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Carclo – with I previously stating credibility needing to be regained, a trading update…

By Steve Moore | Monday 15 January 2018

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.

I previously wrote on Carclo (CAR) in late 2016 – noting the company stating some encouragement but that credibility needed to be regained. Today a trading update for its year ending 31st March 2018 and…

“The stronger second half performance across the group, anticipated at the time of the Interim Results in November last year, is not now expected to be achieved. Accordingly, the board now expects the group's performance for the current financial year to be significantly lower than previously planned.” Uh oh.

The announcement continues, “While the previously reported operational issues at Technical Plastics have been addressed, there has been an unexpected delay in the awarding of two large tooling and automation contracts. In addition, a large and long standing non-medical customer which had been indicating a strong second half for our moulded components has not yet increased its orders”.

At least the other, LED Technologies, main part of the business is ok though, right?... “the Group's LED super car lighting business has performed as anticipated and new product launches have continued to be made on time”. Ah, ok… “However,”… Uh oh again…

“while the Wipac business has continued to operate well, delays in the award of three new contracts are expected to materially reduce the division's profit for the current year”. Oh dear – at least next year looks ok though, right?...

“The board recognises there is an ongoing reliance upon winning new tooling and automation contracts to drive profitability in Technical Plastics. However it is also cognisant that such reliance must be offset by higher and more sustainable underlying operating margins from existing business and therefore targeting improved margins has been an ongoing initiative. In view of the disappointing reduction in anticipated profitability for the current year, a more fundamental and urgent review of operating efficiencies and margins at this division is to be undertaken… the board has now reduced its profit expectations for the 2018/19 financial year”!

There’s then news that Finance Director of 14 years, Robert Brooksbank, “is leaving the group on 31 March 2018 to pursue other career and business opportunities” and that, after nearly six years as Chairman, Michael Derbyshire will retire at the AGM in July. The company though seeks to reassure that its “financing remains healthy and it continues to operate well within its banking covenants” and that “the board believes that the medium term outlook for the group remains positive”, whilst the 2018/19 “revised expectations will still represent healthy year on year growth”.

That’s though on this profit warning-impacted year and from a company where credibility already looked to need to be regained and which was anticipating “stronger second half performance across the group” just two months ago. Another warning to be wary of those relying on a swift, positive about-turn in performance then - and, despite the shares currently slumping, still a stock I’m certainly still avoiding.

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