Board changes and employees

The Group was pleased to announce the appointment of Kamran Munir as Chief Financial Officer in December 2019. Kamran took up his position in January 2020 and is a highly experienced strategic and operational CFO, with a background of large corporate and VC roles.  He has already had a significant impact in improving the operational and financial performance of Autins. 

Autins has adopted a Covid-19 safe working practices policy, with appropriate home working, social distancing measures and sanitising hygiene management measures. Employees have remained loyal, dedicated and flexible in support of the Company. We utilise a dedicated smart phone application to send instant messages and news to our workforce.

Operational and Financial Review

In the period, the Board and executive management set targets and actions to reduce the Group's operating cost structure by £2.0m per annum. As at 31st March 2020, 85% of the cost saving measures had been successfully implemented. Accordingly, within the H1 results, there is a significant Q2 vs Q1 performance improvement, which provides a stronger base for the future.

H1 gross margins improved by 3.8% between Q120 and Q220 to £2.1m and 30.9% (Q120: £1.7m, 27.1%). EBITDA in Q220 increased to £620k (Q120: £93k) showing a significant improvement of £521k compared to Q1.  This was driven predominantly from lean manufacturing control methods, productivity increases and value engineering initiatives. Restructuring actions also reduced fixed headcount, associated overheads and some rents. None of these actions impacted growth potential.

In total H120 showed a solid improvement compared to H119 with gross margins up 2.5%, gross profit up £0.2m and adjusted EBITDA higher by £0.43m.

A key objective of the Group's on-going operational improvement programme is to increase the flexibility of the business so that its cost base can be adjusted quickly when faced with volatile demand and customer shutdowns.  Further cost savings, against a Covid19 macro-economic backdrop, are expected.

Revenue

With continued reductions in UK and European car sales, revenue decreased 3.2% year on year to £13.22m (H119: £13.66m). 

Component revenue at £12.14m was 14% lower year on year, but 1.3% higher than H219.  Tooling revenue was higher at £1.08m (H119: £0.23m) driven by a ramp up in the number of projects approaching the start of production.

The key driver for reduced component revenue was the UK market, which decreased by 11.8% to £9.57m (H1 19: £10.85m).  Swedish component manufacturing sales increased by 15% to £0.45m (H119: £0.39m) whilst German component revenues fell by 2% to £2.12 m (H119: £2.17m).

Direct sales to the Group's largest customer accounted for 56% of Group component revenue (H1 19: 57%, FY19: 55%).  Concentration with this customer is expected to reduce with the increasing uptake of Neptune amongst other European OEMs and Tier One customers.  Diversification of the business base away from automotive will continue with flooring sales from our German business accelerating in H2 of 2020, and with the benefit of additional sales following the introduction of new products and parts for the PPE market.
 

Gross margin

The Group's component gross margin increased to 29.0% (H119: 26.5%).  Progress has been made on material buying and usage, supply chain costs, manufacturing efficiency and labour productivity, which have all contributed to improving the margin.  Increased utilisation of the Neptune line is also having a positive impact, with increased dilution of fixed labour and operational costs associated with that manufacturing facility.

EBITDA and operating profit

The reported EBITDA of £0.71m (H119: EBITDA loss of £0.47m) and reported operating loss of £0.38m (H119: Loss of £1.00m) are stated after charging exceptional costs of £0.16m (H119: £0.31m) as detailed below.  Reported EBITDA on a consistent basis excluding the impact of IFRS 16 would have been £0.11m for H120.

The reported operating loss is also stated after recognising £0.12m (H119: £0.12m) relating to amortisation arising on intangibles which were created at the Group's IPO.

The transition to IFRS 16 at 1 October 2019 has resulted in £0.36m of depreciation and £0.15m of financing charges being recorded in respect of right of use leased assets for H120, instead of rental charges of £0.47m, which would have been recorded under IAS17. Under the modified transition method adopted, there is no adjustment made to the prior year and a £0.51m charge has been taken straight to reserves at the transition date.

Exceptional items

The Group incurred £0.16m of costs in the period in respect of the change of Chief Financial Officer including recruitment fees and compensation payments.  In H119, the Group incurred exceptional restructuring costs of £0.31m in relation to a cost out programme.

The Company acquired 100 per cent of the issued share capital of Acoustic Insulations Limited on 29th April 2014 as part of an overall refinancing package to fund strategic investments and additional working capital to support the growth of the Group.  This acquisition recognised £1.90m of intangible assets which creates an annual amortisation charge of £0.24m.

Joint venture

The Group's share of joint venture activities relates solely to Indica Automotive, a UK based foam conversion business. 

Turnover at Indica Automotive decreased 5.2% year on year to £1.46m (H119: £1.54m) with a profit after tax of £0.14m (H119: £0.24m).  The Group remains the largest customer of the joint venture, and the ratio of sales to the Group as a percentage of total sales has not changed significantly from H119.   

Net finance expense

Net finance expense for the period increased to £0.26m (H119: £0.09m), which included a £0.15m impact from the implementation of IFRS 16.  The interest element of hire purchase agreements was similar at £0.02m (H119: £0.03m) with interest paid on bank borrowings of £0.09m (H119: £0.06m). 

A new Midlands Engine Investment Fund ("MEIF") term loan facility of £1.5m was agreed during the period and incurred issue costs of £0.04m.

Taxation

Given the Group's current trading loss and the prevailing economic conditions, utilisation of trading losses previously recognised in deferred tax is considered less likely in the short term and has resulted in a reduced recognition of these in deferred tax at the period end. 

We would expect the effective rate for full year profits otherwise to be significantly lower than the headline rates due to enhanced R&D claims and the utilisation of brought forward losses in all territories.

The Group continues to have taxable losses available within its UK and overseas subsidiaries which are expected to offset trading profits in both the UK and the higher corporation tax territories of Sweden and Germany in the medium term. 

Dividends

The Board continues to believe that during the current period of economic uncertainty a suspension in dividend payments remains appropriate.  As such, no interim dividend is proposed.

Net debt and financing

The Company secured a £1.5m five year term loan from the MEIF fund. This adds more certainty to the funding position and short term facilities were able to be reduced.

The Group ended the period with net debt (being the net of cash and cash equivalents and the Group's loans and borrowings) of £8.02m including £5.68m arising from IFRS 16. Adjusted net debt was £2.34m (H119: £4.66m; FY19: £2.31m). Net debt has remained consistent since the placing of shares in August 2019.  Cash and cash equivalents were £2.0m (H119: £0.35m; FY19: £3.1m). 

At 31 March 2020, the Group's HSBC facilities provided up to £6.0m (H119: £6.0m) of invoice discounting facility (subject to available accounts receivable balances) and £0.5m (H119: £0.5m) of asset finance facilities.  At the end of the period, £2.33m of the invoice discounting facility was utilised (H119: £3.67m; FY19: £3.71m) with £0.4m used from the asset finance facility (H119: £0.4m, FY19: £0.5m), Overdrafts had been fully repaid to a balance £Nil (H119: £1.25m, FY19: £1.25m).

Capital expenditure

The Group invested £0.1m (H119: £0.1m) in its facilities during the period and has no further significant new capital expenditure planned for the balance of the year.

Government support and cost conservation measures

Since the period end, Government loan support has been sought in all three countries, where the Group operates. €300k has been received in Germany and a facility of up to £50k (GBP equivalent) is being pursued in Sweden.

In the UK the Group is in receipt of a term sheet from its primary lender, offering a CBILS loan facility of £2.75m. This is now agreed with all parties and preparation of formal legal documentation has been commenced by the bank. The Company is able to draw up to £1m for 30 days, during the period in which the agreements are finalised with all parties.

Combined finance facilities from HSBC in the UK amount to £3.05m, as £300k of additional trade finance facilities are confirmed within the HSBC term sheet, subject to CBILS documentation completion.

The Group has utilised a number of Government support schemes during the pandemic, as a result of the majority of staff being placed on furlough, or equivalent overseas scheme.  In Germany, this has been available to cover up to 100% of employee costs, in Sweden and UK this is up to 80%, subject to capped limits.

Furlough and overseas equivalent receipts for the Group in April and May have been in excess of £0.5m and the Group expects to recover in the region of a further £0.5m for the June to October period, as workers progressively return and furlough proportions reduce in line with Government guidance.

Cash conservation actions have also been taken with extended credit agreed with most trade creditors and buildings' landlords. Extended government payment schemes for payroll and VAT continue to be utilised.  In addition, the Board has taken a 20% pay decrease since March 20, and this is expected to continue until the end of the financial year.

Going Concern

In approving these Interim Financial Statements, the Board have reviewed the current trading and cash flow forecasts and assessed available sources of finance.

Since the emergence of the Covid-19 crisis additional cashflow modelling of potential downside scenarios has been implemented to provide early assessments of liquidity risk. As a result of a strong focus on cash collections and prudent cost containment measures, the Group has seen its cash balances remain stable and headroom has slightly increased since the half year reporting date. Forward looking cash flow projections modelling the impact of an extended downturn, together with the other principal risks identified by the Group, have been prepared. These show that the Group, with the benefit of CBILS funding as described above, which includes £1m of liquidity headroom, could withstand a plausible downside trading scenario with reasonable sensitivities having been considered. Accordingly, these financial statements have been prepared on a going concern basis with the expectation that the CBILS legal process will complete within the coming weeks, substantively as per the agreed term sheet.

Outlook

Since the period end, the impact of Covid-19 has been significant and our manufacturing facilities have been largely shut down due to plant shutdowns across the European automotive sector. Recovery in UK and Sweden has slowly commenced in the last few weeks, although demand is weak, whilst the German automotive market recovery is looking stronger. Autins' UK and Sweden manufacturing output is currently operating at 30% and Germany at approximately 60% of pre-Covid-19 volumes. This reflects the different timing of the easing of lockdown restrictions in the different countries.  The Board expects continued volume recovery in the coming months but does not anticipate that pre Covid-19 volumes will return during the current financial year. This will result in a significant reduction in revenues and a negative impact on the Group's financial performance in FY20.

During the pandemic, Autins has leveraged its material and manufacturing capabilities to design, develop and launch a range of face masks and filters based on our unique patented Neptune melt-blown technology.  Medical (Type IIR) and PPE (FFP2) certification approvals (EN14683 and EN149) are currently being pursued to enable the Group to supply accredited masks, melt-blown Neptune filtration material and parts for products such as visors.  Autins is one of only two UK based manufacturers of melt-blown non-woven material, providing a strategic advantage within the UK's "on-shore" PPE supply chain. 

Autins is currently selling its PPE equipment into non-medical sectors, including businesses, keen to make the return to work safe for employees and the general public, via on-line and direct sales channels.

Whilst the Board continues to review possible scenarios and determine the actions it may take as the outlook becomes clearer, market forecasts remain withdrawn.

Autins will continue to pursue new contract wins within our traditional automotive market and also seek to develop the growth strategy for its flooring/building and PPE products.  Additionally the Group will look to consolidate and build upon the margin improvements made thus far and identify further cost improvement actions.