Settlement agreed for manufacturer rocked by major contract cancellation

Technical plastic manufacturer, Carclo, says it has a struck a “mutually satisfactory settlement agreement” with a customer who cancelled a £15m-a-year contract late last year.

The Ossett-based business, which issued a profit warning a few days after the cancellation was revealed in December 2022, says the agreement with the customer concerns working capital and recompense for business disruption.

It adds: “While the specifics of this agreement remain confidential, it is expected to largely offset the group’s financial exposure arising from the early termination of the contract.

“Carclo has also rapidly implemented 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.”

Frank Doorenbosch, CEO, added: “The cancellation, though regrettable, has served to highlight Carclo’s capacity for agility and resilience.

“We have responded promptly, optimising our asset utilisation while continuing to focus on our strategy on stability and balance sheet fortification.”

The original contract, signed back in December 2020, had been a 10-year framework agreement with a major global OEM for the supply of a range of components for use in its laboratory-based PCR diagnostic systems.

This was expected to deliver incremental sales for Carclo of between £10m and £15m annually for the life of the agreement.

Following completion of the design and engineering phase of the contract, a fall in the end-market demand for COVID testing influenced the customer’s decision to suspend progression into the production phase.

Despite this, Carclo says it has largely fulfilled and received payment for the design and engineering phase.

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