28 June 2022  

Autins Group plc

("Autins" the "Company" or the "Group")

 

Interim Results

 

Autins Group plc (AIM: AUTG), the UK and European based manufacturer of the patented Neptune melt-blown material and specialist in the design, manufacture, and supply of acoustic and thermal insulation solutions, announces its results for the six months ended 31 March 2022.

 

Financial Summary

 

·   Revenue decreased by 31.5% to £9.39m (H1 21: £13.71m) though remained comparatively stable against the preceding 6-month period, decreasing 3.4% against H2 21

·   Gross profit decreased by 39.9% to £2.35m (H1 21: £3.91m)

·   Gross margins decreased by 3.4% to 25.1% (H1 21: 28.5%)

·   EBITDA¹ was a loss of £0.35m (H1 21: £1.18m profit)

·   Loss after tax of £1.38m (H1 21: profit of £0.01m)

·   Loss per share of 2.83p (H1 21: earnings per share of 0.025p)

·   Operating cashflow was a £0.40m net outflow (H1 21: £0.87m net inflow)

·   Net debt² excluding IFRS16 lease liabilities improved to £1.03m (H1 21: £1.84m)

·   Cash and cash equivalents were £2.78m at the period end (H1 21 £2.91m) following an equity placing in December 2021 which raised a net £2.80m

·   Group cash headroom³ of £5.14m (H1 21: £6.11m)

1: EBITDA is stated on an IFRS 16 basis. 

2. Net debt is cash less bank overdrafts, loans, invoice discounting, hire purchase finance and excludes right of use lease liabilities.

3. Sum of net cash at bank and residual invoice financing capacity.

 

Performance Against H2 21

 

·    Group sales were -3.4% (-£0.3m) compared to H2 21, with UK sales up 7.1%, whereas Germany sales were down -19.7% as they felt the full impact of the semi-conductor and Ukraine crisis.  Swedish sales were stable

·    EBITDA reduced by £0.27m compared to H2 21 despite no furlough support which contributed c.£0.35m in H2 21

 

Operational Highlights

 

·    The automotive market continued to be significantly affected by a shortage of semi-conductors, whilst the Ukraine war further disrupted the supply chains, however OEMs still have large unfulfilled order books, and our customer base in the automotive market expects to see recovery once the semi-conductor supply improves

·    Enquiry activity for long-term automotive projects totalling £17m received between January and April 2022, a significant improvement over the £3.7m received in the comparative period last year.

·    Underlying sales demand for flooring products is stable

·    13 office pod companies, including suppliers to multinational companies, are specifying Neptune for their products

·    European sales account for 37% of the Group turnover, up from 33% last year

·    Neptune retail sales continue to increase and are up 10% on H2 21 to £1.2m

 

 

 

 

 

 

Gareth Kaminski-Cook, Chief Executive, said:

 

"OEMs continue to report record levels of order backlogs and the market expects new semi-conductor capacity to begin to ease during the latter part of 2022 after which an automotive market recovery should begin.  In addition, the underlying demand for our flooring products remains positive and we continue to develop into other markets with dedicated resource.

 

There is little doubt that we are now entering a period of high-cost inflation and we will continue to take actions to mitigate the impact on margins through efficiency improvements, purchasing cost control and price increases.  Over the last two years the Autins Board and Leadership team have demonstrated agility, creativity and great teamwork and will continue to do what is necessary to mitigate inflationary pressures.

 

Following a protracted period of very low new project activity in the automotive division, since January we have experienced an uplift in the number and value of new enquiries, totalling £17m of potential annual new revenue.  45 of these enquiries, with potential annual value of £11m are for parts to go on electric vehicles for 11 different OEMs including new start-ups and established brands.  

 

We will need to continue striking a balance between sharp focus on cost control and executing our growth strategy.  Our priorities are to ensure that we can offer innovative recyclable NVH solutions, maximise our penetration onto full electric platforms and continue our diversification into new markets.

 

Whilst it can be expected that the Ukraine war could suppress the trajectory of market recovery, the medium-term outlook remains positive."

 

 

For further information please contact:

Autins Group plc Gareth Kaminski-Cook, Chief Executive Kamran Munir, CFO	Via SEC Newgate
Singer Capital Markets (Nominated Adviser and Broker) Mark Taylor / Asha Chotai	Tel: 020 7496 3000
SEC Newgate (Financial PR) Bob Huxford Max Richardson	Tel: 020 7653 9850

About Autins

 

Autins is a UK and continental Europe based industrial materials technology business that specialises in the design, manufacture, and supply of acoustic and thermal products. Its key markets are automotive, flooring, office furniture and commercial vehicles where it supplies products and services to more than 160 customer locations across Europe.

Autins is the UK and European manufacturer of the patented Neptune melt-blown material and specialises in the design, manufacture, and supply of acoustic and thermal insulation solutions.

 

 

Overview

This has been a period where global events have dominated the financial performance of the whole automotive supply chain.  

Consequently, the year on year first half financial performance was disappointing, with revenue reducing by £4.32m to £9.39m (H1 21: £13.71m), which led to an EBITDA loss of £0.35m (H1 21: EBITDA profit of £1.18m). 

The performance comparison between H2 2021 and this reporting period is more positive, with revenue reducing by only £0.30m (-3.1%) and EBITDA reducing by £0.27m despite there being no furlough support from the UK government, which had contributed c.£0.35m in H2 2021.

Compared to H2 2021, UK automotive sales improved by 8.3%, driven by modest improvement in automotive demand and higher sales into other markets.  However, our German automotive sales, which had largely been unaffected by the semi-conductor crisis throughout the last financial year, finally felt the impact, which was further exacerbated by OEM plant closures at the beginning of the Ukraine war, an issue that has since been resolved.  Flooring sales were also lower as post Covid property refurbishment activity declined.

As furlough came to end at the beginning of this financial year, we have had to further reduce fixed overheads in UK and Sweden and reduce operational costs, whilst retaining motivated staff in an environment of labour shortages, volatile demand and rising household costs.  We acted proactively and increased wages for production workers early, increased the overtime rates, introduced a banked hours scheme, and adopted hybrid working practices where it was efficient and effective to do so.  As a result, our retention rate and teamwork has improved significantly. 

The Group undertook and successfully completed a £3m equity placing in December 2021 to improve cash headroom and ensure the Company is well positioned to take advantage of the future market recovery.

 

Revenue

Sales across the Group decreased by 31.5% to £9.39m (H1 21: £13.71m) driven by significantly lower demand from our key automotive customers in the UK and Germany and lower sales in flooring.

 

Sales through the European operations now account for 37% of Group turnover, up from 33% H1 2021.

 

Automotive sales declined by 33.9% to £7.6m (H1 2021: £11.5m), driven by reduced OEM production caused primarily by semi-conductor shortages, some cost reduction actions by the Group's major customer and latterly the impact of the Ukraine war. 

 

Revenue in the UK decreased by 36.6% to £5.9m (H1 2021: £9.3m), with component revenue reducing by 36.3% and tooling reducing by 54.1% as the OEMs focused less on releasing new projects and more on cost cutting.  The trend of component sales in the UK however did improve, increasing by 8.3% compared to H2 2021.

 

Germany and Sweden have felt, for the first time, the impact of the semiconductor crisis across the whole period and the Ukraine war directly led to several German OEM factories being temporarily shut down.  As a result, German sales declined by 21.1% to £3.0m (H1 21: £3.8m), with automotive sales declining by 13.3% to £1.3m (H1 21: £1.5m), and flooring sales declining by 27.4% to £1.7m (H1 21: £2.3m).  Sweden auto sales reduced by 16.7% to £0.5m (H1 21: £0.6m). Post reporting period, both markets have improved with sales now above the prior year period. 

 

Non-auto sales were lower by 25.0% at £1.8m (H1 21: £2.4m), driven by a drop in flooring demand which was partly due to a slowdown in home refurbishment post Covid and due to high prior year sales for a significant new customer that required additional one-time stocking quantities. Monthly sales demand for flooring is now running slightly ahead of the prior year. In the UK, we have started supplying a strong pipeline of customers in the workspace market of office pods which has brought revenue of £0.14m in the first half of the year.  Non-auto sales now account for 19% of Group turnover, up from 17% a year ago.

 

Sales concentration of our largest customer reduced from 46.2% last year to 38.3% in H1 22, driven primarily by the reduction of the demand from that customer.  In the short to medium term, management would expect this concentration will normalise back to c. 50% as automotive sales recover, although the dilution will continue to grow over the longer term as we develop the demand from a larger customer base.

 

Gross margin

The loss of furlough income combined with significant increases in the cost of labour, energy, commodities, overseas freight, and material have all challenged margins.  The largest impact over the last year is from significantly reduced automotive volumes that reduce the absorption of fixed production overhead costs.

So, it is a testament to all the control actions taken to improve efficiencies, purchasing costs, labour control and some price increases that, despite a very large reduction in production demand we have managed to control the decline in gross margin to a reduction of just 3.4% to 25.1% compared to the prior year period.  However, in the context of increasing costs across the board, the Company maintained margins between H2 21 and H1 22.

 

EBITDA and operating profit

The reported H1 22 EBITDA loss of £0.35m (H1 21: EBITDA profit of £1.18m) and reported operating loss of £1.13m (H1 21: profit of £0.15m) do not reflect any exceptional costs.

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 by 37.4% to £0.92m (H1 21: £1.47m), with a profit after tax of £0.01m (H1 21: £0.21m).  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 reduced from 82% to 73%.   

 

Net finance expense

Net finance expense for the period was consistent at £0.26m (H1 21: £0.27m) including IFRS 16 charges of £0.14m (H1 21 £0.14m).  The interest element of hire purchase agreements is £0.01m (H1 21: £0.01m) with interest charged on bank borrowings of £0.12m (H1 21: £0.13m). 

 

Taxation

Given the continuing economic conditions, a relatively small proportion of the losses carried forward are recognised in deferred tax balances, consistent with the judgement made in September 2021.

 

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 Group ended the period with net debt (being the net of cash and cash equivalents and the Group's loans and borrowings, excluding right of use lease liabilities) of £1.03m (H1 21 £1.84m).  Including £5.25m (H1 21 £5.34m) arising from IFRS 16 lease liabilities, the Group's net debt would be £6.28m (H1 21 £7.18m).  Net debt has reduced as a result of the placing of shares in the period offset by the impact of the trading outflows. Cash and cash equivalents at the period end were £2.8m (H1 21: £2.9m). 

In June 2022 the Company secured a deferment of its UK loan repayments until January 2023 and at 31 March 2022, the Group's UK HSBC facilities provided up to £3.5m (H1 21: £6.0m) of invoice financing facility (subject to available accounts receivable balances). In addition, £0.5m (H1 21: £0.5m) of asset finance facilities are available, subject to covenant compliance.  At the end of the period, none of the invoice financing facility had been utilised (H1 21: £nil) with £0.4m used from the asset finance facility (H1 2021: £0.4m). Group cash headroom, being the sum of net cash at bank and residual invoice financing capacity, was £5.1m (H1 21 £6.1m).

 

Capital expenditure

The Group invested £0.1m (H1 21: £0.1m) in its operating facilities during the period. The Group has planned further investment for replacement of ageing equipment, as and where required, and production performance enhancement. Over the coming twelve months, this is expected to be less than £0.5m across the Group.

Government support and cost conservation measures

The Group has reduced reliance on Government support schemes with the easing of the pandemic.

The Group has not utilised any Coronavirus job retention schemes in the UK in the first half of the current financial year. In H1 2021 furlough and pay reduction recoveries across the UK facilities amounted to c£0.35m. In Sweden, the Group was able to secure government funding of £0.02m during the period.

 

Employees

Autins continued with its Covid-19 safe working practices policy, with appropriate home working, social distancing measures and sanitising hygiene management and monitoring measures. This has only just been relaxed post period end. 

 

In the UK, we have taken several initiatives to help ensure employee engagement and retention, with special focus on production staff. These include a combination of regular weekly cross functional factory planning meetings coupled with informal feedback "coffee" sessions. We have introduced a banked hours scheme to align surety of workers' pay against volatile customer demand patterns and converted several temporary staff positions to permanent roles to aid core team strength. Production pay rates have been improved by more than 7.5% and overtime rates have also been strengthened to improve net take home pay, with pay banding and related multi-skilling also being improved.  Staff retention has been in excess of 95% during the period.

 

Productivity and teamwork have improved which has had a positive impact on quality, customer service and net cost in the factories.  This has been critically important during a period where availability of labour has become a key challenge for manufacturers.

 

In Germany and Sweden, we have also worked hard to ensure excellent stable and committed teams.

 

Going Concern

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

At the time of releasing our full year financial statements, forward looking profit and cash flow projections for FY22, FY23 and beyond until September 2027 were prepared and considered. As noted above, an equity placing of £2.8m (net) was successfully completed in December 2021 and, in conjunction with this, our major UK lenders also gave covenant waivers until March 2023 and capital payment deferments that are now extended until January 2023. This was preceded by an independent assessment of the trading and working capital forecasts for a two-year period until September 2023, which assumed that semi-conductor supply chain disruption would continue throughout calendar 2022 and into 2023, and easement was expected to commence during calendar Q3 2022.

Against a reasonable base case, adverse sensitivities of up to 40% and 50% were assessed against the prevailing key customer demand schedules and forecasts. These assessments were documented in detail in our FY21 audited financial statements.

Whilst UK sales in H1 22 remained above these minimum ranges there remains uncertainty on the exact timing and profile of semi-conductor supply and automotive market recovery against the current backdrop of the Ukraine conflict and global supply chain pressures.  However, the Board still believe it is reasonable to expect a modest recovery in automotive volumes in the coming 12 months.

Energy, materials and labour costs are being impacted significantly, and the Company is taking a number of actions to address these issues, including engaging in price increase negotiations with its customers. Accordingly, the Board considers that it is reasonable to assume that these actions will adequately protect gross margins.

The Company will continue further covenant compliance review discussions with its two major lenders over the coming months for the period beyond March 2023, using forecasts that will be updated to incorporate prevailing market and trading data. At the June 2022 reporting date, the Group's liquidity remains healthy, with cash headroom being in excess of £4.5m.

Having due regard to all the matters described above, the Board have a reasonable expectation that the Group will continue to have adequate resources to remain in operation for at least 12 months after the release of these financial statements. The Board has therefore concluded to adopt the going concern basis in preparing these financial statements.

Outlook

OEMs continue to report record levels of order backlogs and the market expects new semi-conductor capacity to begin to ease during the latter part of 2022 after which an automotive market recovery should begin.  In addition, the underlying demand for our flooring products remains positive and we continue to develop into other markets as a result of additional dedicated resource.

 

There is little doubt that we now enter a period of high-cost inflation, and we will continue to take actions to mitigate the impact on margins through efficiency improvements, purchasing cost control and price increases. Over the last two years the Autins Board and Leadership team have demonstrated agility, creativity and great teamwork and will continue to do what is necessary to mitigate inflationary pressures.

 

Despite the impact of the Ukraine war and semi-conductor supply shortages, which are suppressing the short-term outlook, the medium-term outlook remains positive with an uplift in the number of new enquiries since January 2022 totalling £17m of potential new annual revenue.   45 of these enquiries, with potential annual value of £11m are for parts to go on electric vehicles for 11 different OEMs including new start-ups and established brands.

 

We will need to continue striking a balance between sharp focus on cost control and executing our growth strategy.  Our priorities are to ensure that we can offer innovative recyclable NVH solutions, maximise our penetration onto full electric platforms and continue our diversification into new markets.

 

Whilst it can be expected that the Ukraine war could suppress the trajectory of market recovery, the medium-term outlook remains positive.