Carclo plc (CAR) Earnings Call Transcript & Summary

By way of introduction, my name is Joe Oatley, the Non-Executive Chair of Carclo. Those of you who've attended one of our previous meetings will know Frank Doorenbosch, our CEO, who's sitting immediately to my left. But you may not know Ian Tichias, our CFO, who joined us earlier this year. We had an excellent year. I'm extremely proud of what the team has achieved. Nearly 3 years ago now, we set out our strategy, the first element of which was to stabilize the group by focusing on margin over volume, improving our cash flow and thus ensuring we've got solid foundation from which we can grow. We have delivered on the first phase of this strategy. Carclo is now safer, it's more efficient and a more profitable business than it was before we started the turnaround. I'm not going to steal Frank's thunder about how it's been achieved. Safe to say it's been a relentless focus on operational excellence and effectiveness across the whole of the business. From a financial perspective, we've delivered strong improvement in both returns and cash. Our return on sales and return on capital, 2 key measures are well on the way to our medium-term strategic targets, and we significantly reduced our leverage during the year. We also secured new financial facilities with BZ and reached an agreement with the pension trustees over the scheme valuation and deficit repair contributions. So as we look forward now, we've built a stable foundation, and I'm very much looking forward to the next phase of our strategy where we're targeting robust, sustainable growth. I'll now hand over to Frank and Ian, who will take you through the presentation of last year's results and more detail on what we've done to achieve those results.

Thank you very much, Joe. Yes, good morning, and thank you all for joining us. The theme for today is very clear. We're delivering trust. We're driving performance, and we're accelerating our transformation. These were not slogans. They are outcomes of a disciplined reset we've done over the last 3 years and relentless focus on creating value. The story unfolds today in 3 chapters. First, how we're delivering trust by restoring reliability, strengthening our operations and rebuilding stakeholder confidence; second, how that trust has translated into performance with a return on sales of 8.1%, a return on capital employed with 24.4% and a net debt-to-EBITDA ratio, which has been reduced from 2x to 1.2x. And finally, how we're now driving transformation, expanding in high-growth markets, scaling innovation and securing long-term competitiveness. Let's begin with trust, the foundation of everything we do. Delivering trust begins with delivering on our promises. FY '25 was a turning point. We rebuilt from the ground up, restoring confidence across all our stakeholders, safety, operational reliability, customer service and strategic clarity have returned. We've turned stability into a launch pad, laying the groundwork for a new phase of disciplined value-led growth. Let me be clear. Safety is not a statistic. It's a mindset within Carclo. Every incident, however, minor, offers a lesson. In FY '25, we listened, we acted and we improved, achieving a 74% reduction in the total incident frequency ratio. That level of discipline doesn't just improve safety, it strengthens our operational performance. Because when people feel safe, they focus, they deliver and they perform at their best for themselves, for their loved ones and for the future of our business. FY '25 demonstrates that our commitments were not just intentions. They were plans and they are delivered. We have achieved 65% increase in return on sales, 86% improvement on return on capital employed and reduced our net debt by 40%. These results reflect more than operational progress. They provide clear evidence that focused execution and financial discipline are driving shareholder value. This is what strategy in action looks like. Over FY '24 and '25, we took deliberate decisions to reshape our portfolio, existing short-run nonscalable business that diluted margins and closing our Tucson facility to streamline operations. This allowed us to refocus on areas of long-term value. Manufacturing Solutions delivered a like-for-like growth, supported by market recovery and transition of key projects from the D&E into production. Our Specialty division expanded 20%, driven by focused solutions in high-growth and high-value segments. While revenue in design engineering reduced year-on-year, this was anticipated, driving by the timing of customer design programs moving from development into manufacturing where they now generate recurring revenue. Looking ahead, design engineering remains a cornerstone of our competitive edge, reshaping the next generation of solutions and securing the market differentiation that underpins our growth model. This is portfolio optimalization with a purpose. We're not simply tidying up, but we're concentrating capital and capability where they matter most. And the result, a leaner, sharper, more competitive Carclo engineered for long-term advantage. Our specialized factory network is now operating at higher productivity with improved yields and efficiency across every region. Every pound we invest delivers strong returns. And critically, we are moving away from the historical performance profile of sub-5% return on sales and 10% return on capital employed. When we set out our targets in FY '23, they were seen as by many as very ambitious. Our FY '25 results shows that we're not just closing the gap, but we are delivering real progress and building momentum. This is not a 1-year improvement. It's a result of hard work, discipline and commitment from all my colleagues around Carclo in every site, in every function and in every region. Together, we have built a strategic platform for scalable, sustainable value creation in the markets we know best. And with that, I will hand over to Ian, who will take us through the financial performance in more detail.

Thank you, Frank. It's a pleasure to present my first annual results as CFO of Carclo. I've really enjoyed my first few months in role, and I'm very excited about our future. And that's the reason I joined. And these results demonstrate why. The business continues to improve performance and move closer to delivering its potential. Looking at some of our KPIs here. They illustrate this very point with a positive emphasis on revenue, profit and cash generation. Revenue is GBP 121.2 million, and although on a headline basis has fallen 9%, this principally reflects a reduction in U.S. sales as we exited noncore and nonscalable operations, which encompassed closing our site in Tucson, Arizona during the year. Year-on-year, this had a total impact of GBP 8.4 million. Our Specialty division grew 20%, which was an excellent performance. And within CTP, our focus has been on portfolio refinement and completing strategic customer projects. Accordingly, D&E project revenue dropped GBP 8 million. Pleasingly, Manufacturing Solutions grew on a like-for-like basis by 4.5% in constant currency. As Frank has already touched on this and indeed, the success we have had in growing EBIT and our margins, which has been grown by delivering a strategic focus on margin over volume. And we'll return to this subject later in the presentation. Controlling cash and working capital has contributed to reducing net debt. Overall, this has dropped from GBP 29.5 million to GBP 19.2 million, reflecting the diligence placed on cash management throughout the business. The charts here give an indication of performance, looking at each metric over a trailing 12-month period. Revenue shows the split between D&E and Manufacturing Solutions in total. And the total in FY '25 of GBP 108 million compared to GBP 112 million in FY '24, which after allowing GBP 8.4 million of nonstrategic revenue from the exited business gives a growth of 5%. Encouragingly, there is a clear growth trend in operating profit and in return on sales, which is sustainable, proving the success of our strategy. I've already touched upon the reducing net debt and a clear consistent improvement in return on capital. Pleasingly, we also show a positive cash conversion. Since the change in strategy, a strict cash focus in the business has delivered cash conversion of over 100% for the third successive year. This is driven by strong working capital management with inventory reducing for the second year running, coupled with positive inflows from receivables and payables. Turning to the P&L. On a reported basis, we see increase in underlying EBITDA of 12% with a margin now over 13% increase from 11%. Depreciation is reduced in the year, a function of the relatively low CapEx in the last 2 years when compared to the previous 3 to 4 years. Previously, the average CapEx to sales ratio has been as high as 9% to 10% during the period 2020 to '23. This fell to 5%, but this year is just over 1%. This focus on asset utilization is something Frank will talk about later and of course, is a key driver in delivering higher returns on capital. Exceptional costs are lower, principally this year, they relate to the refinancing arrangements subsequently completed and announced in April '25. For FY '24, exceptional costs were largely exit costs related to site closures. Operating profit has therefore grown to over GBP 7 million, a level not delivered for several years. So looking at some granularity by division and the positive returns across the business. We see growing EBIT margins in both CTP and Specialty divisions. This demonstrates the benefit of having clear focus on the strategic portfolio and delivering higher margins. This focus on margin incremental business has resulted in underlying EBIT margin growth. The newly defined Specialties division has grown at 20% revenue with improved margins driven by the aerospace sector, which is encouraging given further opportunities exist in this sector. I think it's useful to show how we have delivered margin growth, and this shows the breakdown of how we have achieved this entirely through self-help activities. Through internal initiatives and projects, we have driven 2.4 percentage points on the margin with greater efficiency in how we manage and control waste and raw materials inputs. Through better labor planning, efficiency and productivity, we have delivered a further 0.75%. And then we have the benefit of product mix and focusing on higher-margin business delivering a further 1.2 percentage points. This is offset slightly with absorbing input cost increase. However, overall, we have achieved increase in gross margin of 380 basis points to 39.8% and over GBP 4.5 million in absolute terms. Moving now to the key topic of the pension scheme deficit. In the past, this subject has been almost left in the background somewhat, and 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 situation 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. 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. And since year-end, the completion of our refinancing arrangement, a further GBP 5.1 million has been paid, reducing the deficit further, and we have an agreement in place for annual contributions of GBP 3.5 million to March '29. A further point on the pension scheme. From an accounting perspective, the pension liability has increased this year to GBP 51.7 million from GBP 37.2 million. This is the provision required for statutory accounting purposes, which requires different assumptions to those used by the scheme actuaries and accordingly can be volatile. The principal driver of this change in this year has been that of increased member life expectancy. This change in the provision does not have an impact on the P&L as changes go through the statement of comprehensive income. And to be very clear, our primary focus is on the technical provision as it is more prudent and provides accurate reflection of cash commitment required over the longer term. I have covered the key elements on the balance sheet and would really want to point to the key takeaways here of increased return on capital, fixed asset utilization and net debt reduction. Working capital was particularly low at the end of March '25. And whilst there should be an expectation for this to increase from this level, it will only be in our expected range of 5% to 7% of revenue. We have improved cash flow in the business and in short, are happy with the level of cash generation. Even allowing for an exceptional cash flow of GBP 3 million related to the U.S. restructuring, we have strong free cash flow. Lower interest costs reflect the lower debt levels we carry. Positive working capital inflow at 2.9% of revenue is driven by good cash management plus the benefit of higher creditors and provisions. And this leads to the improved cash position at the end of the year. And finally, from me, it's useful to see the granularity on the debt reduction. The most significant impact here from the positive cash generation and working capital management. It's also important to point out the clear trend of reducing absolute net debt over the last 4 years, along with the net debt-to-EBITDA ratio. And with that, I will hand back to Frank.

Thank you, Ian. And even during our presentation, our resilience was tested but we come through. So with this performance restored and our financial foundation strengthened, the question now is, where do we go from here? This next section outlines our answer, not just our strategy, but how it's already translating into execution, how we're choosing to compete and how we're positioning Carclo to win. Our agenda is built around our 4 strategic priorities: financial resilience, operational excellence, expansion and innovation. But beneath those headings sits something deeper, a business reshape to deliver technology, trust and transformation. That's the lens through which we approach every market, every decision and every customer relationship. Our strategy pyramid lays out how we turn strategy into action. At its base, the financial resilience, the discipline that has restored the balance sheet strength, improved cash flow and created the headroom to invest, built on the operational excellence, maximizing productivity, standardizing performance and strengthening our cost position and at the top, expansion and innovation, entering new markets, developing proprietary solutions and creating future margin and differentiation. This structure ensures our efforts are focused, aligned and designed to deliver sustained shareholder value, not just growth, but quality of growth. These results reflect the consistent progress we've made over the past 3 years, driven by a clear focus on financial resilience and operating excellence. Strong cash performance, reduced debt, improved margins and a saver, more productive manufacturing base. These are the outcomes of a 3-year disciplined execution. They demonstrate that the strategy is working and that the performance improvement is both real and sustainable. We've approached operational excellence as a very, very structured journey defined by 4 deliberate stages. As you know, we started with factory specialization where we aligned each factory to customer regions to improve responsiveness and mitigate geopolitical risks, through material and processing optimization, where we increased the yields, reduced waste and access across all our molding and secondary operations. We were able to enhance back-end automation where we deploy advanced automation and reduce labor intensity and improve cost competitiveness. And finally, we target on stability and lights out, building the consistency needed to automate safely and at scale. Each region is progressing through these 4 stages as its own pace based on local maturity and strategic focus. APAC and EMEA have optimized materials and processing and are now accelerating in the back-end automation across all key facilities. And in the U.S., following a period of consolidation and restructuring, we're making solid progress in material and process optimization, laying the foundation for the next stage. These are the building blocks of a more reliable, scalable and margin-focused Carclo. Our Manufacturing Solutions business is delivering solid regional progress. In the U.S., the closure of Derry and Tucson were tough, but necessary steps to remove nonscalable short-run activity and optimize operations. The remaining sites in Pennsylvania are restructured and with strong operational leadership are now showing encouraging growth and the planned improved efficiency. In EMEA, we've continued both revenue and margin, driven by strong customer relationship and operational discipline. And in APAC, performance has rebounded as new programs ramp up and the regional team is executing well. This is a like-for-like growth built on a stronger, more focused manufacturing footprint. Our Specialty division delivered, as Ian said, 20% growth year-on-year, and this was not by chance. It reflects focused customer-led development in clearly defined niches, advanced engineered components where reliability, responsiveness and precision matters most. Growth came from expanding with existing customers, winning new programs in adjacent sectors and serving markets where our speed, quality and flexibility are genuine differentiators. This division operates with focus and agility and increasingly delivers more opportunity for further growth. This slide summarized how we have deliberately reshaped our portfolio to deliver stronger, more sustainable margins. We've exited short-run and nonscalable work, consolidated sites where appropriate and focused on capital and capacity on higher-value recurring programs. It is not about doing less. It's about doing what matters most. As the quote captures, this disciplined focus of margin over volume positions Carclo for a stronger profitability and sustainable growth ahead. That's what this optimization has been about, not just efficiency, but about positioning for performance. Carclo operates in markets that combine long-term demand with high technical requirements, whether it is in, in vitro diagnostics, drug delivery system and aerospace, each of these sectors demand precision, regulatory discipline and sustained innovation. They share 3 key characteristics. First, they require absolute reliability where failure is simply not an option. Second, they involve complex customer relationships built over time and based on trust. And third, they offer structural growth, underpinned by demographic, technological and geopolitical trends. These are not commoditized markets. These are markets which reward capability, consistency and deep expertise, and that is exactly where Carclo is the strongest. Innovation isn't an idea. It's a system where structured processes that align proprietary technology, materials and product development to real market needs. We're advancing a focused portfolio of innovation projects across all 3 fronts, each chosen for its potential to strengthen our differentiation and margin profile. While the details remain confidential, these initiatives are commercially grounded and strategically aligned, designed to deliver impact over the medium to long term. Innovation is not a side project. It's a structural commitment to build tomorrow's business today. This slide gets to the heart of why customers choose Carclo and why we win in the markets that matter. At the core is our commitment to technology, not just tools, but proprietary know-how in material, multi-design, multi-material processing and automation. It's backed by trust, earned through flawless execution, regulatory compliance and an enduring relationship with global leaders across life science and aerospace. And it is driving transformation, helping our customers scale innovation, meet rising quality demands and accelerate time to market. In a world where precision, reliability and speed determine success, Carclo is not just a supplier, we are now seen as a strategic partner. We're taking a pragmatic measurable approach to sustainability, focused on actions that reduce emission, cut waste and strengthen our business. Our Zelda program is already delivering results, as Ian has shown in his graph on the margin improvement. We're doing smart energy use, low material consumption and reduced emissions across all key sites. These are not one-off wins. They are embedded in how we run our operations, driven both environmental progress and cost efficiency. Progress with purpose means that we're doing what's right and doing it in a way that builds resilience, lower risk and creates long-term value. So to summarize, Carclo today is not the company I entered 3 years ago. The financial risks has been addressed. The balance sheet is healthier. Cash generation is strong and foundations are robust. But it has been more than just a repair. We have altogether reset the business. We've reshaped the portfolio, embedded margin discipline and built capabilities needed to scale. And we're operating in the right markets, life science, precision components, aerospace and optics, where structural growth meets high barriers to entry and real value creation. With clear positioning around technology, trust and transformation, we're now driving performance, unlocking innovation and delivering sustainable shareholder value. The outlook is confident because the business is steady. And before we move to the questions, I would like to thank all of our dedicated colleagues, our strategic partners and investments for the trust and the contribution you've made during this and would all make this transformation possible. So thank you very much, and we would like to take your questions.

That's great. Frank, Joe, Ian, thank you very much indeed for updating investors. [Operator Instructions] I'd like to remind you a recording of this presentation will be available shortly after the end of the session. Frank, Joe, Ian, as you can see, you've had a number of questions from investors. Thank you, everybody, for your engagement this morning. Joe, if I could hand back to you just to read out the questions, that would be great. Thank you.

Indeed, thank you. So I'll read out the questions, and then I'll distribute them appropriately across my colleagues to the left for answering. First one is from Richard. When do you expect the shares to come out of suspension? I think I can probably answer that one. We expect it to be beginning of next week. Obviously, it's not entirely in our control. It's with the regulator. We have done all the things we need to do for that to happen. So we believe it will be early next week. Second one from Stuart. You highlight Life Sciences as a medium-term growth driver. Can you give more detail on the scale of the opportunities and expected revenue mix from this sector over the next 3 to 5 years? Quite a detailed question. I'll give it to Frank perhaps do your best to answer that one.

Yes. I think Life Science has a -- is a very big market. We're currently specified into the in vitro diagnostic testing consumables and in drug delivery systems. There are markets where we haven't addressed yet like veterinary markets, which we're currently addressing. We see opportunity in new regions growing. And we -- also due to geopolitical situation, we see a lot of capacity demand changing from region to region. We see it as a market, like we said, in vitro diagnostics, around 5% growth in the market. We also grow 5%. So the market itself is good. It's above GDP. It's a stable demand. And we -- I think as a company, we haven't addressed the full potential yet. So that it is our focus, and it's also the point where we can make the biggest differentiation in the point using our technology trust and transformation concept.

Thank you. Next one, can we expect double-digit margins to be maintained? Or were there any one-off tailwinds? I assume you're talking about EBITDA margins since they were double digit, whereas EBIT was just under that. Frank, maybe hit that one again.

Yes. So when we -- when it came in, we said we need to make 10% return on session. So that's what we have. We changed it from a target to a springboard target. The margins we're making, the profits we're making today are very sustainable. We see further progress for FY '26 when the full impact of the U.S. is coming in. And all the good actions we've done in FY '25 are becoming into profit in FY '26. So yes, it is sustainable. We built a sustainable model. As you see, we haven't done this in 1 year. We're taking a 3-year very clear, very structured journey to make sure that we not only arrive somewhere, but we get somewhere and we can stay there and use it as the next platform for growth.