LONDON (ShareCast) - Concentrating on higher margin, niche markets has helped technical plastics supplier Carclo to remain profitable and cash generative in a tough market.

Contract wins mean that the second half should be much better than the first half.

Revenues declined from £42.7m to £41.1m in the six months to September 2009. Underlying pre-tax profits fell from £3.3m to £1.71m and were held back by an additional pension charge.

The main reason behind the profit decline was a sharp downturn in demand from the corporate jets sector and for antennas from Ford, which knocked more than £1m off the underlying operating profit of the precision products division. Strong demand for super car lighting could not offset the weaker demand elsewhere.

Underlying profits from technical plastics were flat. In the first half of 2008-09 the two divisions made similar profit contributions but this time technical plastics made double the contribution of precision products. The outlook for technical plastics in the second half is even better because more contracts for medical diagnostic and testing kits have been won. LED optics demand is also growing.

The main operations provide a solid base for Carclo as well as exposure to growth markets, such as medical diagnostics. Carclo subsidiary Conductive Inkjet Technology provides further upside. This technology can be used to produce RFID antennas, sensors, organic LED lighting and touch screens.

Revenues are small at the current time but management believes that they could build up rapidly. Carclo chief executive Ian Williamson says that more significant revenues are “getting fairly close”. He would be disappointed if there were no major contract news by the time of Carclo’s full year figures. The touch screen uses for the technology provide the best prospect for nearer term revenues because they are superior to the existing touch screens.

Capitalised development spending on CIT increased from £455,000 to £542,000 in the period.

The business remains cash generative even after paying £1.1m in dividends during the period. Net debt was £17.5m at the end of September 2009. A property sale will bring in £600,000 in the second half.

The pensions deficit is £24.6m but a plan has been agreed which will involve Carclo contributing £900,000 a year, indexed at 2.9% a year, for a period of 15 years.

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