Carclo plc (CAR.L) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the Carclo plc Annual General Meeting. [Operator Instructions] The company may not be in a position to answer every question submitted. However, questions can be reviewed, with the responses published on the Investor Meet Company platform. I'd now like to hand over to Nonexecutive Chairman, Joe Oatley. Good morning.

Good morning, ladies and gentlemen. It's now 11:30, I think, yes. And as there are more than 2 members present, I'll start today's proceedings and declare the 2023 AGM open. By way of introduction, my name is Joe Oatley, Nonexecutive Chair of Carclo plc. I'm delighted to be sharing this, which is our second hybrid AGM. Pleased to welcome you here, those who've made it to Milton Gate today and to those who joined virtually via the Investor Meet Company platform. A couple of housekeeping things before we begin. First of all, could I make sure that anyone who's got a mobile phone, either turn it off or turn into silent. And please don't use any device to record any part of the meeting. Secondly, and we mentioned a moment ago, fire alarms. There are no planned fire alarm tests during the meeting. So if the alarm sounds, we are indeed on fire, and you should head down the corridor straight ahead towards the toilet, which is that way, turn left to exit the building, and I'm sure there'll be some Addleshaw Goddard staff on hand to assist with any evacuation. For those who've joined virtually via the Investor Meet Company platform, your microphones have been muted to avoid any unnecessary interruptions. If you have questions, as you just said, please submit these at any time during the AGM. And we'll aim to address as many as we can at the end of the meeting. I'm joined here today by my fellow directors. I'd like to introduce them briefly before we begin. On my right is the Chief Executive Officer, Frank. And next to Frank, further along, is Rachel Amey, Nonexecutive Director. And to my left is Eric Hutchinson, the CFO and Company Secretary.

Good morning.

As announced on the 21st of August, David Bedford tendered his resignation as CFO and Director of the company. So resolution 3 is now unnecessary and has been withdrawn. Just a little comment on trading. The year to March 2023 was one where we faced some pretty significant challenges driven by mostly changes in the external environment. We did change our strategy as a result, and we've refreshed the executive team and the Board as well. So I now think we are positioned to succeed and deliver value for all the shareholders over the long term. There's a lot still to do. Having said that, I'm very encouraged to see the efforts of the team in driving that new strategy forward already starting to bear fruit, notably in the EMEA region of the business where the Technical Plastics side has moved into a much stronger position than it was a year ago. The Aerospace business has also returned to health, with a robust performance during the year driven by a combination of strong management on cost control and a recovery in the end market. We will allow time for questions later in the meeting, but now I'd like to move to the formal business of today's meeting. The notice of the AGM is set out on Pages 3 and 4 of the circular, and with your permission, I'd like to take the notice concerning the meeting as read. Okay with that, thank you. The notice of meeting includes 13 items of business for your consideration, and there's an explanation of each in the circular. But in summary, the first 2 resolutions involve the approval of the receipt of the annual report and accounts, including the annual statement by the Chair of the RemCo and the annual report and directors' remuneration. In accordance with best practice, resolutions numbers 4 to 7 concern the reelection of the directors. We've provided some additional information about each of the directors seeking reelection today on Pages 9 to 11 of the circular. The remaining resolutions are standard approval authorizations relating to the reappointment of our auditors, the authorization to determine the remuneration, allotment of shares and the disapplication of preemption rights, purchase of own shares and the holding of general meetings other than AGMs on short notice. I would now offer all shareholders, those appointed as proxies and any corporate representatives the opportunity to ask questions about the resolutions being put forward. If you'd like to ask a question about any of the resolutions proposed at today's meeting, please raise your hand, tell us your name and, if relevant, who you represent. We'll also answer any questions that have been submitted via the Investor Meet Company platform. At this moment, we'll just deal with questions on the resolutions themselves. We'll allow time at the end of the meeting for more general questions throughout the company and trading and the like. No question from you guys? No. Thank you. As there are no more questions, I'll now explain the poll voting procedure. As noted in the AGM circular, we shall be inviting you to vote on a poll rather than a show of hands. Only shareholders or their proxies or corporate representatives are entitled to vote on the poll. On registration, you should have been given a poll card. You'll need the poll card to vote. If you wish to vote on the poll in more than one capacity, for example, if you're a shareholder in your own right and you've also been appointed as someone else's proxy, you'll need a separate poll card for each capacity in which you vote. If you need a further poll card, please raise your hand. Shareholders who are here today who lodged proxies by 11:30 on Tuesday this week need not complete a poll card unless they wish to change the vote. If you cast a proxy vote in advance and you decide to vote at the meeting, your votes at the meeting will supersede your proxy votes. Many shareholders have already sent in a proxy appointing me to vote on their behalf. I will vote as they have instructed me. If they've given me discretion, I should be voting in favor of the resolution on their behalf. As mentioned previously, shareholders attending the AGM online via the Investor Meet Company platform will not be able to vote online during the AGM. If you don't have a poll card or you want additional ones, again, raise your hand now. Turning to the poll process itself. When the poll procedure commences, you should complete your poll card in the places indicated by inserting the full name of the shareholder and a cross at one of the spaces might for, against or withheld in respect of each of the resolutions. Please note that a withheld vote is not a vote in law and will not be counted as a vote for or against a resolution. If your vote has not been cast entirely one way in respect of all your shares, you should enter the number of votes being cast alongside the separate crosses you insert for that resolution. If you're using the poll card to vote only some of the shares registered in the shareholders' name but not all of them, you should enter the number of shares you're voting with the card. If you need any help with filling in your card, then please speak to the registrar who will be available at end of the meeting, and the poll will remain open for a further 10 minutes after we close the meeting. Any questions on the polling procedure? Good. As there's no more questions, I'll now formally put to the meeting each of the resolutions as set out in the notice of meeting, declare the voting open. Once you completed your card, please ensure you sign them, hand them to the representative of our registrar. The results of the poll will be determined by the registrar as scrutineer. It may take a little while. So the results of the AGM will be announced on the London Stock Exchange and published on our website as soon as is practicable. Okay. We're now happy to take any questions of a more general nature, whether they be from the online or in the room. I think we'll start with any from the room for the people who've come here in person. And if anything from either of you, we'll obviously be available also outside after the meeting closes for more general discussion.

[indiscernible], shareholder. I would like to ask you, please, if you have any updates or any progress on the pension fund situation.

In -- have you got any more specific...

If it gets better or are we getting further deeper into the other direction?

Go ahead, can you?

So the -- essentially, the deficit position has improved. There is another question that's been tabled about the pension, which is about the hedging level that we've got. So what we're looking at is protecting the funding level. There's a long-term recovery plan that goes out to 2039. And the plan is on track to meet that. The fund itself is smaller now in absolute terms than it was. So I can believe the company is in a better position to cover off any further risk. But the hedging that we've got in place is protecting against scenarios where you've got very large changes in interest rates or how much higher inflation. So it's more manageable, put it that way.

Good to hear. Further question I had on that -- on the page [ 30 ]. How many members do we have currently in that scheme?

From memory, I think it's about 1,100.

It's something like that. Anything more from the room? Okay. We had 2 questions in advance. If I read them out, and then I'll hand them to someone else to answer. First one was, could you please give more information about the backlog as of the end of March of your business unit, CTP Manufacturing Solutions? And Frank, there's a reasonably short answer to that question.

Yes, a short answer. I think, as you know, we can't disclose that information. So didn't want to answer that question.

Yes. We can't selectively disclose this information, which aren't in the general domain. That's not one that we report. The second one was as a pensions-related question, again, looking at the hedge liabilities.

Which I've half answered already. But I think the question, if I understand it, refers to the interest rate hedging expressed as a percentage of the technical provision level of the liabilities. As I said, the scheme is smaller now than it was. And therefore, the absolute value of risk is lower. The pension trustees are the ones who are responsible for setting the way that the plan is run. As I'm sure you're aware, we consult and take their advice as a company. But they set the 60% hedging as the optimal level to hedge the technical provision liabilities. And as I said, that was based upon modeling scenarios of interest rate outcomes and inflation changes. And it's set really to equal our funding level to give the highest protection to maintain the funding. The priority is maintaining stable funding through the recovery plan period, as I mentioned, which goes out quite a long time to 2039. A higher hedging percentage is not acceptable because actually, this increases the risk to the fund. We could get the position where the assets are depleted before we get there if we were to tie in the hedging further. And so there's a balance to be struck between maintaining the funding level and the reporting volatility in the nominal deficit that's calculated from time to time. So we're opting for stability for funding as opposed to trying to manage the reported deficit liability. And as I said, given the reduction in the size of the scheme, then the company is better placed to manage the risk long term.

Very fulsome answer. Thank you. We've had 2 other questions during the meeting, and we'll answer them both to the best we're able. The first, this morning's trading update -- this is from [ Graham W. ] This morning's trading update was short on numbers. On balance, was it intended to reflect the business doing better or worse than market expectation? Because we don't comment versus market expectations. But I think, Frank, if you can still give it a general flavor of the trading update from this morning.

Yes, the training update was to inform everybody. We all got comments back that we want to communicate better with the market and more with the market. We come out with our half year results at the end of September results in November. So that's where the numbers come in. The trading statements was to give the indication where we are on our journey. And we try to give you better insight in the different parts of our business in our Design & Engineering, which all these things is prerequisite for future sales, and the challenges we have in our Manufacturing Solutions per region and also the performance of Aerospace. And that there are -- yes, there are short of numbers, but it is very important that we stay on what we're doing, and I think that's what the trading statement said.

Thank you. And the last one is from [ John Brian Michael D. ] As a long-term shareholder and retired institutional investment manager, I feel that Carclo is something of a disaster. This is proving that we're reading out all the questions that are submitted and not being selective. Net debt to shareholders stands at 279%. Financing costs are 2/3 of underlying operating profits, and the pension funds liabilities are at GBP 82 million. Is Carclo at all a viable operation? And the short answer to that, I guess, is well, we wouldn't be sitting here if we didn't think it was a viable operation because we're putting our heart and soul into turning it around. It is a turnaround. So there is -- as I said at the beginning, there is a lot still to do. There's a lot of work on operational improvement to drive better earnings to get those figures in a more sensible shape. Obviously, a business that is in turnaround and is currently underperforming, the figures are going to look rather horrendous, and yes, they do. But we believe in this journey. That's why we have a refreshed team to really focus on getting the operation and performance up, which will drive the earnings, which will drive the future health of the company. So yes, we believe it to be. There is a lot to do to get it there. Okay. Those are all the questions we have had. I'd like to thank everyone for attending today's meeting. I wish you, those who come here in person, a safe journey home. As said, we will be outside for more informal chat if you wish to stick around. Thanks also to those who have joined via the Investor Meet Company platform. That concludes the meeting. I declare the 2023 Annual General Meeting closed. The poll will stay open for the next 10 minutes. Join us outside. I think we should have some tea, coffee and some other refreshments, with a bit of luck. Join us out there if you want to. Thank you all.

Thank you. Thank you to the Board of Carclo. Can I ask attendees online not to close this session? We'll now automatically redirect you to the opportunity to provide your feedback in order the company can better understand your views and expectations. This may take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team, I and the Board of Carclo would like to thank you for attending today's presentation. Good afternoon to you.