exceptional items
Note 6 contains information about items classified as exceptional.
Key judgements –
Management has exercised judgement over whether items are exceptional as set
out in the Group's accounting policy.
Non-current assets classified as held for sale
Note 14 includes information about non-current assets held for sale.
Key judgements –
Management has applied judgement in determining whether a sale is highly
probable at 31 March 2023 and as such whether non-current assets are
classified as held for sale at the balance sheet date. Management have
determined that these criteria did not apply to any non-current assets at 31
March 2023.
4 Segment reporting
The Group is organised into two, separately managed, business segments – CTP
and Aerospace. These are the segments for which summarised management
information is presented to the Group's chief operating decision maker
(comprising the Main Board and Group Executive Committee).
The CTP segment supplies value-adding engineered solutions for the life
science, optical and precision component industries. This business operates
internationally in a fast growing and dynamic market underpinned by rapid
technological development.
The Aerospace segment supplies systems to the manufacturing and aerospace
industries.
The Central costs relate to the cost of running the Group, plc and non-trading
companies.
The LED Technologies segment presented as a discontinued operation in the
prior year was a leader in the development of high-power LED lighting for the
premium automotive industry and was disposed of in the year to 31 March 2020.
See note 5.
Transfer pricing between business segments is set on an arm’s length basis.
Segmental revenues and results are after the elimination of transfers between
business segments. Those transfers are eliminated on consolidation.
Analysis by business segment
The segment results for the year ended 31 March 2023 were as follows –
CTP Aerospace Central Group total
(continuing) (continuing) (continuing)
£000 £000 £000 £000
Consolidated income statement
External revenue 136,814 6,631 - 143,445
External expenses (129,493) (5,111) (2,902) (137,506)
Underlying operating profit / (loss) 7,321 1,520 (2,902) 5,939
Exceptional operating items (2,752) - (1,958) (4,710)
Operating profit / (loss) 4,569 1,520 (4,860) 1,229
Net finance expense (3,749)
Income tax expense (1,437)
Loss for the period (3,957)
Consolidated statement of financial position
Segment assets 114,231 5,886 2,555 122,672
Segment liabilities (40,000) (1,198) (69,868) (111,066)
Net assets 74,231 4,688 (67,313) 11,606
Other segmental information
Capital expenditure on property, plant and equipment 5,474 287 49 5,810
Capital expenditure on computer software 36 - - 36
Capital expenditure on other intangibles 68 - - 68
Depreciation 7,516 223 76 7,815
Impairment of property, plant and equipment 783 - - 783
Amortisation of computer software 43 - 101 144
Amortisation of other intangibles 67 - - 67
Impairment of intangible fixed assets 208 - - 208
The segment results for the year ended 31 March 2022 were as follows –
CTP (continuing) Aerospace Central Total LED Technologies Group total
(continuing) (continuing) (continuing operations) (discontinued operations)
£000 £000 £000 £000 £000 £000
Consolidated income statement
External revenue 123,869 4,707 - 128,576 - 128,576
Expenses (115,476) (4,030) (2,974) (122,480) - (122,480)
Underlying operating profit / (loss) 8,393 677 (2,974) 6,096 - 6,096
Covid-19 related US government grant income 2,087 - - 2,087 - 2,087
Operating profit / (loss) before exceptional items 10,480 677 (2,974) 8,183 - 8,183
Exceptional operating items - - 721 721 - 721
Operating profit / (loss) 10,480 677 (2,253) 8,904 - 8,904
Net finance expense (2,989) - (2,989)
Income tax expense (809) - (809)
Profit / (loss) from operating activities after tax 5,106 - 5,106
Profit on disposal of discontinued operations net of tax - 693 693
Profit for the period 5,106 693 5,799
Consolidated statement of financial position
Segment assets 121,119 6,418 661 128,198 - 128,198
Segment liabilities (40,686) (998) (62,098) (103,782) - (103,782)
Net assets 80,433 5,420 (61,437) 24,416 - 24,416
Other segmental information
Capital expenditure on property, plant and equipment 9,529 36 143 9,708 - 9,708
Capital expenditure on computer software 62 - 73 135 - 135
Depreciation 6,533 234 58 6,825 - 6,825
Amortisation of computer software 16 - 120 136 - 136
Amortisation of other intangibles 67 - - 67 - 67
Analysis by geographical segment
The business operates in three main geographical regions - the United Kingdom,
North America and in lower-cost regions including the Czech Republic, China
and India. The geographical analysis was as follows:
Expenditure on tangible and intangible fixed assets
External revenue Net segment (liabilities) / assets
FY22/23 FY21/22 FY22/23 FY21/22 FY22/23 FY21/22
£000 £000 £000 £000 £000 £000
United Kingdom 14,157 12,632 (40,329) (29,367) 1,923 1,651
North America 70,955 65,296 27,909 27,267 3,204 6,918
Rest of world 58,333 50,648 24,026 26,516 787 1,274
143,445 128,576 11,606 24,416 5,914 9,843
The analysis of segment revenue represents revenue from external customers
based upon the location of the customer.
The analysis of segment assets and capital expenditure is based upon the
location of the assets.
The material components of the Central segment assets and liabilities are
retirement benefit obligation net liabilities of £34.493 million (FY21/22:
net liabilities of £25.979 million), and net borrowings of £31.250 million
(FY21/22: £36.134 million).
One CTP customer accounted for 28.4% (FY21/22: 37.8%) and another customer for
10.5% (FY21/22:10.4%) of Group revenues from continuing operations and similar
proportions of trade receivables.
No other customer accounted for more than 10.0% of revenues from continuing
operations in the year.
Deferred tax assets by geographical location are as follows: United Kingdom
£0.283 million (FY21/22: £0.952 million), North America £0.800 million
(FY21/22: £0.288 million), rest of world £0.102 million (FY21/22: £0.163
million).
Total non-current assets by geographical location are as follows, United
Kingdom £22.569 million (FY21/22: £24.159 million), North America £28.839
million (FY21/22: £28.142 million), rest of world £18.561 million (FY21/22:
£18.895 million).
5 Discontinued operation
There were no new discontinued operations in the twelve months ended 31 March
2023 or in the prior year comparative. Prior year proceeds were in respect
to amounts received from the administrators of Wipac Ltd which was part of the
former LED Technologies segment, classified as discontinued in the year to 31
March 2020. Management does not expect to receive any further proceeds from
the administrators of Wipac Ltd.
6 Exceptional items
FY22/23 FY21/22
£000 £000
Continuing operations
Rationalisation costs (3,404) (133)
Costs arising from cancellation of future supply agreement (877) -
Doubtful debt and related inventory provision (896) -
Costs in respect of legacy claims (302) -
Credit arising on the disposal of surplus properties 769 -
Past service credit in respect of retirement benefits - 854
(4,710) 721
Discontinued operations
Profit on disposal of discontinued operations - 693
- 693
(4,710) 1,414
Rationalisation costs from continuing operations during the period relate to
the restructuring and refinancing of the Group. These include £1.4 million
employee and other related costs in respect to restructuring of the Central
and CTP divisions, £1.0 million impairment costs relating to manufacturing
footprint rationalisation (inventory £0.4 million, fixed assets £0.3
million, intangible assets £0.2 million and an onerous lease provision £0.2
million), £0.7 million legal and professional costs relating to refinancing
and £0.2 million exceptional pension scheme administration costs incurred to
ensure successful refinancing with the Group's principal bank and Group
pension scheme. Prior year costs were £0.2 million exceptional pension scheme
administration costs, £0.1 million consultant fees and a £0.1million credit
being the release of accruals in respect to legal and professional costs.
On 30 May 2023, the Group signed a full and final settlement agreement with a
leading global OEM customer. Due to a contraction in the end-market demand for
COVID testing, they would not be proceeding into the production phase of the
project, see note 19. Receiving notice in December 2022 was deemed by
management to be an event that might be an indicator of impairment at 31 March
2023. An impairment review was undertaken, with final settlement providing
evidence that impairment existed. As a result, the Group has recognised a
£0.9 million impairment for: a £0.3 million inventory provision, £0.5
million fixed asset impairment and £0.1 million other costs in the income
statement in the year to 31 March 2023. The Group expects to recognise an
exceptional gain in the income statement to 31 March 2024 of approximately
£0.6 million.
In March 2023, a customer of the CTP division, in the USA, provided notice
that it would be ceasing to operate. £0.6 million provision has been made
for the debt outstanding at year end less any amounts expected to be recovered
through credit insurance, and a £0.3 million provision for inventory
purchased specifically for that customer.
A provision has been recognised in the current year for £0.3 million (2022:
£nil), in respect to health-related legacy claims.
The credit arising on the disposal of surplus properties in the year is the
profit arising on the sale and leaseback arrangement of the CTP manufacturing
site at Tucson, Arizona, USA, see note 14.
The gain in respect to retirement benefits in the prior year is a past service
credit for the impact of introducing a Pension Increase Exchange option to
members. See note 16 for more information.
The prior period profit on disposal of discontinued operations of £0.7
million was proceeds received in that year from the administrators of Wipac
Limited. See note 5.
7 Government support for Covid-19
In April 2020, the Group received a loan under the Paycheck Protection
Program, underwritten by the US government in support of Covid-19 for $2.9
million. On 5 May 2021, notice of forgiveness of the loan was received from
the Small Business Administration, resulting in its conversion from a loan to
a grant and therefore its release to the consolidated income statement.
The credit recognised in respect to the Covid-19 related government grant was
presented separately on the face of the consolidated income statement for the
year ended 31 March 2022 for clarity.
8 Net Finance expense
FY22/23 FY21/22
£000 £000
The expense recognised in the consolidated income statement comprises:
Interest receivable on cash and cash deposits 218 77
Interest payable on bank loans and overdrafts (2,569) (1,794)
Lease interest (674) (527)
Other interest (59) (18)
Interest on the net defined benefit pension liability (665) (727)
Finance expense (3,749) (2,989)
9 Income tax expense
The expense recognised in the consolidated income statement comprises-
FY22/23 FY21/22
£000 £000
United Kingdom corporation tax
Adjustments for prior years (18) (14)
Overseas taxation:
Current tax (1,462) (1,266)
Adjustments for prior years 110 (190)
Total current tax net expense (1,370) (1,470)
Deferred tax expense
Origination and reversal of temporary differences:
Deferred tax (20) 629
Adjustments for prior years 17 32
Rate Change (64) -
Total deferred tax (charge) / credit (67) 661
Total income tax expense recognised in the consolidated income statement (1,437) (809)
Reconciliation of tax expense for the year –
The Group has reported an effective tax rate for the period of (57.0%) which
is significantly below the standard rate of UK corporation tax of 19%. The
differences are explained as follows –
FY22/23 FY21/22
£000 % £000 %
(Loss) / Profit before tax (2,520) 6,608
Income tax using standard rate of UK corporation tax of 19% (FY21/22: 19%) (479) 19.0 1,256 19.0
Expenses not deductible for tax purposes 128 (5.1) 267 4.0
R&D tax relief - - (22) (0.3)
Income not taxable (125) 5.0 (603) (9.1)
Adjustments in respect of overseas tax rates 155 (6.2) 273 4.1
Derecognition / (Recognition) of deferred tax asset previously recognised / 669 (26.5) (657) (9.9)
unrecognised
Unprovided deferred tax movement 982 (39.0) (412) (6.2)
Adjustment to current tax in respect of prior periods (UK and overseas) (92) 3.7 204 3.1
Adjustments to deferred tax in respect of prior periods (UK and overseas) (17) (0.7) (32) (0.5)
Foreign taxes expensed in the UK 210 (8.3) 535 8.1
Rate change on deferred tax 64 (2.5) - -
Foreign exchange currency loss (58) 2.3 - -
Total income tax expense 1,437 (57.0) 809 12.2
Tax on items charged outside of the consolidated income statement –
FY22/23 FY21/22
£000 £000
Recognised in other comprehensive income:
Foreign exchange movements 190 127
Total income tax charged to other comprehensive income 190 127
10 (Loss) / earnings per share
The calculation of basic earnings per share is based on the (loss) / profit
attributable to equity holders of the parent company divided by the weighted
average number of ordinary shares outstanding during the year.
The calculation of diluted earnings per share is based on the (loss) / profit
attributable to equity holders of the parent company divided by the weighted
average number of ordinary shares outstanding during the year (adjusted for
dilutive options).
The following details the result and average number of shares used in
calculating the basic and diluted earnings per share –
FY22/23 FY21/22
£000 £000
(Loss) / profit after tax but before profit on discontinued operations (3,957) 5,106
(Loss) / profit attributable to non-controlling interests - -
(Loss) / profit attributable to ordinary shareholders from continuing (3,957) 5,106
operations
Profit on discontinued operations, net of tax - 693
(Loss) / profit after tax, attributable to equity holders of the parent (3,957) 5,799
FY22/23 FY21/22
Shares Shares
Weighted average number of ordinary shares in the year 73,419,193 73,419,193
Effect of share options in issue 15,974 324,977
Weighted average number of ordinary shares (diluted) in the year 73,435,167 73,744,170
None of the awards outstanding under the performance share plan are expected
to vest at 31 March 2023. As these potential ordinary shares are
anti-dilutive at 31 March 2023, they have not been included in the calculation
of dilutive earnings per share.
In addition to the above, the Company also calculates an earnings per share
based on underlying profit as the Board believes this provides a more useful
comparison of business trends and performance. Underlying profit is defined as
profit before impairments, rationalisation costs, one-off retirement benefit
effects, exceptional bad debts, business closure costs, litigation costs,
other separately disclosed one-off items and the impact of property and
business disposals, net of attributable taxes.
The following table reconciles the Group's (loss) / profit to underlying
profit used in the numerator in calculating underlying earnings per share:
FY22/23 FY21/22
£000 £000
(Loss) / profit after tax, attributable to equity holders of the parent (3,957) 5,799
Continuing operations:
Exceptional – rationalisation and restructuring costs, net of tax 3,070 133
Exceptional – Costs arising from cancellation of future supply agreement, 752 -
net of tax
Exceptional – Doubtful debt and related inventory provision, net of tax 673 -
Exceptional – Costs in respect to legacy claims, net of tax 302 -
Exceptional – Credit arising on the disposal of surplus properties, net of (578) -
tax
Exceptional – gain in respect of retirement benefits, net of tax - (854)
Covid-19-related US government grant income, net of tax - (2,087)
Discontinued operations:
Exceptional – Gain on disposal of discontinued operations, net of tax - (693)
Underlying profit attributable to equity holders of the parent 262 2,298
Covid-19-related US government grant income, net of tax - 2,087
Profit after tax but before exceptional items, attributable to equity holders 262 4,385
of the parent
Underlying operating profit – continuing operations 5,939 6,096
Finance revenue – continuing operations 218 77
Finance expense – continuing operations (3,967) (3,066)
Income tax expense – continuing operations (1,928) (809)
Underlying profit attributable to equity holders of the parent – continuing 262 2,298
operations
Covid-19-related US government grant income, net of tax - 2,087
Profit after tax but before exceptional items – continuing operations 262 4,385
The following table summarises the earnings per share figures based on the
above data –
FY22/23 FY21/22
Pence Pence
Basic (loss) / earnings per share – continuing operations (5.4) 7.0
Basic (loss) / earnings per share – discontinued operations - 0.9
Basic (loss) /earnings per share (5.4) 7.9
Diluted (loss) / earnings per share – continuing operations (5.4) 6.9
Diluted (loss) / earnings per share – discontinued operations - 0.9
Diluted (loss) / earnings per share (5.4) 7.9
Underlying earnings per share – basic – continuing operations 0.4 3.1
Underlying earnings per share – basic – discontinued operations - -
Underlying earnings per share – basic 0.4 3.1
Underlying earnings per share – diluted – continuing operations 0.4 3.1
Underlying earnings per share – diluted – discontinued operations - -
Underlying earnings per share – diluted 0.4 3.1
Earnings per share before exceptional items – basic – continuing 0.4 6.0
operations
Earnings per share before exceptional items – basic – discontinued - -
operations
Earnings per share before exceptional items – basic 0.4 6.0
Earnings per share before exceptional items – diluted – continuing 0.4 6.0
operations
Earnings per share before exceptional items – diluted – discontinued - -
operations
Earnings per share before exceptional items – diluted 0.4 6.0
11 Dividends paid and proposed
The Directors are not proposing a final dividend for the year ended 31 March
2023 (31 March 2022: £nil). Under the terms of the amended and restated
bank facilities agreement, the Group is not permitted to make a dividend
payment to shareholders up to the period ending June 2025.
12 Intangible assets
Patents and Customer-
development related Computer
Goodwill costs intangibles Software Total
£’000 £’000 £000 £000 £000
Cost
Balance at 31 March 2021 22,408 16,734 527 1,741 41,410
Additions - - - 135 135
Effect of movements in foreign exchange 26 735
686 - 23
Balance at 31 March 2022 23,094 16,734 553 1,899 42,280
Additions - 68 - 36 104
Disposals - - - (14) (14)
Effect of movements in foreign exchange 35 1,071
1,005 - 31
Balance at 31 March 2023 24,099 16,802 588 1,952 43,441
Amortisation
Balance at 31 March 2021 1,343 16,734 235 1,250 19,562
Amortisation for the year - - 67 136 203
Effect of movements in foreign exchange - (199)
(213) - 14
Balance at 31 March 2022 1,130 16,734 302 1,400 19,566
Amortisation for the year - 6 61 144 211
Impairment - - 208 - 208
Effect of movements in foreign exchange 17 (7)
(41) - 17
Balance at 31 March 2023 1,089 16,740 588 1,561 19,978
Carrying amounts
At 1 April 2021 21,065 - 292 491 21,848
At 31 March 2022 21,964 - 251 499 22,714
At 31 March 2023 23,010 62 - 391 23,463
The Group has incurred research and development costs of £0.2 million
(FY21/22: £0.2 million) which have been included within operating expenses in
the consolidated income statement.
The decision by the Directors of the Group to proceed with a plan of
rationalisation of the USA manufacturing footprint led to an impairment review
of certain of the site assets. A customer-related intangible asset which was
recognised on acquisition of one of the USA sites was reviewed as part of this
exercise, and as the Group now has minimal trading with the customers to which
it related, the carrying amount has been fully impaired and recognised as an
exceptional item, see note 6.
Impairment tests for cash generating units containing goodwill
Goodwill acquired in a business combination is allocated at acquisition to the
cash generating units (“CGUs”) that are expected to benefit from that
business combination. The carrying amount of goodwill is allocated to the
Group’s principal CGUs, being the operating segments described in the
operating segment descriptions in note 4.
The carrying value of goodwill at 31 March 2023 and 31 March 2022 is allocated
wholly to the CTP cash generating unit as follows:
FY22/23 FY21/22
£000 £000
CTP 23,010 21,964
At 31 March 2023, the recoverable amount of the CTP cash generating unit was
determined on a calculation of value in use, being the higher of that and fair
value less costs of disposal “FVLCD”. The results of each produced the
same answer, that there is no impairment of goodwill.
The value in use calculations use cash flow projections based upon financial
budgets approved by management covering a three-year period. Cash flows
beyond the three-year period are extrapolated using estimated growth rates of
between 2.0% and 4.1% (FY21/22: 2.3% and 4.2%) depending upon the market
served.
The cash flows were discounted at pre-tax rates in the range 9.3% - 10.4%
(FY21/22: 6.1% - 8.7%). These rates are calculated and reviewed annually and
are based on the Group’s weighted average cost of capital. Changes in income
and expenditure are based on expectations of future changes in the market.
Sensitivity testing of the recoverable amount to reasonably possible changes
in key assumptions has been performed, including changes in the discount rate
and changes in forecast cash flows.
All other assumptions unchanged, a 5.5% (FY21/22: 6.6%) increase in the
discount rate increasing the range to 14.8% - 15.9% (FY21/22: 12.7% - 15.3%),
or a 28.8% (FY21/22: 45.0%) decrease in underlying EBIT would reduce the
headroom on the CTP CGU to £nil. Should the discount rate increase further
than this or the profitability decrease further, then an impairment of the
goodwill would be likely.
13 Property, plant and equipment
Land and Plant and
buildings equipment Total
£000 £000 £000
Cost
Balance at 31 March 2021 36,446 67,659 104,105
Additions 5,792 3,916 9,708
Disposals (3) (1,087) (1,090)
Reclassification to assets held for sale (608) - (608)
Effect of movements in foreign exchange 1,296 1,639 2,935
Balance at 31 March 2022 42,923 72,127 115,050
Additions 1,662 4,148 5,810
Disposals - (1,483) (1,483)
Reclassification to assets held for sale (153) - (153)
Effect of movements in foreign exchange 1,709 1,840 3,549
Balance at 31 March 2023 46,141 76,632 122,773
Depreciation and impairment losses
Balance at 31 March 2021 12,848 48,039 60,887
Depreciation charge for the year 3,338 3,487 6,825
Disposals (2) (1,068) (1,070)
Reclassification to assets held for sale (342) - (342)
Effect of movements in foreign exchange 621 1,165 1,786
Balance at 31 March 2022 16,463 51,623 68,086
Depreciation charge for the year 3,596 4,219 7,815
Disposals - (999) (999)
Reclassification to assets held for sale (89) - (89)
Impairment - 783 783
Effect of movements in foreign exchange 704 1,152 1,856
Balance at 31 March 2023 20,674 56,778 77,452
Carrying amounts
At 1 April 2021 23,598 19,620 43,218
At 31 March 2022 26,460 20,504 46,964
At 31 March 2023 25,467 19,854 45,321
At 31 March 2023, properties with a carrying amount of £2.6 million were
subject to a registered charge in favour of the Group pension scheme (FY21/22:
£2.7 million) capped at £5.1 million.
Property, plant and equipment includes right-of-use assets.
A further £0.1 million net carrying value was reclassified from land and
buildings to assets held for sale as set out in note 14 (FY21/22: £0.3
million).
Receiving notice from a leading global OEM CTP customer in December 2022 that
they would not be proceeding into the production phase of a project was deemed
by management to be an event that might be an indicator of impairment at 31
March 2023. An impairment review was undertaken, with final settlement
providing evidence that impairment existed. The Directors have undertaken
an exercise to determine the recoverable amount of assets that were earmarked
for use on this project where recoverable amount is the higher of value in use
and fair value less costs of disposal. Whilst the significant proportion of
fixed assets at 31 March 2023 will be repurposed within the business, there
are a number of machines which management have decided to sell. As a
result, an impairment charge of £0.485 million has been recognised in the
year ended 31 March 2023 and has been disclosed as an exceptional item in the
consolidated income statement, see note 6, being the difference between NBV at
year end and fair value less costs of disposal.
The decision by the Directors of the Group to proceed with a plan of
rationalisation of the CTP USA manufacturing footprint, led to an impairment
review of the site’s assets. Whilst a number of the assets will be
repurposed within the Group and are supported by the value in use calculations
of the CTP division, there are a number of assets that have been identified
that will be disposed of. These assets have been impaired to fair value less
costs to dispose, resulting in an impairment charge of £0.299 million,
recognised as an exceptional item, see note 6.
Refer to note 12 for details of cash flows and assumptions used in value in
use calculations.
14 Non-current assets classified as held for sale
FY22/23 FY21/22
£000 £000
Land and buildings held for sale at 1 April 266 -
Additions 64 266
Effect of movements in foreign exchange 30 -
Disposals (360) -
Net assets held for sale at 31 March - 266
On 11 July 2022, the Group finalised a sale and leaseback arrangement of a CTP
manufacturing site at Tucson, Arizona, USA for agreed consideration of $2.95
million less costs of $0.155 million (£2.351 million net). A lease term of
eight years and four months was agreed and grants the Group the right to
cancel any time after 1 October 2025, provided twelve months’ notice is
given. At 31 March 2023 there is no reasonable certainty that the Group will
exercise the break clause.
The total net book value of the property amounted to £0.7 million at the date
of disposal, however only the proportion relating to the disposed useful
economic life was classified as held for sale (£0.4 million) prior to
disposal. The balance of £0.4 million that relates to the right of use
asset remained in owned property, plant and equipment until completion, when
it was transferred into right-of-use assets. The profit on the portion
relating to the disposed useful economic life amounted to £0.8 million and
has been classified as exceptional income in the consolidated income
statement.
15 Loans and borrowings
Reconciliation of movements of liabilities to cash flows arising from
financing activities:
Term loan Government Covid-19 support loan Revolving credit facility Lease liabilities Other loans Total
£000 £000 £000 £000 £000 £000
Balance at 31 March 2021 31,812 2,104 2,000 7,055 110 43,081
Changes from financing cashflows
Drawings on new facilities - - 1,500 - 75 1,575
Repayment of borrowings (2,218) - - (3,195) (64) (5,477)
(2,218) - 1,500 (3,195) 11 (3,902)
Effect of changes in foreign exchange rates 440 (17) - 192 1 616
Liability-related other charges
Drawings on new facilities - - - 6,818 - 6,818
Conversion of loan to a grant - (2,087) - - - (2,087)
Interest expense 226 - - - - 226
226 (2,087) - 6,818 - 4,957
Equity-related other changes - - - - - -
Balance at 31 March 2022 30,260 - 3,500 10,870 122 44,752
Changes from financing cashflows
Drawings on new facilities - - - - 359 359
Transaction costs associated with the issue of debt (500) - - - - (500)
Repayment of borrowings (1,800) - - (4,328) (102) (6,230)
(2,300) - - (4,328) 257 (6,371)
Effect of changes in foreign exchange rates 818 - - 373 15 1,206
Liability-related other changes
Drawings on new facilities - - - 4,955 - 4,955
Interest expense- presented within exceptional items 69 - - - - 69
Interest expense – presented within finance expense 103 - - - - 103
172 - - 4,955 - 5,127
Equity-related other changes - - - - - -
Balance at 31 March 2023 28,950 - 3,500 11,870 394 44,714
16 Retirement benefit obligations
The Group operates a defined benefit UK pension scheme which provides pensions
based on service and final pay. Outside of the UK, retirement benefits are
determined according to local practice and funded accordingly.
In the UK, Carclo plc sponsors the Carclo Group Pension Scheme (the
“Scheme”), a funded defined benefit pension scheme which provides defined
benefits for some of its members. This is a legally separate,
trustee-administered fund holding the Scheme’s assets to meet long-term
pension liabilities for some 2,561 current and past employees as at 31 March
2023.
The trustees of the Scheme are required to act in the best interest of the
Scheme’s beneficiaries. The appointment of the trustees is determined by the
Scheme’s trust documentation. It is policy that one-third of all trustees
should be nominated by the members. The trustees currently comprise two
Company-nominated trustees (of which one is an independent professional
trustee, and one is the independent professional Chairperson) as well as two
member-nominated trustees. The trustees are also responsible for the
investment of the Scheme’s assets.
The Scheme provides pensions and lump sums to members on retirement and to
their dependants on death. The level of retirement benefit is principally
based on final pensionable salary prior to leaving active service and is
linked to changes in inflation up to retirement. The defined benefit section
is closed to new entrants who now have the option of entering the defined
contribution section of the Scheme, and the Group has elected to cease future
accrual for existing members of the defined benefit section such that members
who have not yet retired are entitled to a deferred pension.
The Company currently pays contributions to the Scheme as determined by
regular actuarial valuations. The trustees are required to use prudent
assumptions to value the liabilities and costs of the Scheme whereas the
accounting assumptions must be best estimates.
The Scheme is subject to the funding legislation, which came into force on 30
December 2005, outlined in the Pensions Act 2004. This, together with
documents issued by the Pensions Regulator and Guidance Notes adopted by the
Financial Reporting Council, set out the framework for funding defined benefit
occupational pension plans in the UK.
A full actuarial valuation was carried out as at 31 March 2021 in accordance
with the scheme funding requirements of the Pensions Act 2004. The funding of
the Scheme is agreed between the Group and the trustees in line with those
requirements. These, in particular, require the surplus or deficit to be
calculated using prudent, as opposed to best estimate, actuarial assumptions.
The 31 March 2021 actuarial valuation showed a deficit of £82.8 million.
Under the recovery plan agreed with the trustees following the 2021 valuation,
the Group agreed that it would aim to eliminate the deficit, over a period of
18 years and 7 months starting from the valuation date and continuing until 31
October 2039, by the payment of annual contributions combined with the assumed
asset returns in excess of gilt yields. Contributions paid in respect of the
year to 31 March 2022 amounted to £3.9 million, £3.85 million in respect of
the year to 31 March 2023 and are agreed as £3.5 million annually thereafter,
plus additional contributions of 25% of any surplus of FY23/24 underlying
EBITDA over £18.0 million payable from 30 June 2024 to 31 May 2025, extending
to 26% of any FY24/25 surplus payable from 30 June 2025 to 31 May 2026.
These contributions include an allowance in respect of the expenses of
running the Scheme and the Pension Protection Fund (“PPF”) levy of £1.2
million in the year to 31 March 2022, £0.85 million in years ending 31 March
2023, 2024 and 2025 and £0.6 million in the year to 31 March 2026 and beyond.
At each triennial valuation, the schedule of contributions is reviewed and
reconsidered between the employer and the trustees; the next review being no
later than by 31 July 2025 after the results of the 31 March 2024 triennial
valuation are known.
On 14 August 2020 additional security was granted by certain Group companies
to the Scheme trustees such that at 31 March 2023 the gross value of the
assets secured, which includes applicable intra-group balances, goodwill and
investments in subsidiaries at net book value in the relevant component
companies’ accounts, but which eliminate in the Group upon consolidation,
amounted to £251.5 million (31 March 2022: £248.2 million). Excluding the
assets which eliminate in the Group upon consolidation the value of the
security was £38.0 million (31 March 2022: £36.3 million).
For the purposes of IAS 19, the results of the actuarial valuation as at 31
March 2021, which was carried out by a qualified independent actuary, have
been updated on an approximate basis to 31 March 2023. There have been no
changes in the valuation methodology adopted for this period’s disclosures
compared to the previous period’s disclosures.
The Scheme exposes the Group to actuarial risks and the key risks are set out
in the table below. In each instance these risks would detrimentally impact
the Group’s statement of financial position and may give rise to increased
interest costs in the Group income statement. The trustees could require
higher cash contributions or additional security from the Group.
The trustees manage governance and operational risks through a number of
internal controls policies, including a risk register and integrated risk
management.
Risk Description Mitigation
Investment risk Weaker than expected investment returns result in a worsening in the The trustees continually monitor investment risk and performance and have
Scheme’s funding position. established an investment sub-committee which includes a Group representative,
meets regularly and is advised by professional investment advisors. A number
of the investment managers operate tactical investment management of the plan
assets.
The Scheme currently invests approximately 69% of its asset value in
liability-driven investments, 28% in a portfolio of diversified growth funds
and 3% in cash and liquidity funds. The objective of the growth portfolio is
that in combination, the matching credit, liability-driven investments and
cash components generate sufficient return to meet the overall portfolio
return objective.
Interest rate risk A decrease in corporate bond yields increases the present value of the IAS 19 The trustees’ investment strategy includes investing in liability-driven
defined benefit obligations. investments and bonds whose values increase with decreases in interest
rates.
A decrease in gilt yields results in a worsening in the Scheme’s funding
position. Approximately 105% of the Scheme’s funded liabilities are currently hedged
against interest rates using liability-driven investments.
It should be noted that the Scheme hedges interest rate risk on a statutory
and long-term funding basis (gilts) whereas AA corporate bonds are implicit in
the IAS 19 discount rate and so there is some mismatching risk to the Group
should yields on gilts and corporate bonds diverge.
Inflation risk An increase in inflation results in higher benefit increases for members which The trustees' investment strategy includes investing in liability-driven
in turn increases the Scheme’s liabilities. investments which will move with inflation expectations with approximately
110% of the Scheme’s inflation-linked liabilities being hedged on a funded
basis. The growth assets held are expected to provide protection over
inflation in the long term.
Mortality risk An increase in life expectancy leads to benefits being payable for a longer The trustees' actuary provides regular updates on mortality, based on scheme
period which results in an increase in the Scheme’s liabilities. experience, and the assumption continues to be reviewed.
The amounts recognised in the statement of financial position in respect of
the defined benefit scheme were as follows:
FY22/23 FY21/22
£000 £000
Present value of funded obligations (134,091) (181,759)
Fair value of scheme assets 99,598 155,780
Recognised liability for defined benefit obligations (34,493) (25,979)
The present value of Scheme liabilities is measured by discounting the best
estimate of future cash flows to be paid out of the Scheme using the projected
unit credit method. The value calculated in this way is reflected in the net
liability in the statement of financial position as shown above.
The projected unit credit method is an accrued benefits valuation method in
which allowance is made for projected earnings increases. The accumulated
benefit obligation is an alternative actuarial measure of the Scheme’s
liabilities whose calculation differs from that under the projected unit
credit method in that it includes no assumption for future earnings increases.
In this case, as the Scheme is closed to future accrual, the accumulated
benefit obligation is equal to the valuation using the projected unit credit
method.
All actuarial remeasurement gains and losses will be recognised in the year in
which they occur in other comprehensive income.
The cumulative remeasurement net loss reported in the statement of
comprehensive income since 1 April 2004 is £51.433 million.
IFRIC 14 has no effect on the figures disclosed because the Company has an
unconditional right to a refund under the resulting trust principle.
Movements in the net liability for defined benefit obligations recognised in
the consolidated statement of financial position:
FY22/23 FY21/22
£000 £000
Net liability for defined benefit obligations at the start of the year (25,979) (37,275)
Contributions paid 4,142 3,900
Net expense recognised in the consolidated income statement (see below) (2,079) (1,084)
Remeasurement (losses) / gains recognised in other comprehensive income (10,577) 8,480
Net liability for defined benefit obligations at the end of the year (34,493) (25,979)
Movements in the present value of defined benefit obligations:
FY22/23 FY21/22
£000 £000
Defined benefit obligation at the start of the year 181,759 204,654
Interest expense 4,750 3,986
Actuarial loss due to scheme experience 4,897 -
Actuarial gains due to changes in demographic assumptions (7,539) (1,767)
Actuarial gains due to changes in financial assumptions (38,032) (13,476)
Benefits paid (11,744) (10,784)
Past service credit (see note 6) - (854)
Defined benefit obligation at the end of the year 134,091 181,759
There have been no plan amendments, curtailments, or settlements during the
period.
In the prior year, the scheme introduced a Pension Increase Exchange
(“PIE”). A Deed of Amendment, signed 16 March 2022, created the right
for deferred members to take PIE at retirement. It also created the right
for members to receive PIE on terms such that 20% of the PIE value is retained
within the Scheme. Based upon the assumption that 40% of members will opt
for PIE at retirement, this resulted in a reduction in the value of accrued
liabilities and as a result a past service credit was recognised in the income
statement of £0.9 million in that year, presented within exceptional items.
The English High Court ruling in Lloyds Banking Group Pension Trustees Limited
v Lloyds Bank plc and others was published on 26 October 2018, and held that
UK pension schemes with Guaranteed Minimum Pensions (“GMPs”) accrued from
17 May 1990 must equalise for the different effects of these GMPs between men
and women. The case also gave some guidance on related matters, including the
methods for equalisation.
The trustees of the plan will need to obtain legal advice covering the impact
of the ruling on the plan, before deciding with the employer on the method to
adopt. The legal advice will need to consider (amongst other things) the
appropriate GMP equalisation solution, whether there should be a time limit on
the obligation to make back-payments to members (the “look-back” period)
and the treatment of former members (members who have died without a spouse
and members who have transferred out for example).
In the year to 31 March 2020 the trustees commissioned scheme-specific
calculations to determine the likely impact of the ruling on the Scheme. An
allowance for the impact of GMP equalisation was included within the
accounting figures for that year, increasing liabilities by 1.68%, thereby
resulting past service cost of £3.6 million was recognised in the income
statement at that time. The Scheme has not yet implemented GMP equalisation
and therefore the allowance made in 2019 has been maintained for accounting
disclosures.
On 20 November 2020, the High Court issued a supplementary ruling in the
Lloyds Bank GMP equalisation case with respect to members that have
transferred out of their scheme prior to the ruling. The results mean that
trustees are obliged to make top-up payments that reflect equalisation
benefits and to make top-up payments where this was not the case in the past.
Also, a defined benefit scheme that received a transfer is concurrently
obliged to provide equalised benefits in respect to the transfer payments and,
finally, there were no exclusions on the grounds of discharge forms, CETV
legislation, forfeiture provisions or the Limitation Act 1980.
The impact of this ruling was estimated to cost £0.2 million (approximately
0.1% of liabilities). This additional service cost was recognised through
the income statement as a past service cost in the year ending 31 March 2021
and was presented within exceptional items and therefore the impact of the
ruling is allowed for in the figures presented at 31 March 2023.
The Scheme’s liabilities are split between active, deferred and pensioner
members at 31 March as follows:
FY22/23 FY21/22
% %
Active - -
Deferred 29 35
Pensioners 71 65
100 100
Movements in the fair value of Scheme assets:
FY22/23 FY21/22
£000 £000
Fair value of Scheme assets at the start of the year 155,780 167,379
Interest income 4,085 3,259
Loss on Scheme assets excluding interest income (51,251) (6,763)
Contributions by employer 4,142 3,900
Benefits paid (11,744) (10,784)
Expenses paid (1,414) (1,211)
Fair value of Scheme assets at the end of the year 99,598 155,780
Actual loss on Scheme assets (47,166) (3,504)
The fair value of Scheme asset investments was as follows:
FY22/23 FY21/22
£000 £000
Diversified growth funds 28,463 65,234
Bonds and liability-driven investment funds 68,365 87,931
Cash and liquidity funds 2,770 2,615
Total assets 99,598 155,780
None of the fair values of the assets shown above include any of the Group’s
own financial instruments or any property occupied, or other assets used by
the Group.
All of the Scheme assets have a quoted market price in an active market with
the exception of the trustees’ bank account balance.
Diversified growth funds are pooled funds invested across a diversified range
of assets with the aim of giving long-term investment growth with lower
short-term volatility than equities.
It is the policy of the trustees and the Group to review the investment
strategy at the time of each funding valuation. The trustees’ investment
objectives and the processes undertaken to measure and manage the risks
inherent in the Scheme are set out in the Statement of Investment
Principles.
A proportion of the Scheme’s assets is invested in the BMO LDI Nominal
Dynamic LDI Fund and in the BMO LDI Real Dynamic LDI Fund which provides a
degree of asset liability matching.
The net expense / (gain) recognised in the consolidated income statement was
as follows:
FY22/23 FY21/22
£000 £000
Past service credit - (854)
Net interest on the net defined benefit liability 665 727
Scheme administration expenses 1,414 1,211
2,079 1,084
The net expense / (gain) is recognised in the following line items in the
consolidated income statement:
FY22/23 FY21/22
£000 £000
Charged to operating profit 1,242 1,000
Charged / (credited) to exceptional items 172 (643)
Other finance revenue and expense – net interest on the net defined benefit 665 727
liability
2,079 1,084
The principal actuarial assumptions at the balance sheet date (expressed as
weighted averages) were:
FY22/23 FY21/22
Discount rate at 31 March 4.90% 2.70%
Future salary increases N/A N/A
Inflation (RPI) (non-pensioner) 3.25% 3.70%
Inflation (CPI) (non-pensioner) 2.75% 3.20%
Allowance for revaluation of deferred pensions of RPI or 5% p.a. if less 3.25% 3.70%
Allowance for revaluation of deferred pensions of CPI or 5% p.a. if less 2.75% 3.20%
Allowance for pension in payment increases of RPI or 5% p.a. if less 2.90% 3.55%
Allowance for pension in payment increases of CPI or 3% p.a. if less 2.00% 2.60%
Allowance for pension in payment increases of RPI or 5% p.a. if less, minimum 3.80% 3.85%
3% p.a.
Allowance for pension in payment increases of RPI or 5% p.a. if less, minimum 4.35% 4.30%
4% p.a.
The mortality assumptions adopted at 31 March 2023 are 165% and 165%
respectively of the standard tables S3PMA / S3PFA (2021: 143% / 153% of
S3PMA/S3PFA respectively), year of birth, no age rating for males and females,
projected using CMI_2021 converging to 1.00% p.a. (FY21/22: 1.00%) with a
smoothing parameter 7.0% (FY21/22: 7.0%). The change in % applied follows an
independent review prepared for the 2021 actuarial valuation.
It is recognised that the Core CMI_2021 model is likely to represent an overly
cautious view of experience in the near term. As a result, management have
applied judgement and the CMI_2021 model has been adopted with a w2021 and
w2020 weighting parameter of 10% to represent possible future trend as a best
estimate and will be kept under review in the future. These assumptions imply
the following life expectancies:
2023 2022
Life expectancy for a male (current pensioner) aged 65 17.8 years 18.8 years
Life expectancy for a female (current pensioner) aged 65 20.4 years 20.9 years
Life expectancy at 65 for a male aged 45 18.7 years 19.7 years
Life expectancy at 65 for a female aged 45 21.6 years 22.0 years
It is assumed that 75% of the post A-Day maximum for active and deferred
members will be commuted for cash (FY21/22: 75%).
Pension Increase Exchange take-up was estimated to be 40% on implementation in
the prior year; there has been no change made to this assumption nor to the
2021 bridging pension option take-up of 40%.
The pension scheme liabilities are derived using actuarial assumptions for
inflation, future salary increases, discount rates, mortality rates and
commutation. Due to the relative size of the Scheme’s liabilities, small
changes to these assumptions can give rise to a significant impact on the
pension scheme deficit reported in the Group statement of financial
position.
The sensitivity to the principal actuarial assumptions of the present value of
the defined benefit obligation is shown in the following table:
FY22/23 FY22/23 FY21/22 FY21/22
% £000 % £000
Discount rate (1)
Increase of 0.25% per annum (2.41%) (3,228) (3.68%) (6,682)
Decrease of 0.25% per annum 2.51% 3,365 3.82% 6,937
Decrease of 1.0% per annum 10.71% 14,363 16.10% 29,258
Inflation (2)
Increase of 0.25% per annum 0.64% 853 1.25% 2,272
Increase of 1.0% per annum 2.77% 3,711 4.71% 8,568
Decrease of 1.0% per annum (2.61%) (3,499) (5.47%) (9,948)
Life expectancy
Increase of 1 year 4.30% 5,765 4.88% 8,862
(1) At 31 March 2023, the assumed discount rate is 4.90% (FY21/22: 2.70%).
(2) At 31 March 2023, the assumed rate of RPI inflation is 3.25% and CPI
inflation 2.75% (FY21/22: RPI 3.70% and CPI 3.20%).
The sensitivities shown above are approximate. Each sensitivity considers one
change in isolation. The inflation sensitivity includes the impact of changes
to the assumptions for revaluation and pension increases.
The weighted average duration of the defined benefit obligation at 31 March
2023 is twelve years (31 March 2022: 15 years).
The life expectancy assumption at 31 March 2023 is based upon increasing the
age rating assumption by one year (31 March FY21/22: one year).
Other than those specifically mentioned above, there were no changes in the
methods and assumptions used in preparing the sensitivity analysis from the
prior year.
The history of the Scheme’s deficits and experience gains and losses is
shown in the following table:
FY22/23 FY21/22
£000 £000
Present value of funded obligation (134,091) (181,759)
Fair value of scheme asset investments 99,598 155,780
Recognised liability for defined benefit obligations (34,493) (25,979)
Actual loss on scheme assets (47,166) (3,504)
Actuarial gains due to changes in demographic assumptions 7,539 1,767
Actuarial gains due to changes in financial assumptions 38,032 (13,476)
17 Ordinary share capital
Ordinary shares of 5 pence each:
Number
of shares £000
Issued and fully paid at 31 March 2022 73,419,193 3,671
Issued and fully paid at 31 March 2023 73,419,193 3,671
There are 15,974 vested shares outstanding in respect of a buyout award
granted to a former director of the Company. These are yet to be issued.
There are 2,857,752 potential share options outstanding under the performance
share plan at 31 March 2023 (31 March 2022: 1,517,376). No options vested
during the year to 31 March 2023 (31 March FY21/22: nil)
18 Cash generated from operations
FY22/23 FY21/22
£000 £000
(Loss) / Profit for the year (3,957) 5,799
Adjustments for:
Pension scheme contributions net of costs settled by the Company (3,287) (3,258)
Pension scheme costs settled by the Scheme 559 569
Depreciation charge 7,815 6,825
Amortisation charge 211 203
Exceptional rationalisation costs 1,304 -
Exceptional costs arising from cancellation of future supply agreement 751 -
Exceptional doubtful debt and related inventory provision 896 -
Exceptional costs in respect to legacy claims 302 -
Exceptional gain in respect of retirement benefits - (854)
Exceptional profit on disposal of surplus property (769) -
Conversion of Covid-19 government support loan to grant - (2,087)
Profit on business disposal - (693)
Loss on disposal of intangible non-current assets 14 -
Share-based payment (credit) /charge (33) 73
Financial income (218) (77)
Financial expense 3,967 3,066
Taxation expense 1,437 809
Operating cash flow before changes in working capital 8,992 10,375
Changes in working capital
Decrease / (increase) in inventories 1,539 (3,816)
Decrease / (increase) in contract assets 2,388 (4,708)
(Increase) / decrease in trade and other receivables (1,656) 42
(Decrease) / increase in trade and other payables (943) 4,549
(Decrease) / increase in contract liabilities (2,542) 338
Cash generated from operations 7,778 6,780
19 Post balance sheet events
In December 2022, having delivered the Design and Engineering phase of the
supply contract, the Group received notice from a leading global OEM customer
that, due to a contraction in the end-market demand for Covid-19 testing, they
would not be proceeding into the production phase of the project. On 30 May
2023, a mutually satisfactory settlement agreement was signed which largely
off-sets the Group’s financial exposure arising from early termination of
the contract. The Group has recognised an exceptional cost in the year to
31 March 2023 of £0.9 million, most of which is to recognise assets on
balance sheet at recoverable amount, see note 6 for further details. The
Group will recognise an exceptional gain in the income statement to 31 March
2024 of approximately £0.6 million. Although the details of the agreement
remain confidential, full and final settlement was received on 21 June 2023.
On 22 June 2023 the Group’s lending bank agreed to an adjustment of the
interest and the net leverage covenants related to the facilities due to
mature on 30 June 2025. On 1 June 2023, a voluntary repayment of £0.4
million was made and on 30 June 2023, a further voluntary repayment of £3.3
million was made.
Information for shareholders
Reconciliation of non-GAAP financial measures
FY22/23 FY21/22
Notes £000 £000
(Loss) / Profit for the period (3,957) 5,799
Add back: profit on discontinued operations, net of tax 5 - (693)
Statutory (loss) / profit after tax from continuing operations (3,957) 5,106
Add back: Income tax expense from continuing operations 9 1,437 809
(Loss) / Profit before tax from continuing operations (2,520) 5,915
Add back: Net financing charge from continuing operations 8 3,749 2,989
Operating profit from continuing operations 1,229 8,904
Add back: Exceptional items from continuing operations 6 4,710 (721)
Operating profit before exceptional items from continuing operations 5,939 8,183
Less: Covid-19 related US government grant income - (2,087)
Underlying operating profit from continuing operations 5,939 6,096
Add back: Amortisation of intangible assets from continuing operations 12 211 203
Underlying earnings before interest, tax and amortisation (EBITA) from 6,150 6,299
continuing operations
Add back: Depreciation of property, plant and equipment from continuing 13 7,815 6,825
operations
Underlying earnings before interest, tax, depreciation and amortisation 13,965 13,124
(EBITDA) from continuing operations
(Loss) / profit before tax from continuing operations (2,520) 5,915
Add back: Exceptional items from continuing operations 6 4,710 (721)
Less: Covid-19 related US government grant income - (2,087)
Underlying profit before tax from continuing operations 2,190 3,107
Income tax expense from continuing operations 9 1,437 809
Add back: Exceptional tax credit from continuing operations 491 -
Group underlying tax expense from continuing operations 1,928 809
Group statutory effective tax rate from continuing operations (57.0%) 13.7%
Group underlying effective tax rate from continuing operations 88.0% 26.0%
Cash at bank and in hand 10,354 12,347
Loans and borrowings - current (5,046) (2,948)
Loans and borrowings - non-current (39,668) (41,804)
Net debt (34,360) (32,405)
Add back: Lease liabilities 11,870 10,870
Net debt excluding lease liabilities (22,490) (21,535)
Information on consolidated statement of cash flows:
Net cash from operating activities from continuing operations 3,772 2,969
Net cash used in investing activities (809) (4,149)
Less: Net cash from investing activities from discontinued operations 5 - (693)
Net cash used in investing activities from continuing operations (809) (4,842)
Net cash used in financing activities from continuing operations (4,675) (2,493)
Glossary
CASH CONVERSION RATE Cash generated from operations divided by EBITDA as defined below
COMPOUND ANNUAL GROWTH RATE (“CAGR”) The geometric progression ratio that provides a constant rate of return over a
time period
CONSTANT CURRENCY Prior year translated at the current year’s average exchange rate. Included
to explain the effect of changing exchange rates during volatile times to
assist the reader’s understanding
FIXED ASSET UTILISATION RATIO Revenue from continuing operations divided by tangible fixed assets
GROUP CAPITAL EXPENDITURE Non-current asset additions
NET BANK INTEREST Interest receivable on cash at bank less interest payable on bank loans and
overdrafts. Reported in this manner due to the global nature of the Group and
its banking agreements
NET DEBT Cash and cash deposits less loans and borrowings. Used to report the overall
financial debt of the Group in a manner that is easy to understand
NET DEBT EXCLUDING LEASE LIABILITIES Net debt, as defined above, excluding lease liabilities. Used to report the
overall non-leasing debt of the Group in a manner that is easy to understand
OPERATIONAL GEARING Ratio of fixed overheads to sales
EBITDA Profit before interest, tax, depreciation and amortisation
UNDERLYING Adjusted to exclude all exceptional and separately disclosed items
UNDERLYING EBITDA Profit before interest, tax, depreciation and amortisation adjusted to exclude
all exceptional and separately disclosed items
UNDERLYING EARNINGS PER SHARE Earnings per share adjusted to exclude all exceptional and separately
disclosed items
UNDERLYING OPERATING PROFIT Operating profit adjusted to exclude all exceptional and separately disclosed
items
UNDERLYING PROFIT BEFORE TAX Profit before tax adjusted to exclude all exceptional and separately disclosed
items
OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS Operating profit adjusted to exclude all exceptional items
RETURN ON SALES Underlying operating profit, as defined above, from continuing operations, as
a percentage of revenue from continuing operations
RETURN ON CAPITAL EMPLOYED (EXCLUDING PENSION LIABILITIES) Return on capital employed measures the underlying operating profit for the
Group, including discontinued operations, as a percentage of average capital
employed, calculated as the average of the opening equity plus net debt and
pension liabilities, and closing equity plus net debt and pension liabilities.
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. END FR SFSEEFEDSEIWRecent news on Carclo
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