Inflation sees manufacturer’s profits dip despite sales growth

Technical plastic manufacturer Carclo saw half-year profits drop by more than 40% on the previous year despite a significant boost in revenues.

The Ossett firm blamed cost inflation, including higher energy prices, labour and material costs, for the decline in operating profits, which stood at just over £3m for the six months to the end of September.

But revenues were up 23% to £72m, with growth led by life science innovations and a revival in the aerospace market following the lifting of Covid-related air travel bans.

Chief executive Frank Doorenbosch said, “I am proud of Carclo’s strong growth as the result of our position as the trusted partner of major blue-chip customers, operating in markets with robust demand. Our focus is now to capitalise on this growth, through operational excellence programmes and improved asset utilisation, to deliver an increased ROCE.

“The margin pressure, mainly caused by tightness in the labour market and inflation in both materials and energy costs is being offset by price increases where possible and enhanced investment in continuous improvement. Our near-term focus is on cash generation and improved asset utilisation as we seek to reduce our cost of finance in an environment of increasing global interest rates.

“Looking ahead, we are targeting a sustainable 15% ROCE through the cycle, and we believe our chosen market sectors will provide the opportunity to deliver strong organic growth over the long term.“

The firm said it expected inflation to keep pressure on margins through the second half and into the next year, and rising interest rates would increase the cost of financing, but it would mitigate this with a focus on cash management, and the board remained optimistic for the medium and long-term.