Plastics firm Carclo has issued a profits warning and said it is likely to have to spend up to £5m on exceptional costs in areas such as its supercar lighting division Wipac.
The Ossett-based firm said that Wipac production volumes have begun to increase in recent weeks although customer backlogs have remained largely unchanged as customer demand has risen, partly for Brexit related, safety stock reasons.
The group said it is confident of making progress to improve output in the near-term following key personnel changes over the past three months and a range of new operational initiatives.
It said the revenue outlook for the business remains strong given that a number of new mid-volume platforms will go into production over the coming months and years.
Although progress has been made in increasing production output, the costs of scrap, freight and production labour remained at higher than expected levels as an unprecedented number of new programmes were launched into an unstable manufacturing environment.
This situation, combined with lower development and tooling revenue as fewer new programmes were awarded, has resulted in profits for Wipac, and consequently the group, falling below the board’s expectations for the year.
Exceptional costs associated with reorganising the Wipac business and restructuring the Czech Technical Plastics facility were between £1.5m and £2.0m. In addition, it faces exceptional costs of around £3m associated with the equalisation of guaranteed minimum pensions. Work to determine the effect of the reduced profitability on the carrying value of goodwill will be done as part of the year end audit.
Elsewhere, the technical plastics and aerospace divisions performed as expected, with the second half seeing a much improved performance at the technical plastics division.
Carclo said this reflects the growing success of its ongoing operational improvement programme and controlled growth in volumes. The group recently started a programme to reduce the footprint of its technical plastics facility in the Czech Republic to improve the site’s future profitability.
Carclo said that both the technical plastics and aerospace divisions saw year-on-year improvements in operating profits, with the aerospace division significantly ahead.
The firm said it has simplified its organisational structure with the recently appointed interim COO role quickly being eliminated in order to provide greater clarity and swifter decision making.
It said that this move is seeing benefits with the local, recently enhanced, Wipac team leading the business with renewed focus and unified direction.
It added that customers are broadly supportive of its actions and, in a number of cases, are providing expert on-site assistance. In addition, discussions are ongoing for customer reimbursement incurred by Wipac for the design and development of future production programmes.
Analyst Dominic Convey at Peel Hunt said: “As a result of increased costs and lower development and tooling revenue, profits for Wipac, and consequently the group, were below the board’s expectations for the year.
“We have reduced our target price to 40p and maintain our ‘hold‘ recommendation, pending increased visibility on the refinancing and the improved execution at Wipac, ahead of the ramp up in medium volume programmes next year.”