Carclo has announced that H217 trading remains strong and the outlook for the full year is in line with its expectations. Growth is being driven by the two larger divisions, Technical Plastics (TP) and LED Technologies, while the Aerospace division is experiencing stable trading conditions. We leave our estimates unchanged, but note potential currency upside should foreign exchange rates remain at current levels for the remainder of FY17.
TP growth depends primarily on expansion of capacity to meet demand from new and existing customers. Production at the new facility in Taicang, China ramped up during H117 to support demand for disposable medical consumables from a global healthcare customer. This work is being supplemented with new business wins from international customers keen to supply products into China. Work doubling capacity at the Bangalore facility is ongoing and scheduled for completion this summer. Precision Tool & Die, acquired in October 2016 to add prototyping capability, is trading well and the integration going to plan.
LED Technology growth depends primarily on winning and executing programmes to design and develop lighting for the luxury and supercar sector. Wipac continues to win lighting programmes in the low-volume sector and is working to secure its second mid-volume programme (the first win was in FY16) by end FY17. The strong demand enjoyed by the smaller Optics business during H117 has continued.
Corporate bond rates yields have picked up since September 2016, when a slump in the bond rate to 2.3% hiked the IAS 19 pension deficit to £42.6m, net of deferred tax. Each 0.25% pa rise in the discount rate cuts the scheme liabilities by £6.9m. Management stated at the interims that not only do bond yields need to rise well above 3% to pay a dividend, but also that any reinstatement must be sustainable.