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

Good morning, ladies and gentlemen. I'll just start with a few introductions for those of you who don't know us. My name is Joe Oatley. I'm the Chairman. To my immediate left, Frank Doorenbosch, CEO; and to his left, Ian Tichias, CFO. The bit of introduction is, I believe you should be able to submit questions at any time during the presentation, and then we'll come back to them and answer them at the end. I think the key takeaway for me from this set of half year results is, it's really steady progress, a really robust performance, and we've delivered what we said we're going to deliver. In a moment, Frank and Ian will take you through the details, and I don't want to steal their thunder, but there is one thing I wanted to just pick out and highlight. Some 3 years ago, we set off on a journey of transformation under Frank's leadership, and he set some quite stretching and ambitious financial goals for the business on return on sales and return on capital employed. And I'm really proud and delighted that the business is now at a level of performance and achievement where we are meeting those goals. You'll see some more detail on that as we go through. As we're now moving into the next phase of our strategy where we're seeking growth on top of that stable platform that we've now delivered, it's important to remember that we will continue our focus on cost discipline. We'll continue our focus on capital discipline and we'll continue our laser focus on operational effectiveness and operational performance. And those are the underpins for our future success. I think with that, I'll hand over to Frank to take us through the presentation.

Thank you, Joe. So yes, good morning, and thank you all for joining us. As Joe said, I'm Frank Doorenbosch. I'm the CEO of Carclo. And today, we are presenting our half year results. And besides Joe, I'm also very pleased to say that we have delivered on our projection. So through the agenda, this morning presentation will have 3 parts. First, I will take you through the journey, the transformation we've executed over the past 3 years. Ian Tichias, our CFO, will then walk you through the status, the financial results and what they mean for our balance sheet. And I will close with the future, how we scale this platform further. So let's begin. When I took over the helm at Carclo in 2022, we set out to transform this business from volume to value. Three years on, the transformation is complete. We've rebuilt the portfolio. We strengthened the margins. We improved capital efficiency, and we fortified the balance sheet. This was disciplined, structured and deliberate. So let me show you what we delivered. Before we discuss financials, let me start with something more important, safety. We maintained our incident frequency ratio at 0.6 in the first half, sustaining the significant improvement we achieved in full year '25. There is a saying we use internally. Safety is operational excellence in disguise. When you perfect the art of preventing accidents, you accidentally perfect everything else. This is not just good ethics, it is good business. This culture of operational excellence flows through everything we do in quality, efficiency, margin discipline. You will see that in the numbers. So we delivered on our projections, 4 numbers will tell the complete story. 10.1% return on sales as we transitioned from volume to value; 28.8% return on capital employed to optimize capital deployment; 1.4x leverage, strengthening our balance sheet; and GBP 57.2 million in revenue via disciplined portfolio repositioning. Four metrics, one story from volume to value. So let me put those numbers in context. In '23, we have set medium-term targets that were ambitious, but we knew they were realizable in the business we are, 10% return on sales and 25% return on capital employed. We have now exceeded both 10.1% return on sales and 28.8% return on capital employed. This wasn't luck. It was portfolio discipline and operational focus. And we've done it while reducing leverage from 2.5x in FY '22 to currently 1.4x. Control before growth, that was the plan, and we delivered it. This chart shows the portfolio transformation from FY '22 to today. We stopped the Manufacturing contract, which would deliver insufficient margin when we would have started that into with manufacturing. We've also exited low-margin, capital-intensive business. GBP 13 million of revenue we have choose to walk away from. The overhaul of asset revitalization project is now behind us, and we are now moving to focus ourselves on scalable growth and innovation programs. And in the past 3.5 years, we have grown the chosen CTP Manufacturing Solutions by 4% cumulative growth rate and Specialty by 14%, both on a constant currency basis. The results versus FY '22 when we started. Our portfolio margin has expanded from 4.1% to 10.1% return on sales. Our capital productivity has quadrupled and our balance sheet leverage has improved from 2.5x to 1.4x. The portfolio reset is complete. We now focus our talent, capital and engineering capabilities on highly critical opportunities in regulated markets. So here's what it looked like across our divisions. Our CTP Manufacturing Solutions demonstrate the disciplined portfolio management and strategic resilience. In FY '23, we generated GBP 92 million from our core focused portfolio. The COVID-19 PCR testing boom temporarily inflated FY '23 results. As the market normalized, we've experienced the expected decline through FY '24 to GBP 85 million. However, this masks the real story, our deliberate pivot towards high-value life science and safety and security solutions. Since FY '24, we have delivered consistent growth, reaching GBP 19 million in the trailing 12 months half year '26. This steady upward trajectory reflects the strength of our repositioned portfolio and validates our strategic focus on sustainable, high-value market segments. The business we've built today is more resilient. It's more focused, it's more valuable and positioned for continued growth in markets with strong structural demand. And Specialty, GBP 10 million was delivered with 14% cumulative growth rate in the last 3.5 years, mainly driven by our aerospace manufacturing. The CTP Design & Engineering operates on a project basis, driving natural volatility. FY '24's peak reflected our asset revitalization program, addressing years of underinvestment across our partnerships. With operational excellence restored and margins expanded, we are pivoting to growth and innovation programs, recurring revenue streams built on sustained asset quality. We're staying on top of our maintenance to ensure we will never slip back. The portfolio is optimized for sustainable growth in high reliability precision solutions in restricted regulated markets of life sciences, aerospace and safety and security. Strategic exits are complete, low-margin. Capital-intensive business is eliminated. The result, Carclo has stronger margins, enhanced ROCE and a scalable platform for growth. That's the journey. And now Ian will take over and get you through the numbers in detail.

Thanks, Frank. It is a pleasure to announce our half year results for the financial year 2026, which we believe demonstrate continued performance in line with our expectations. Starting with the overall group financial performance. On a reported headline basis, revenue has dropped, and that's something I will explain in more detail on the next slide as it has been impacted by some FX headwinds as well as comparing to HY '25, which included revenue from sites impacted by our exit from the non-core activities completed a year ago. Despite this drop in reported revenue, we have grown underlying operating profit from GBP 3.4 million in HY '25 to GBP 5.5 million this year. And alongside that, EBITDA has grown to GBP 8.6 million, which is now 15% of revenue when compared to 11% a year ago and 13% at the last year-end in March. This excellent EBITDA delivery has driven positive cash generation, which after accounting for the expected working capital outflow in the period is still strongly positive at GBP 3.9 million. Net debt now stands at GBP 24.5 million. Now I will cover the detailed movement in net debt later, but key to point out that this is now 3% lower than the same time last year. So moving to look at the revenue profile. The profile demonstrates the benefit of the hard work of previous years as we have tightened the product portfolio and focused on key value drivers across the business. We have absorbed negative FX impact of GBP 1.5 million on revenue, primarily coming from the translation of our U.S. business and the impact in the last 6 or 7 months of the GBP-U.S. dollar rate as well as other currencies from the various markets in which we operate. Within CTP, our focus has been on portfolio refinement and completing strategic customer projects. Accordingly, D&E project revenue has dropped GBP 2.9 million. As we have previously discussed, we have exited non-core primarily short-run business. The final site exit related to this was in the comparative reporting period last year. Accordingly, there is GBP 2.2 million revenue included in last year's numbers. So pleasingly, allowing for this, on a like-for-like basis, our CTP Manufacturing Solutions revenue has grown by 4.5% in constant currency. The Specialty division also continues to thrive and grow, and we report 14% growth in the business, driven primarily by the aerospace sector. As Frank has previously told you, we are delighted to deliver improved margins. This is demonstrated by exceeding the medium-term target we set ourselves a couple of years ago by hitting a return on sales of 10.1%. This has come about through consistent delivery of improved margins over time. For this reporting period, we have continued to improve efficiencies through reduced wastage, materials usage and more efficient power usage. And this focus on a more streamlined value-added portfolio has enabled us to absorb increases in labor costs and some non-repeatable costs. So moving now to look at the divisional breakdown and firstly, with CTP. So as previously described, revenue is down on a reported basis. CTP Manufacturing Solution has increased 4.5% on a like-for-like basis, allowing for the GBP 2.2 million from site closures last year. D&E revenue reduced by 44% to GBP 4 million. And as a result of the portfolio reset, we have had lower customer activity, primarily in the U.S., which has been the key driver. Performance in EMEA. Project activity is strong in EMEA with revenue up 21% compared to the previous year. We have grown operating profit due to the self-help increased efficiencies that I just mentioned. And through enhanced machine utilization, rigorous cost control initiatives, we have steadily improved margins for several reporting periods now, and this trend has continued throughout HY '26. This sees our operating margin in CTP increased from 8.1% -- 8.2%, sorry, to 13.8% and is also up from the 12% in FY '25. So turning now to Specialty. The robust demand in aerospace, coupled with a return to growth for light and motion in this business unit have driven growth of GBP 1 million, which is over 14%. The operational focus and discipline in the business has also increased operating profit margin to over 21%. So now moving to look at our cash generation. Strong EBITDA growth has driven operating cash generation of GBP 3.9 million. This has been partially offset by an anticipated normalization of working capital. At the year-end, we previously talked about working capital being particularly low due to higher-than-normal provisions and accruals, and this has largely been unwound as we anticipated. And accordingly, working capital is now at 7.5% of revenue. This is at the higher end of the range we have previously talked about and should now be at a normalized level. Looking at net debt. This has dropped to GBP 24.5 million on the next slide, please. So this has now dropped to GBP 24.5 million when compared to a year ago. In comparing to the year-end balance of GBP 19.2 million, it has increased, and this is primarily due to the one-off pension deficit recovery payment made in April '25 of GBP 5.1 million. This payment was made as part of the refinancing arrangements we completed in April. Our new facilities with our lending partner, BZ is working very well, and we are very pleased with this arrangement. Moving now to the topic of the pension scheme deficit. At the last results presentation, we discussed how we are being proactive in managing the deficit and acknowledging that the subject of the deficit has previously been somewhat ignored. I think it's important to acknowledge the significance and also the actions we are taking with a proactive approach to reducing the deficit. We are aligned and work collaboratively with the trustees, which is vital to managing the position and reducing the technical provisions deficit. Since March '21, the deficit has reduced from GBP 83 million to GBP 61 million at the end of March '25 and further reduced to around GBP 53 million at the end of September. This has been achieved through a combination of higher investment returns and company contributions. Having a clear and agreed deficit recovery plan is important in derisking cash flow for the company. This chart shows that as we have continued to deliver performance, growing EBITDA, we have also been able to manage the risk more closely, seeing pension administration costs come down and accordingly, the cash cost and risk to the business has reduced. We will continue in our approach to further derisk the company cash flows. So finally from me, in summary, the business is more financially resilient. We have a stronger balance sheet with well-managed working capital and net debt. Delivering higher margins is now a solid trend, supporting good quality of earnings, and we continue to make sure our assets deliver more for the business. Thank you very much. I'll hand back to Frank.

Thank you, Ian. So you've seen the journey. You've seen the status. Let me now show you how we scale from here. Next slide, please. This pyramid shows our strategic road map. The foundation is complete. You saw the proof in Ian's numbers, financial resilience, operating excellence. And that foundation gives us the platform to move into Phase II, disciplined expansion and Phase III, innovation. From control to growth, that's where we are now. Let me show you the markets we are targeting. We're positioned in 3 high-growth, highly regulated markets. The IVD solutions, so our diagnostic consumables, we partner with 6 of the top 10 IVD OEMs and the market is growing with 5.6% cumulative growth rate between now and 2030. Drug delivery, auto-injectors and inhalers, custom solutions with regulatory excellence, the market is growing at 10.8%, which is the fastest of the 3 and delivering good opportunities for us. In aerospace, for our extreme performance parts, we are the leader in the [ MRO ] cables and wires, and we're adding machining to our portfolio. The market itself grows at 5.6%, with our additional machining portfolio addition will bring us to the high double-digit growth. We've got 3 restricted regulated markets. We've got strong positions and we've got structural tailwinds. And we're focused on where we have competitive advantage. So why do we win in these markets? Three reasons: technology, trust and transformation. Technology. We've got 40-plus years of precision engineering experience. We've got ISO 13485, FDA and AS9100 registered sites and our manufacturing platform now delivers 85% plus overall equipment efficiency. Trust. We partner with key players in all these respective markets. Our average relationship tenure is 15 years plus. And with 98% plus on-time delivery performance, we also there deliver on our commitments. Transformation. We've delivered it. 10.1% RoS, nearly 2.5x FY '22; 28.8% ROCE, 4x '22. And we've approximately invested GBP 14 million in the period FY '22-FY '25 to uplift our organization. So technology validates us. Trust creates stickiness and transformation proves execution. That's our competitive advantage. So we are now investing to widen our competitive moat through proprietary innovation with 3 priorities. The technology platform, for example, the C-Mould, our new modular tooling system, which accelerates time to market for our partners by 40%. We build it once, we deploy it globally. It's scalable capitation and replicatable region to region. In product innovation, working on an inhaler platform, which integrates counter and reusable holder. And on material development, we're managing wettability tuning for fluids. It's platform-led solutions for regulated markets. And digital intelligence. Our platform [ Syncura ], will be a digital layer for packaging and devices, real-time orders ready and traceability. So innovation isn't an idea. It is a system and our begins long before the product. We're building defensible IP that compounds our competitive advantage. So let me bring this together and why we are confident in delivering sustainable profitable growth and ensuring value for all stakeholders. Again, we've achieved the milestones set in 2023. 10% return on sales, target met; 28.8% ROCE, target exceeded. Recent highlights reinforce confidence. Safety culture is embedded with an IRR of 0.6. We've got a 5-year contract renewal from our major customer secured in July. We've got GBP 36 million in financing funding arranged in April. Now we're focused on 3 growth priorities: Life Sciences expansion, advancing our presence where high-precision solutions remain in robust demand. Specialty growth, sustaining the momentum in Aerospace with our Specialty division and further margin enhancement, continuing the journey from volume provider to value solution partner. So yes, we are confident in delivering sustainable profitable growth and ensuring value for all stakeholders. So thank you, and we're happy to take your questions.

Thank you, Frank. I'm slightly disturbed that I don't have any questions showing on my system. Can I just check? Hold on. Let me refresh and see if it comes through. We do have one question coming from Chris. And the question is for the full year -- looks like this one is for you, Ian. Will the full year accounts include distributable reserves?

Well, I'm not going to be in a position to forecast our numbers for the full year. So it's quite difficult to actually answer that directly. But we are confident in terms of how we are performing at the moment and confident in delivering our full year numbers.

Okay. Another one just coming from Andrew. In previous presentations, you reported on the improving trend in environmental sustainability for the group. Seeing that nothing is included this time, I wonder if you could provide an update? Still with you, Ian.

Yes, happy to take that. So we do tend to focus on that in our full year results. But I can kind of talk to the fact that we measure our energy intensity ratio, which is a measure of our carbon emissions per GBP 1 million of revenue. That's consistently dropped in the last 3 years. And actually, the reporting period now for HY '26 shows a continuation of that. So we're at 76.4 now, which is actually a 25% reduction from the number of 3 years ago.

I'll just allow another minute or 2 to see if anybody has any further questions. There's nothing else showing on my screen.

I can probably just add to that, actually. We are also in the process of establishing a governance structure for our ESG and our sustainability targets. And as I said, we'll report more on that full year.

Okay. I think if we have no further questions, Frank, do you want to say a couple of words to wrap up, just to summarize?

Yes. I'm extremely proud to be -- being part and coaching the journey of this team. We've got a very, very motivated team to change in this organization. We've been able to keep ourselves focused and disciplined. And at the end, people are now focused on the growth. We now restructured in the right way, got the right platform. We've done it in 2.5, 3 years. That was within the plan. We always said medium term to get somewhere. I know people were very skeptical in the beginning, but we said the returns were there now. I think we are return-wise roughly where the market asks us to be. And now it's for us delivering the growth in the future.

Thank you very much. Thank you, everybody, for joining. We hope to see you all in just over 6 months' time when we're doing the full year results.

Thank you very much.

Thank you.