31 January 2023

Autins Group plc

(the "Company" or the "Group")

Full Year Results

Autins Group plc (AIM: AUTG), the UK and European 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 financial year ended 30 September 2022 ("FY22").

Financial Overview

§    Revenue decreased by 19.5% to £18.9 million (FY21: £23.4 million)

§    Gross profit decreased by 33% to £4.2 million (FY21: £6.3 million)

§    Reported EBITDA decreased with a loss of £1.2 million (FY21: EBITDA profit of £1.1 million)

§    Cash outflow from operations with a loss of £0.5 million (FY21: £1.0 million inflow)

§    Operating loss increased to £3.0 million (FY21: loss of £0.7 million)

§    Reported loss after tax increased to £3.3 million (FY21: loss of £1.1 million)

§    Loss per share increased to 6.34 pence (FY21: loss of 2.74 pence)

§    Adjusted net debt¹ reduced to £2.0 million (FY21: £2.7 million)

FY22 Operational Highlights

§   The revenue reduction reflected ongoing supply chain issues in the automotive industry primarily related to global semiconductor shortages.

§     Neptune sales remained stable at £7.1 million (FY21: £7.1 million). Flooring sales were lower at £3.4 million for the year (FY21: £4.7 million), caused by the exclusion of initial launch stock sales that benefitted FY21 and a softening of construction markets.

§   Gross margin reduced to 22.4% (FY21: 27.0%). The onset of the Ukraine war and global economic factors affected energy, material and transport prices. Labour rates were also impacted, albeit operational and productivity improvements partially offset this.

§     UK EBITDA reduced in line with sales. Germany continued to generate a positive EBITDA of £0.3 million (FY21 £0.9 million) despite seeing a downturn in sales at £6.6 million (FY21 £7.5 million). Sweden EBITDA remained consistent at £0.2 million.

§     Cashflow primarily reflected the trading loss, being partially offset by R&D tax credit claims, with largely neutral working capital movements.

§    Net Debt[1] decreased due to a placing of new shares in December 2021 that raised £3.0 million (gross) and which offset cash absorption during the year.

Post Period Review

§     The Group has taken and secured significant profit and cashflow improvement actions since the reporting date. These include contractual improvements which improve customer pricing, materials purchasing, further headcount restructuring and other cost downs. In isolation, the cumulative impact of these improvements would be to reduce the annualised run rate of net losses by in excess of £2.5m (although there are other factors which may impact on the Group's overall performance in the current year, perhaps materially so). Nonetheless, FY23 Q1 actual performance shows an unaudited EBITDA of £0.1m positive, being a marked improvement over FY22.

§    The Board are pleased to report that further support from both of the Group's lenders, in the form of further payment deferments until at least July 2023, and covenant waivers until March 2024 have been confirmed. 

1.  Cash less bank overdrafts, invoice discounting and hire purchase finance, excluding IFRS16 lease liabilities.

Gareth Kaminski-Cook, Chief Executive, said:

"This was a difficult year for everyone supplying the automotive industry. Semi-conductor challenges, the war in Ukraine and cost inflation all contributed to lower demand and a squeeze on margins. However, since year-end we have secured price increases and cost restructuring that have returned the business to a small EBITDA profit for Q1.

"We will continue to diversify the business by leveraging the superior properties of Neptune and our two new 100% recyclable solutions for the EV market, Neptune-R and Silentshell. With ongoing support from shareholders, underlying improvements in our operating costs and innovative new products, we look forward with confidence to capturing the benefits of a future market recovery." 

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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.

Chairman's Statement

Overview

FY22 has been a very challenging period which has seen the Group incur increased operating losses.  We have worked tirelessly to adjust our operating model to provide long term sustainability and ensure that we are well placed to benefit from a future recovery of the European automotive market.

The trading environment for Autins in FY22 has been very difficult and disrupted.  Automotive production continued to be constrained by the global shortage of semi-conductors.  It had been anticipated that supply of semi-conductors would improve in the second half of 2022, but supply constraints remained, resulting in reduced production throughout the period at our key customers.  However, end-user demand has remained strong with OEMs reporting good order books.

In H2 FY22, our markets have also been subjected to high inflationary pressures both for raw materials and labour.  We have responded by taking significant restructuring actions in the UK and have agreed commercial arrangements with the majority of our customers shortly after our year end, which has positively impacted gross margins and EBITDA. 

Financial performance

Group sales in the second half of the year were £9.5m, 3% down on the equivalent prior year period (H2 21: £9.7m).  Overall Group sales for FY22 were down 19.5% to £18.9m (FY21: £23.4m).

Automotive component sales in the UK continued to be negatively affected by semi-conductor shortages reducing the output of key OEM customers.  In Germany, there was growth in automotive component sales as a result of new business wins, but overall sales reduced to £6.6m (FY21: £7.5m) due to a reduction in flooring sales.  Sales in Sweden were broadly equivalent year on year.

Gross margin reduced to 22.4% (FY21: 27.0%).  Gross margin was impacted partially by increased operational inefficiencies due to lower customer volumes at short notice but mainly, in the second half of the year, by increases in raw material and staff costs that could not immediately be recovered by price increases.  However, as mentioned above, actions concluded after the year end have now improved gross margins.

The operating loss for the Group was £3.0m (FY  21: loss of £0.7m).

Net debt (excluding IFRS 16 debt) decreased to £2.0m (FY21: £2.7m) and cash and cash equivalents increased to £1.8m (FY21: £1.2m). This is due to a placing of new shares in December 2021 that raised £3.0m (gross) and which offset cash absorption during the year.

Post year end, the Group has also negotiated waivers of its banking covenants to March 2024 and further deferrals of capital payments until at least July 2023.

People

Our staff have yet again been fantastic.  Their commitment and resilience during this difficult trading period has been inspiring and I would like to personally thank them all for their hard work during the year.

We are committed to remaining a competitive employer and have responded to changing requirements in our local labour markets, particularly at the lower pay levels, to ensure we retain talent, reward loyalty and maintain motivation in our staff.  Our senior management team continue to actively engage with our entire workforce to ensure that we live our corporate "One Team" value.

When we have had to react to market conditions, we have tried to do so fairly and respectfully.

There were no salary increases for the Board in the year, reflecting the operational cost control that we have had to deliver throughout the business.

Environmental, Social and Governance

Our commitment and investment to lower the environmental impact of our products has continued in FY22. We have developed two fully recyclable NVH products: Silentshell® (an encapsulation solution for electric vehicles) was launched in 2022; and, Neptune-R (a fully recyclable version of our Neptune material which delivers substantially the same levels of acoustic benefit as our existing Neptune product) will be launched in the new financial year.  These are major milestones for the Group and will support our customers' need to meet their environmental objectives.

We have made great progress in reducing our carbon footprint post year end.  We have changed our energy provision for our German and UK operations to 100% renewable sources.  This is forecast to reduce our carbon footprint by more than 80% in FY23 and beyond.  This complements the environmentally friendly energy sourcing that was already in place for our Swedish operations.

The Board remains committed to robust corporate governance and risk management to ensure the delivery of our strategic ambitions and the financial health of the Group.  We apply the Quoted Companies Alliance Corporate Governance Code (the "QCA Code").  The Board continues to operate with only two independent non-executive directors.  We consider this appropriate in the short term and in keeping with the cost mitigation measures that have been applied to all staffing costs in the year. 

Neil MacDonald has informed the Board that he intends to step down from the Board as soon as an appropriate successor is identified and in post.  We have initiated a process to find Neil's replacement and I would very much like to thank Neil for his considered contributions at our Board meetings over the past few years. 

We also remain committed to increasing the number of independent non-executive directors on the Board as soon as appropriate in the recovery cycle.

Dividend

No final dividend is proposed.

The Board will continue to monitor net earnings, gearing levels and expected capital requirements with a view to reinstating a progressive dividend policy at the appropriate time.

Outlook

The restructuring measures and commercial agreements implemented after the year end have had an immediate, positive effect and stemmed the operating losses that the Group incurred in FY22. In Q1 FY23, the Group delivered a small unaudited EBITDA profit of £0.1m, which is a marked improvement on FY22.

However, trading conditions continue to be difficult. Automotive sales will remain subdued due to the continuing impact of a constrained supply of semi-conductors globally. Demand in our non-automotive markets has slowed due to recessionary pressures.

As a Group, we continue to invest in new product development and look forward to the positive impact that our new recyclable products will have on our business.  Retail demand for cars remains good and we expect a positive recovery in automotive sales once the supply issues for semi-conductors are resolved.  The Board believes that the improved operating position of the Group provides a platform to benefit from sales growth in the medium term.

Adam Attwood

Chairman

Chief Executive Officer's Review

Our materials and solutions contribute to a quieter, safer, cleaner and more energy-efficient world.

Autins is an industry-leading designer, manufacturer and supplier of acoustic and thermal management solutions. We apply our expertise in material technologies to solve complex and challenging problems to create better and more comfortable environments in a range of industry applications including automotive, flooring, workspace solutions and commercial vehicles. We manufacture a range of technical materials, including our own patented material, Neptune, in our facilities in the UK, Germany and Sweden, making us a local European partner.

Challenging market conditions reduced demand and drove inflationary cost pressures

The supply chain challenges and semi-conductor shortages which emanated from the Covid crisis only worsened during this financial year.  Predictions for improved semi-conductor availability in H2 22 did not materialise and the Ukraine war put additional pressure on supply chains into the automotive sector and created a global energy crisis with associated significant energy cost inflation. 

As a result, Group sales reduced by 19.5% to £18.9m. Combined with higher input cost inflation on labour, transport, materials and energy, this drove down margins and resulted in an EBITDA loss of £1.2m compared with a £1.1m profit the previous year. 

Anticipating a difficult year, we approached shareholders during the first quarter and successfully gained support for an equity raise of £3m (gross) to support the business.

In addition, we have fought all year for price increases with mixed results until shortly after our year end when most of our customer base accepted sensible revisions. Post year end we continue to pursue additional increases with some more success recorded.

In late summer 2022, OEMs advised that market recovery would be unlikely to happen until the end of next year, spurring us to implement additional overhead cost reduction actions.

The combined impact of the pricing, contract and restructuring actions described will contribute significant improvements to performance in 2023.

Germany and our Neptune technology outperform the automotive markets

It is worth noting that our Germany auto sales growth of 13%, driven by new wins, has outperformed the German auto market which, according to the European Automobile Manufacturers' Association (ACEA), declined 7% this year.  Neptune sales were stable year on year and so performed relatively well as new project wins came to fruition especially on electric platforms. 

Sales from the European operations were 40% of the Group turnover of which flooring accounted for half. 

A modest number of automotive wins with new customers have been achieved throughout the year which will contribute to revenue in 2023.

Demand for NVH solutions forecast to grow

Whilst the modest improvement in car sales next year of 7% across Europe and 8% in UK will be a very welcome reversal of sales trends, the increasing demand for more NVH solutions in cars is most relevant to the future fortunes of Autins.  Fortune Business insights estimates, consistent with other sources, growth in NVH demand to be in the region of a 6% CAGR until 2028.

As we see car ownership models change, the emergence of autonomous solutions and growth of low-emission drive trains will present an even greater emphasis on the user experience within the vehicle. Concepts show us cabins that are becoming workspaces, areas of entertainment or even rest. To this end the user experience will shift from an operator of a vehicle to that of a passenger or consumer of technology. So, the focus is moving to refine the vehicle for the consumer. At Autins, we are focused on products that will allow this refinement from day one and ensure that as the industry moves forward, we offer best in class solutions to meet the NVH requirements of the OEMs and in so doing our offering is becoming ever more relevant to the future car market.

Commitment to develop 100% recyclable solutions and to reduce our carbon footprint

Last year, I described how we "intend to be at the forefront of developing solutions" to meet the trend to electric vehicles and environmentally friendly products.  We are now seeing a greater and more consistent desire by our customers to have "greener" products and suppliers that take ESG seriously and so I am delighted to advise that we have developed two 100% recyclable solutions.

"Silentshell" is a 100% recycled encapsulation product, designed to contain noise and heat at source for numerous application areas in electric vehicles.  It is already released and is being evaluated by European automotive customers.

The second development is Neptune-R, a 100% recyclable version of Neptune which offers essentially the same levels of performance and will be launched in early 2023.

I am also pleased to confirm that at year end we have converted all energy sourcing to renewable sources which, compared to the previous year, is forecast to improve our daily carbon footprint of the Group by 84% in FY23.

Looking forward 

The Autins team have again shown tremendous resilience and determination to achieve price increases in the toughest circumstances, maintain all existing contracts and customers, whilst also retaining all key staff during sensitive restructuring actions.

We will continue to diversify the business by leveraging the superior properties of Neptune and our new product developments, Neptune-R and Silentshell.

With the support from shareholders, underlying improvements in our operating costs and innovative new products, we are able to look forward with confidence to capture the benefits of a future market recovery.

Gareth Kaminski-Cook
Chief Executive Officer

Financial Review

Rebuilding the future business platform against challenging global fundamentals

Overview

Revenues decreased by 19.5% to £18.9m year on year as automotive sector supply disruption worsened. EBITDA decreased in line with sales to a loss of £1.2 million for FY22. The Ukraine war and global economic dynamics added inflationary pressure to input costs, mainly in the areas of materials, energy and labour. This in turn further eroded profitability and cashflow in H2 FY22, despite Group revenues being marginally higher than H1 FY22. Furlough claims had effectively ceased in FY22 being £0.02m, compared with FY21 at £0.65m. The equity placing in December 2021 improved net debt to £2.0m at the year end, which was lower than the FY21 closing value of £2.7m. There was only a small repayment of debt during FY22 because repayment waivers were in effect for most of the year. Group cash headroom at the end of FY22, including the undrawn invoice finance facility, was £3.7m.

A number of restructuring and profit improvement actions were planned and commenced during H2 FY22 and were substantively completed post year end. This includes workforce restructuring, cost reduction, including material improvements, and contractual improvements, including price increases. A banked hours system has been running since October 2021 to help optimise labour efficiency and worker pay stability despite demand volatility. This has proven to be successful, and its use has been extended to help cover customer shutdown periods. The combined impact of completed actions has an annualised improvement run rate profitability in excess of £2.5m (before considering other material factors that may impact the Group's overall performance in FY23, perhaps materially so), and this has improved post year end trading significantly.

Although Groupwide sales do remain narrowly behind internal forecasts, gross profit, cost management, EBITDA and cashflow performance are in line with forecasts reviewed with our two major lenders. FY23 Q1 EBITDA, prepared on a consistent basis, was a small profit of £0.1m. Cash headroom reduced slightly to £3.5m at the end of December 2022 (September 2022: £3.7m) reflecting the near breakeven EBITDA and some minimal capital expenditure in equipment intended to improve operating performance.  The Group continues to hold strategic buffer stocks to help guard against supply disruption and also smooth factory production against short term demand call off volatility. Post year end, we have obtained further banking support from both of our major lenders, with covenant waivers extended until March 2024 and capital payment deferments extended until at least July 2023.

Revenue

Automotive revenues remained disrupted throughout FY22, with the UK and Sweden being the most impacted. In the UK, although month to month volatility remained prevalent, the rolling 3 month average remained at around £1m per month, except for the month of September 2022 where there was a sharp unexpected shortfall in semiconductor supply at a key customer. As noted above, there has been some revenue improvement and stability since the year end. During the year tooling revenues also declined in line with OEM new product activity. UK non-automotive revenues, mainly in office pods, also began to level off despite some initial promise as customers re-thought their home and office working patterns following the pandemic restriction changes.

Sweden revenues remained consistent at £1.1m (FY21: £1.1m), with some new product wins offsetting some declining products. Germany continued to see contract growth in its automotive business at £3.2m (FY21: £2.8m). Flooring revenues in Germany reduced to £3.4m (FY21: £4.7m), albeit some of this reflected less requirement for launch stocks.

Underlying Neptune production and revenues remained stable. UK external sales were lower in line with general market trends, however new customer wins in Germany meant that overall volumes slightly increased, with external sales values at component level forming an increased proportion of total Group revenues.

Gross margin

Automotive margins declined across the Group to 22.4% (FY21: 27.0%). This was the net result of a combination of factors including long term competitive and fixed pricing within automotive contracts, against a backdrop of adverse cost inflation. Materials, inbound transport and energy costs were impacted by prevailing global economic factors. This had knock-on consequences for labour rates at a time when the labour market was already tight given the general reduction in worker availability after Brexit. Volume reductions further exacerbated this by reducing the absorption of fixed production overheads, albeit there was very limited partial offset from continuous operational efficiency actions, including those in Neptune manufacturing processes.

UK Automotive margins declined by an average of 6.4% in FY22 from the combined impact of low volumes and input costs continually increasing over the financial year. As noted above, furlough was significant in FY21 at £0.65m, which equated to 5.8% of gross margin for the UK. Labour productivity improvements and the use of a flexible banked hours labour management approach did have a favourable impact and largely offset labour rate increases. Sweden managed to successfully maintain gross margin, despite volume reductions, through ongoing cost reduction initiatives.

German automotive sales increased 13% despite tough industry conditions, driven by overall contract growth. However, the new contracts were predicated on aggressive fixed pricing, which diluted margins in favour of higher total gross profit. Increased input costs further worsened this position.  Gross margins on German flooring applications are consistent with mainstream automotive margins. However, given that the follow-on costs are primarily sales commissions with very few additional operational costs to serve, the net EBITDA margins from flooring remain significantly additive.

During the year, the Group initiated a number of price and contractual improvement actions, and post year end had made significant progress (as noted above), with further discussions ongoing. Combined with further materials improvements and restructuring actions this improved gross margins by c.7% in Q1 FY23, making them closer to pre-pandemic levels. This has been pivotal in rebuilding the trading platform for the future.

EBITDA and operating profit

FY22 EBITDA fell significantly to a loss of £1.2 million (FY21: EBITDA profit £1.1 million). EBITDA is stated on a consistent IFRS16 basis.  The reported statutory operating loss was £3.0million (FY21: operating loss of £0.7 million), representing a worsening of £2.3 million.  A detailed review of fixed assets in the prevailing economic and lower volume trading environment resulted in £0.2m of additional depreciation being charged against plant and machinery.

UK EBITDA decreased to a loss of £1.7m (FY21: £0.0m). Germany EBITDA was £0.3 million profit (FY21: £0.9 million).  Sweden revenues were consistent with the prior year and yielded a consistent EBITDA of £0.2 million profit (FY21: £0.2 million). These stated measures exclude the impact of management recharges into Europe and apply Group plc costs entirely against the UK entities only, this is consistent with prior years.

As noted above there was a significant reduction in UK furlough income. There were no other significant financial support grants during the year, except a modest contribution of £0.02m to energy saving LED lighting (FY21: £nil).

The Board acknowledges that these are alternative measures of performance and are not GAAP (nor are they intended to be) but are used to help illustrate underlying business performance and are informative to users of the accounts.

Exceptional items and prior year adjustment

There were no exceptional costs charged in FY22 (FY21: £nil). To be consistent with analysts' measure of the Group's performance, amortisation of £0.2 million (FY21: £0.2 million) in relation to acquired intangible assets recognised as a result of the Group's conversion to IFRS at IPO (having previously been held as non-amortising goodwill) should be excluded to provide an adjusted operating profit. Accordingly, the adjusted operating loss, allowing such amortisation, would be £2.8 million (FY21: loss £0.5 million).

During the year, a detailed review of intercompany account reconciliations stemming back several years was conducted by the company. This has led to some of the historic balances being written off, including a prior year adjustment as per note 5.

Joint venture

The Group's joint venture, Indica Automotive, is an acoustic foam conversion business based in Northampton that supplies components into the Group's UK operations (who remain the largest customer) as well as its own automotive customer base. The joint venture continues to leverage access to lower cost material and finished component sources provided by its other parent, Indica Industries PV based in India.

Indica Automotive's turnover decreased by 29% to £1.7 million (FY21: £2.4 million), given an equivalent impact on them from semiconductor supply constraints reducing their end customer demand. Further margin and overhead cost control actions were taken by management, albeit sales overheads were increased to expand the sales organisation for future growth; and new contracts were won which helped offset the base contract reductions. The EBITDA for the year was a loss of £0.04m (FY21: EBITDA profit of £0.23m).

Currency       

The Group's overseas operations and certain key raw material suppliers require the Group to trade in currencies other than Sterling, its base currency. During the year, operational transactions were conducted in US Dollar, Swedish Krona and Euro and the retranslation of the results of the German and Swedish operations were affected by currency fluctuations. The key raw materials for Neptune production are currently imported from South Korea with transactions conducted in US Dollars. The Group has taken steps to mitigate this risk by establishing alternative sources for non-patented product which could then also be transacted in alternative currencies. The Group also has Euro based purchases for materials and production, including equipment. As Euro sales continued to proportionately increase from our German business, this allowed us to self manage relative balances in British Pounds, Euros and US Dollars.

The Group continues to benefit from natural hedging, arising from its structure and trading balances, which means that the Group's result in both FY22 and FY21 has only been impacted in a limited way as a result of currency translations.

The Group held no forward currency contracting arrangements at either year-end. Transactions of a speculative nature are, and will continue to be, prohibited. As Neptune grows management will continue to monitor the Group's US Dollar exposure and its impact on the Group's results. Where the frequency and quantum of purchases can support active currency management, we will consider implementing a formal hedging strategy.

Net finance expense

The finance expense remained consistent at £0.5 million (FY21: £0.5 million), and under IFRS 16 includes £0.3 million of financing charges derived primarily from property rental expenses. Bank interest at £0.2 million (FY21: £0.2 million) is derived almost entirely from the CBILS and MEIF term loans. The Group's MEIF term loan is at a coupon rate of 7.5% and remained fully drawn during FY22, with no capital repayments having been made under agreed extension terms. The CBILS 6 year term loan had a balance of £1.9 million outstanding at 30 September 2022 (FY21: £2.0 million), and was converted to a fixed interest rate of 4.69% with effect from 8^th October 2022 (FY21: 3.99% above base rate).

The primary UK invoice financing facility was largely undrawn during FY22. Our strategy to optimise working capital, includes special focus on debtor collections coupled with maintaining a timely payment cycle to trade creditors. Inventory continued to be rationalised where possible; however, the investment in c.£0.5 million of strategic buffer stocks continues primarily for Far East raw materials supplies and some finished goods buffer stocks to satisfy short cycle customer demand. Sweden periodically used its modest overdraft facilities during FY22, ending the year with no borrowings (FY21: £0.02 million). Our key Far East suppliers continued to extend direct open credit to the Group throughout FY22, and so trade finance was not required. Car and equipment finance leases further reduced in FY22, as payments were made to term agreements with no renewals, which reduced interest costs slightly to £0.02 million (FY21: £0.02 million).

An analysis of the net finance expense is presented in note 3.

Taxation

The effective tax rate in the year was below that expected based on current UK corporation tax levels. Given the quantum of losses compared to expected profitability in the next two years, the Group has not recognised the majority of current year losses as a deferred tax asset. The balance sheet asset has been reviewed and, although considered to be supportable based on the Group's expected future trading, has been adjusted to £zero for prudence.

The Group's technical and R&D teams have, as in prior years, continued to enhance materials applications, improve processes and develop new products. The post pandemic automotive industry dynamics and ongoing semiconductor supply chain disruption mean that significant net losses continue to remain available. Accordingly, the Group strategy remains to utilise losses to obtain actual R&D tax credit cash refunds to maximise liquidity. An R&D tax credit claim will be submitted for FY22 in the usual course. R&D claims for the years ended September 2019 and September 2020 were submitted in FY21 with initial repayment having been received on time. This latter claim was resubmitted with an optimised loss position yielding a further £0.25m of cash refund during FY22. The R&D tax credit claim for FY21 was also submitted and cash refund received to the value of £0.06m. R&D activities continue and this, together with recognition and use of available brought forward losses when profitability increases, will mean that the effective tax rate will remain below the UK statutory level for the short to medium term with an unrecognised deferred tax asset of £2.12 million in the UK (FY21: £0.95 million).

The Group's German subsidiary has largely utilised its historical tax losses during FY22, which may result in a degree of tax at a higher rate on future profits in Germany, whilst brought forward taxable losses available in Sweden will, in the short term, at least partially offset their expected trading profits. The Group has a further £0.06 million (FY21: £0.03 million) unrecognised tax asset in respect of Swedish tax losses.

Earnings per share

Loss per share was 6.34 pence (FY21: Loss per share 2.74 pence) reflecting the increased loss in the year. The weighted average number of shares was 51,683,793 in the year (FY20: 39,600,984) allowing for the new issue of ordinary shares in the December 2021 equity placing. Calculations of earnings per share and the potential dilution arising from the senior management share option scheme in future periods are presented in note 4.

Dividends

The Board are not proposing a final dividend for the current year (FY21: £nil) and no interim dividend was paid (FY21: £nil).

Net debt and working capital

The Group ended the year with net debt of £2.0 million (FY21: £2.7 million) excluding the IFRS16 calculated lease liabilities of £5.5 million (FY21: £5.6m) as disclosed in the reconciliation of movements in cash and financing liabilities below.

No additional borrowing facilities were obtained or utilised during the year. Of the CBILS loan £0.1 million was repaid during the year with a balance of £1.9 million outstanding at the year end.  Hire Purchase liabilities were reduced to £0.1 million (FY21: £0.2m). Accordingly, total debt was reduced by £0.2 million.

The Group has continued to optimise working capital during the year, which has been described above. Special focus remains on timely collection of trade debtors and timely payment of trade creditors. Far East purchases are obtained on open credit terms from the respective suppliers. The Group continues to hold c.£0.5m of strategic buffer stocks.

Going concern

The Board have concluded, on the basis of current and forecast trading and related expected cash flows and available sources of finance, that it remains appropriate to prepare these financial statements on the basis of a going concern.

As we reported in the prior year annual report and accounts, the Group completed an equity placing with gross proceeds of £3.0 million (£2.8 million net) in December 2021, primarily with the participation and support of its existing shareholders. In addition, dual lender support was obtained in the form of loan repayment deferments until January 2023 and covenant waivers until March 2023. These related to the outstanding UK CBILS and MEIF term loans.

Given the challenging trading circumstances experienced in FY22, the Group has taken a series of actions which in isolation (as noted above) have significantly improved EBITDA (and so cashflow) in excess of £2.5m per annum. Having held further discussions and presented updated forward forecasts, incorporating significantly improved actual performance, the Group has successfully obtained further banking support confirmations from its two primary lenders. Covenant waivers are now extended until March 2024, and there is further easement on the timing of capital repayments until at least July 2023.

As at 27 January 2023, shortly before the reporting date, the prevailing cash headroom for the Group remained in excess of £3.5 million (January 2022: £5.0 million, September 2022: £3.7m). This includes undrawn balances on the UK invoice financing facility, which had in excess of £2.5 million available, with its operational limit currently agreed at £3.5 million against relevant trade receivables.  Group net debt at the end of FY23 Q1 was £2.7m (September 2022: £2.0m), and actual Group bank cash was £1.1m (September 2022: £1.8m). Our transactional banking and invoice financing facilities with our primary lender have an annual review date that is currently in March of every year. These are critical to our cash headroom position and the Board expects the facilities to be renewed on near to similar terms.

Whilst Groupwide sales do remain narrowly behind FY23 management forecasts, margins and costs have been favourable; accordingly EBITDA and cashflow performance are in line with the forecasts reviewed with both major lenders. FY23 Q1 actual EBITDA was narrowly positive at £0.1m, representing a significant improvement over FY22.

In undertaking their assessment of the future prospects for the Group, the Directors have prepared trading and cash flow forecasts for the period to 31 March 2024 for the purpose of assessing the going concern basis of preparation, with further forecasts going out to 30 September 2024. These take into consideration the current and expected future impacts from industry conditions, reduced customer demand, semiconductor supply recovery timelines, and also have regard to the committed business and general enquiry levels from existing customers. The Directors have also considered the impact of current and future demand levels for new vehicles, the migration to EVs and publicly available forward looking market information regarding market sizes and dynamics. These forecasts have been compared, together with considering a range of material but plausible downside sensitivities, to the available bank facilities and the related covenant requirements. Notwithstanding the agreed deferments, the residual loan repayments and interest costs are expected to be adequately covered by the combination of operating cash generation over the forecast period and the Group's prevailing liquidity headroom derived from its currently available facilities. These should accommodate all reasonably foreseeable cash flow requirements, with further flexibility also available to reduce operating costs, should the need arise, or flex other payment structures to manage the cash position.

The most sensitive factor impacting the forecast period, and the continued availability of the current facilities, is ensuring that liquidity remains reliably positive for the Group, albeit the Board has set a minimum liquidity target of £0.4 million. In the next financial year, achievement of this minimum required UK (and group) liquidity target, without significant further unplanned cost or efficiency improvements, is predicated on minimum UK revenue levels (prior to price increases) of £11.0 million in FY23 and £13.4 million in FY24. These revenue levels compare with UK revenues of £11.8m in FY22, £14.3 million in FY21, £16.8 million in FY20 and £21.3 million in FY19. New business continues to be won and, accordingly, the Board are confident that the sales and liquidity targets can be met.

The Board continues to review the Group's banking and funding arrangements with a view to ensuring that they remain appropriate for the planned growth within mainland Europe.

Acquisitions, goodwill and intangible assets

There were no acquisitions made in the year, nor any adjustment to fair values attributed to previous transactions.

The Board, acknowledging that this is a further year of reported losses and that the Group's current market capitalisation is currently less than the Group's net assets, has reviewed the carrying value of goodwill and other intangible assets held at 30 September 2022 (both existing and generated in the year) by reference to discounted cashflow forecasts for separately identifiable cash generating units. These forecasts consider Board approved budgets, and medium-term IHS industry data where appropriate considering an assessment of likely future revenue growth.

Having considered the assumptions, headroom and a range of reasonable sensitivities the Board are able to conclude that the carrying values remain recoverable.

Capital expenditure

Additions to tangible fixed assets were £0.2 million (FY21: £0.4 million) in the year with no significant single items acquired. The Group continues to benefit from investment in equipment in recent years and therefore has capacity to address current demand levels. Planning for additional investments designed to improve operational performance is ongoing and the Board expects expenditure to be incurred on an ongoing basis in FY22 in support of further operational gains.

Research and development costs of £0.11 million (FY21: £0.03 million) have been capitalised in the period as the Board considers they meet the Group's stated policy for recognition of internally generated assets. The costs are focused on a range of projects designed to further enhance the Group's current materials and product ranges and improve production capabilities to derive volume or cost reduction benefits.

Financial risk management

Details of our financial risk management policies are disclosed in the Annual Report.

Kamran Munir

Chief Financial Officer

Consolidated income statement

All amounts relate to continuing operations.

Consolidated statement of comprehensive income

Consolidated statement of financial position