Profits forecast to fall as manufacturer deals with ‘multiple challenges’

Ossett-based technical plastics manufacturer, Carclo, has warned its full-year profit performance is expected to be below the previous year.

In a trading update for the financial year ended 31 March 2023, the business notes it has had to contend with “multiple significant challenges”, including the dissolution of a major manufacturing contract, the adverse effects of rising input costs on margins, and increasing interest rates.

It says in response to these problems it has shifted its strategy to focus on operational excellence and cash generation.

The group notes it is only beginning to see early signs of the new strategy’s benefits. But it expects to deliver an improvement in net debt compared to the position at the half year, while having continued to make significant pension deficit repair contributions.

Carclo says it continues to work with its lending bank, HSBC, to ensure there is appropriate ongoing financial support for the business as it implements its new strategy.

The group adds HSBC remains supportive and the business successfully reached an agreement with the bank to reset the interest cover covenant for 31 March 2023.

Carlco’s update states: “Our new strategy emphasises cash generation, stability, operational excellence, and optimising our global footprint.

“We are implementing measures to enhance manufacturing and supply chain efficiency while minimising environmental impact.

“We expect the business to deliver a substantially improved performance over the medium term as our focus shifts to enhancing margins and return on capital.”

The group says its Carclo Technical Plastics (CTP) division achieved a robust revenue performance, despite facing significant headwinds during the year.

However, significant margin challenges offset this revenue growth, particularly the “unprecedented” increase in input costs, including soaring energy prices.

While the group says it has been able to pass on some of the higher costs to customers, the time delay in doing so has caused a significant drop in operating margins during the year.

Meanwhile, Carclo’s Aerospace division is enjoying a recovery as the aviation industry rebounds, with sales approaching pre-COVID levels.

The group states it anticipates solid profits and operating cash flow for this division in FY2023.