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Research: TMT
Carclo’s FY19 results show the deleterious impact of the issues at Wipac, which overshadowed profit growth at both the Technical Plastics (CTP) and smaller Aerospace divisions. Group revenues decreased by 1% y o y while underlying EBIT of £1.3m adjusted for exceptionals, including a price concession on exit from the mid-volume automotive business (effectively a revenue impairment), fell by £2.4m to £8.4m (unaudited). Our estimates remain under review until there is more clarity on the exit from Wipac.
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Carclo |
Wipac woes overshadow CTP improvement |
15 November 2019 |
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Analysts
Carclo is a research client of Edison Investment Research Limited |
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Carclo’s FY19 results show the deleterious impact of the issues at Wipac, which overshadowed profit growth at both the Technical Plastics (CTP) and smaller Aerospace divisions. Group revenues decreased by 1% y o y while underlying EBIT of £1.3m adjusted for exceptionals, including a price concession on exit from the mid-volume automotive business (effectively a revenue impairment), fell by £2.4m to £8.4m (unaudited). Our estimates remain under review until there is more clarity on the exit from Wipac.
FY19 results |
Tech hardware & equipment |
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/17 |
138.3 |
11.0 |
12.1 |
0.0 |
0.9 |
N/A |
03/18 |
146.2 |
9.1 |
9.8 |
0.0 |
1.1 |
N/A |
03/19 |
144.9 |
6.4 |
7.0 |
0.0 |
1.5 |
N/A |
03/20e |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items including the price concession on exit from the mid-volume automotive business and share-based payments. FY19 adjusted PBT is unaudited.
CTP underlying EBIT increased by 3% to £6.8m as the operational improvement programme addressing labour shortages and programme delays began to deliver results. As this was at a slower rate than anticipated, the second half was much stronger than the first, reaching 9.2% underlying EBIT margin. The Aerospace division delivered a 74% jump in underlying EBIT to £1.3m. These encouraging performances continued during H120. The board believes that these two divisions provide a solid, cash-generative foundation to build on for the future.
The Wipac business was stretched beyond its operational capabilities by launching an unprecedented number of low-volume programmes into production at the same time and establishing a new manufacturing facility in the US for one of the mid-volume programmes. This resulted in adjusted underlying EBIT halving from £6.4m to £3.2m (adjusted for the £7.1m revenue impairment) and required substantial cash investment. The board is currently actively pursuing the sale of Wipac. If no disposal occurs, the board will assess other options for exiting this business.
Net debt has reduced substantially since end FY19. Management has agreed with trustees on the level of pension contributions to be paid until January 2021. This has enabled the group to extend its existing borrowing facilities for the same period.
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Research: TMT
Technicolor has announced the appointment of Richard Moat as CEO, taking over from Frédéric Rose, who had been in situ for 11 years. He is a turnaround specialist, with a telecoms background, and is tasked with accelerating growth, value creation and financial sustainability. The Q3 trading update indicated improvements in adjusted EBITDA and free cash flow, as anticipated. We have made minor downward adjustments to our full year and FY20 forecasts to reflect the shift in mix. The valuation remains well below that of peers and our DCF-derived level of €2.10.