30 June 2021  

Autins Group plc

(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 2021.

Financial Summary

·   Revenue increased by 3.7% to £13.71m (H1 20: £13.22m)

·   Gross profit increased by 1.8% to £3.91m (H1 20: £3.84m)

·   Gross margins decreased by 0.5% to 28.5% (H1 20: 29.0%)

·   EBITDA including IFRS 16 adjustments increased by 66.2% to £1.18m (H1 20: £0.71m)

·   Adjusted EBITDA¹ of £0.66m (H1 20: EBITDA of £0.27m)

·   Profit after tax of £0.01m (H1 20: loss of £0.64m)

·   Earnings per share of 0.025p (H1 20: loss of 1.62p)

·   Operating cashflow increased to £0.87m (H1 20: £0.62m)

·   Net debt² excluding IFRS16 lease liabilities improved to £1.84m (H1 20: £2.34m)

1: EBITDA adjusted for IFRS 16, is stated on a consistent basis to H1 20. The H1 20 measure is therefore stated before adding back £0.16m of non-recurring costs in respect of the change in CFO.

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

Operational Highlights

·    Neptune sales continue to progress well with sales growing by 33%.

·    29 new projects won during H1 21, with on-going expected annual value of £3.9m.  

·    46% of new business (£1.8m) has been won in Europe, 20% of all wins are in non-automotive applications.

·    Germany sales grew by 81% to £3.9m (H1 20: £2.1m) with significant growth in the flooring business.

·    OEM car production in H1 21 impacted initially by Covid-19 and latterly by global shortage of semi-conductors.

·    Strong cash and working capital management actions have been taken. Cash and cash equivalents improved to £2.9m at the period end (H1 20 £1.9m) and cash headroom significantly improved to £6.1m (H1 20 £1.5m).

Post Period End

·    Semi-conductor shortages continue to significantly suppress auto OEM production levels during Q3, despite the underlying growth in demand for new cars so that we expect H2 automotive revenue to be lower than H1.

·    Neptune production continues to grow steadily with further new projects with DAF, Scania and office pods due to commence towards the end of the calendar year.

·    The Company has engaged in constructive discussions with its lenders regarding covenant and headroom assessments.  This has resulted in the Company securing a 3-year CBILS invoice finance extension facility with its primary bankers HSBC (which supports up to £0.47m of additional cash drawdown) and a waiver of the EBITDA covenant for 30^th September 2021.

Gareth Kaminski-Cook, Chief Executive, said:

"I am pleased to report that sales across the Group are up 3.7% compared to H1 20 and EBITDA including IFRS 16 adjustments increased by 66% to £1.18m.  Growth has been driven by market share growth in Europe and in non-automotive sectors of flooring and commercial vehicles. 

During Q2 and Q3, our sales have been significantly impacted by the well-publicised semi-conductor supply issues.  However, the strong underlying demand for cars and reassuring statements from semi-conductor manufacturers that they will begin to meet automotive demand during the summer suggests that we should start to see a recovery later this calendar year.

"In the meantime, we continue to successfully execute our strategy to diversify outside the UK and into new sectors.  Sales in the flooring business more than doubled during H1 and by leveraging the unique qualities of our Neptune technology we have won 29 new projects in the first half, notably to supply new customers such as Volvo for the all-electric Polestar and Scania and DAF trucks in Sweden and Germany respectively.

"Despite the challenges posed to our auto customers by the global semi-conductor shortage and the likely impact on automotive revenues in H2, we remain positive on the outlook for the medium to long term." 

For further information please contact:

About Autins

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

H1 21 showed a solid improvement compared to H1 20, with sales increasing through our German business and lower operating costs resulting in EBITDA increasing by £0.47m to £1.18m (H1 20: £0.71m).

The Neptune facility has continued to see increasing production and external sales volumes. With further growth anticipated because of recent contract wins, production capacity will need to be increased by c.30% in the short term and several capital projects are already underway with plans to add additional capacity, as required, over the next year. 

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.  During the period, additional incremental productivity increases, and value engineering initiatives were implemented. Overhead costs were also reduced with the relocation of our R&D facility to the head office in Rugby, which facilitated the release of the rented MIRA facility in Nuneaton. 

Although gross profit increased in absolute value against H1 20, H1 21 gross margin reduced by 0.5% against H1 20. There was underlying improvement in materials, labour, and production costs. However, reduced UK manufacturing volumes reduced the absorption of fixed production costs which negatively affected gross margin percentage. Furlough working patterns remain an ongoing feature within the UK.

Germany has secured volume increases in both the flooring and automotive market, but Sweden experienced some volume losses with associated low levels of redundancies being implemented to mitigate the impact.

Revenue

Sales across the Group increased by 3.7% to £13.71m (H1 20: £13.22m) driven by market share growth in the automotive sector in Europe and growth in non-automotive sectors of flooring and commercial vehicles.

Sales through the European operations now account for 33% of Group turnover, up from 23% last year.

Automotive sales declined by 8.3% to £11.5m, driven by reduced OEM production caused primarily by semi-conductor shortages and some cost reduction actions by the Group's major customer.  Revenue in the UK decreased by 11% to £9.5m, with component revenue reducing by 3.5% and tooling reducing by 81% as the OEMs focused less on releasing new projects and more on cost cutting.

German automotive sales grew by 3.7% to £1.5m, whilst Sweden auto sales reduced by 16.2% to £0.9m.

It is pleasing to note that during H1 we began to supply directly to Volvo for the all-electric Polestar and the Swedish team has reached the late stage of negotiations to supply significant near-term volumes.

By leveraging the unique qualities of our Neptune technology, we have won 29 new projects in the first half year, notably to supply new customers such as Volvo for the all-electric Polestar and Scania and DAF trucks in Sweden and Germany respectively. 

Non-auto sales grew by 283% to £2.4m, driven primarily by sales into flooring which grew year on year by 311.8% to £2.3m.  In the UK we have won business with new customers in the workspace market of office pods.  This is a nascent market set to grow over the coming years and for which the Neptune product is uniquely suitable for thin walls and roof spaces. Non-auto sales now count for 17% of Group turnover, up from 7% a year ago.

Sales concentration of our largest customer reduced from 50.5% last year to 46.2% in H1 21, driven primarily by the growing European flooring activities and depressed UK auto market.  This should reduce further as new contracts to supply commercial vehicles and office pods start later this year, though we expect this will be partially offset by recovery of the UK auto market.

Gross margin

The Group's component gross margin decreased to 28.5% (H1 20: 29.0%).  Focus was maintained on further improving material buying and usage, supply chain costs, manufacturing efficiency and labour productivity to mitigate the impact of current market conditions.  Increased utilisation of the Neptune line as noted above is also having a positive impact, with increased dilution of fixed labour and operational costs associated with that manufacturing facility. Lower fixed overhead absorption from reduced UK and Sweden sales volumes and lower pricing on some Germany products offset the improvements made.

EBITDA and operating profit

The reported H1 21 EBITDA of £1.18m (H1 20: EBITDA profit of £0.71m) and reported operating profit of £0.15m (H1 20: loss of £0.78m) do not reflect any exceptional costs (H1 20: £0.16m). Excluding IFRS16 impacts, EBITDA for H1 21 is £0.66m (H1 20: EBITDA of £0.27m).

The reported operating profit is also stated after recognising £0.12m (H1 20: £0.12m) relating to amortisation arising on intangibles which were created at the Group's IPO.

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 increased 0.7% to £1.47m (H1 20: £1.46m), with a profit after tax of £0.21m (H1 20: £0.14m).  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 H1 20.   

Net finance expense

Net finance expense for the period marginally increased to £0.27m (H1 20: £0.26m) including IFRS 16 charges of £0.14m (H1 20 £0.15m).  The interest element of hire purchase agreements is £0.01m (H1 20: £0.02m) with interest charged on bank borrowings of £0.13m (H1 20: £0.09m).  This latter increase relates to the MEIF loan funding secured in January 2020 at 7.5% p.a.

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 at September 2020. The net credit in the period arises as a result of a refund from an enhanced R&D claim made in respect of prior year expenditure.

We would expect the effective rate for full year profits to be lower than the headline rates due to both the utilisation of brought forward losses in the UK and Sweden as well as a degree of enhanced R&D claims. Germany is likely to move into a tax paying position as it has now largely utilised its losses brought forward against profits in FY20 and FY21 to date.

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 £1.84m (H1 20 £2.34m).  Including £5.34m (H1 20 £5.68m) arising from IFRS 16 lease liabilities the Group's net debt would be £7.18m (H1 20 £8.02m).  Net debt has continued to show a reduction with improved cash generation.  Cash and cash equivalents at the period end were £2.9m (H1 20: £1.9m; FY20: £2.9m). 

At 31 March 2021, the Group's UK HSBC facilities provided up to £6.0m (H1 20: £6.0m) of invoice financing facility (subject to available accounts receivable balances) and £0.5m (H1 20: £0.5m) of asset finance facilities.  At the end of the period, none of the invoice financing facility had been utilised (H1 20: £2.33m) with £0.4m used from the asset finance facility (H1 20: £0.4m, FY20: £0.4m). Group cash headroom significantly improved to £6.1m (H1 20 £1.5m).

Capital expenditure

The Group invested £0.1m (H1 20: £0.1m) in its facilities during the period. The Group has planned further investments for UK press equipment improvement and Neptune throughput improvement.

Government support and cost conservation measures

The Group has continued to utilise the Government support schemes during the pandemic. Volatile customer demand patterns have meant that periodically staff have been placed on furlough or an equivalent overseas scheme.  In Germany, this has been available to cover up to 100% of employee costs, in Sweden this is up to 80%, subject to capped limits. In the UK the Coronavirus Job Retention Scheme has been used, typically to cover dedicated customer matched shutdowns or short time working within a weekly production cycle. In addition, the Board has periodically taken voluntary pay reductions averaging up to 15% for most of the period, largely matching furlough timings across the business. 

Furlough and pay reduction recoveries across the UK facilities for the H1 period were £0.3m.  The Group will continue to utilise Government support measures whilst available and until customer demand recovers to pre pandemic levels and expect this to be in the worth in the order of £0.4m for H2 21.

Cash conservation actions regarding payment extensions agreed and described in our prior financial year have been substantively repaid in accordance with the agreed terms, with only some residual items outstanding related to buildings' landlords and finance lease payment holidays.

Board changes and employees

Ian Griffiths resigned from the Board, as a Non-Executive Director of the Company, at the Company's AGM on 12 March 2021.

Autins has continued with its Covid-19 safe working practices policy, with appropriate home working, social distancing measures and sanitising hygiene management and monitoring 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. We also conducted a 100% employee feedback survey in the UK facilities, which had excellent take up rate, giving strong results and improved assessments since the prior survey two years ago.

Going Concern

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

The Covid-19 crisis has caused significant sales disruption to the Company since March 2020, with H2 20 being the most affected, after which some recovery has occurred. Notwithstanding this, since March 2020, we are pleased to report, that as a result of a strong focus on Group wide cash management, prudent cost containment measures, utilisation of furlough schemes, and restructuring of its borrowings during 2020, the Group has seen its cash balances improve by £1.0m, net debt reduce by £0.5m and cash headroom significantly improve by £4.6m to £6.1m at the end of March 2021.

The subsequent shortage of semi-conductor chips into the automotive supply chain has caused a second wave of disruption for our key customers and consequently automotive sales reduction within the Group. This had a partial impact in Q2 21 but has become particularly acute in Q3 21. As a result, the modelled H2 21 forecast shows downside risks that would cause September 2021 period end EBITDA covenants in the UK to be breached. Regular review discussions take place with the primary lenders and the Group has proactively engaged with them. Both lenders have adopted a supportive position after reviewing forecasts and actual financial performance data, and the Company has now received advance covenant waivers for the September 2021 testing date.

Forward looking profit and cash flow projections for FY22 and FY23 have been prepared. As well as a reasonable base case, these show that the Group, with the benefit of the prevailing cash headroom, could withstand further plausible downside trading scenarios and the impact of an extended automotive supply disruption. Adverse sensitivities have been assessed in the 15% to 25% range against prevailing key customer demand schedules and forecasts. In both of these modelled downside scenarios, liquidity remains adequate to ensure that payment commitments can be met to current terms as they fall due, for at least 15 months from the reporting date of these interim statements. Headroom remains in excess of £1.0m throughout the assessment period even in the higher 25% sensitivity scenario. This includes the repayment of the £0.75m bullet CBILS loan due in August 2021, and also includes commencement of instalment repayments of the £2.0m CBILS and £1.5m MEIF term loans from July 2021 and October 2021 respectively.

Continuing uncertainty regarding the magnitude and timing of sales recovery following the semi-conductor disruption to our key customers mean that in the downside scenarios some of the lender covenants in the UK (only) could potentially be breached from 31 December 2021. In all scenarios the Group wide EBITDA position remains positive and, as noted, cash headroom is strong. Our lenders are aware of these downside scenarios.  In the event that any of the downside scenarios materialise, we would explore a variety of options, such as waiving specific covenants (as required), resetting levels of UK covenants, or enabling covenants to reflect Group performance as a whole.  Separately, we are also seeking to apply for a government supported Recovery Loan, for which we meet the eligibility criteria. This would further improve headroom and the covenant position. New additional commercial sales wins are also possible, and these would improve cash and covenant headroom immediately through our current, fully unutilised, HSBC invoice finance facility.

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

Outlook

Despite an improving picture regarding automotive demand reported by OEMs and retailers, short term uncertainty remains regarding semiconductor supply which is negatively affecting car production. The Board believes it is reasonable to assume that some disruption will continue for the remainder of the Group's current financial year. Despite current automotive conditions, we expect our German business to continue to perform strongly in H2 21 underpinned by its non-automotive revenue.

We will maintain our focus on continuously improving our operational efficiencies and reducing overheads to improve profitability in the business.  This has helped protect margins in the UK and Sweden against the downward pressures caused by low and volatile supply schedules and a more competitive market, whilst improving the profit in the German operation. 

We will also continue to diversify the business by winning additional customers, particularly in the non-automotive markets, so that we become less dependent on any one customer and segment.

Whilst we expect revenue for H2 21 to be less than H1, the Board remains positive regarding the prospects for the Group in our next financial year, although the scale of any improvement will be dependent on the timing and strength of the recovery of the UK automotive market from the current specific semiconductor supply issues.