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Carclo – trading “positive”, but full-year dividend now likely to be non-existent!…

By Steve Moore | Wednesday 31 August 2016

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

An “Update on trading and dividend” from specialised plastics company Carclo (CAR) commences “the board is pleased to announce that the group has continued to trade well in the current financial year”. Sounds promising, but wait, the shares are currently down more than 10% to around 140p. So what’s the twist?

Technical Plastics “very good start to the financial year”, Wipac luxury and supercar lighting business “has performed well”, Optics business “strong demand”, Aerospace division “stable demand”. Hmmm.

The announcement does then note that “we expect group debt to be a little higher at 30 September 2016 than at 31 March 2016, primarily due to the impact of weaker Sterling on the re-translation of our US dollar and Euro denominated medium term loans”. However, this shouldn’t be sufficient for the noted share price reaction… but then, in the penultimate paragraph, there it is;

“Subsequent to the EU Referendum result on 23 June 2016, corporate bond yields have decreased materially in the UK… if the corporate bond yield remains at its current low level then this will result in a significant increase in the group's pension deficit as at 30 September 2016. This likely increased IAS 19 pension deficit would have the effect of extinguishing the company's available distributable reserves, in which case the company will not be able to pay the final dividend.”

This (1.95p per share) dividend was announced on 7th June, with that it “will be paid on 7 October 2016 to shareholders on the share register at close of business on 26 August 2016… if approved at the annual general meeting on 1 September 2016”.

Hmmm, so announced in early June - and in terms of “represents an increase… reflects the board's confidence in the future performance of the group” - then notification of likely cancellation after the ex-dividend date in late August!?!

It is added that the board “intends to resume the company's progressive dividend policy once legal and accounting circumstances allow” and “looks forward to a continuing positive trading performance this financial year and to delivering good growth in line with its expectations”, but I consider there is credibility now needing to be regained here and thus, certainly for now, I avoid.

Meanwhile, tomorrow’s AGM (3pm, Holiday Inn, Junction 40, M1, Ossett, West Yorkshire) could be interesting!, while this saga reminds to pay particularly close attention to company pension positions in these strange economic times.

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