Autins Group Regulatory News (AUTG)

12 December 2017

Autins Group plc

(the "Company" or the "Group")

Audited Final Results for the year ended 30 September 2017

Autins Group plc (AIM: AUTG), a leading designer, manufacturer and supplier of acoustic and thermal insulation solutions for the automotive sector, is pleased to announce its audited results for the year ended 30 September 2017.

Financial Highlights

· Revenue increased to £26.4 million (FY2016: £20.4 million)

· Gross Profit increased to £9.0 million (FY2016: £6.5 million)

· Adjusted EBITDA1 increased to £2.0m (FY2016: £1.4m)

· Adjusted operating profit1 increased to £1.5m (FY2016: £0.9m)

· Profit After Tax increased to £0.4 million (FY2016: £0.3 million)

· Net debt2 £2.0 million (FY2016: Net cash £3.3 million)

· Earnings per share decreased to 1.82 pence per share (FY2016: 2.03 pence per share)

· Proposed final dividend of 0.8p per share (FY2016: Nil)

1: Adjusted EBITDA excludes exceptional costs of £0.5m (FY2016: Nil), additional IPO related costs of £0.1m (FY2016: £0.2m) and £0.6m (FY2016: £0.3m) of non recurring Neptune start up costs. Adjusted operating profit additionally excludes £0.2m of amortisation in both years.

2: Cash less loan notes, bank financing and hire purchase arrangements

Operational Highlights

· Strong growth across all the Group's operations

· Neptune product gaining traction directly through OEMs and through Tier 1 channels with orders in the year awarded across 8 OEMs, 19 vehicles, and well over 100 different parts

· Good progress in Germany and Sweden, with both delivering a profitable outturn:

- Germany won a multi-platform part for a major European automotive group

- Sweden won multiple parts on existing and newly launched programmes for a major European OEM

· Continued investment for growth focused on: research, test and product development; advanced manufacturing; and continued strengthening of our organisation and capabilities

· Non-automotive sales continued to show steady double-digit growth year-on-year

Adam Attwood, Chairman, said:

"We have delivered strong top line growth in the year and the Board expects that this will continue. We are confident that 2018 will be a period of significant progress for Autins as we focus on implementing our detailed business plans designed to realise the full potential of the Group."

For further information please contact:

About Autins

Autins specialises in the design, manufacture and supply of acoustic and thermal insulation solutions primarily in the automotive sector but with an increasing focus on other sectors, including, flooring, building and wider industrial applications.

The Group is one of the leading suppliers of noise and heat management products in the automotive market, producing and supplying over two million parts per month to customers including some of the world's leading vehicle manufacturers.

Chairman's and Chief Executive's statement

We have delivered strong top line growth in FY2017 and the Board expects that this will continue in FY2018. Our ongoing investment programmes will enable the Group to sustain this growth in the long-term through a better product range along with better test and manufacturing facilities to better serve our growing customer base and do so profitably.

Performance

We are pleased to report our first full year results since our IPO in August 2016, which show strong growth in revenues, up by 29% to £26.4 million (FY2016: £20.4 million), and gross profit, ahead 38% to £9.0 million (FY2016: £6.5 million). In line with our strategic plans, this supported further investment in the business: in which we continue to strengthen our management and key staff as we build core capabilities in research, test, and engineering and, similarly, we continue to invest in our core manufacturing processes.

At an operating level, each region has made progress. Having become wholly-owned at the time of the IPO, both Germany and Sweden have achieved promising wins with important OEMs. This, combined with further improvements in the year, has meant that our operations in both countries delivered profits in the year. Coupled with access to strategically important European OEMs and large addressable markets, Autins is well placed for a bright future in Germany and Sweden.

In the UK, we have re-aligned our manufacturing processes across our sites in Rugby and Tamworth to better balance our capacity and the respective sites' utilisation levels. This will continue in FY2018 as we focus on ensuring that our operational performance not only meets and exceeds our customers' requirements but also provides us with a competitive advantage.

We have made solid progress in the year and remain committed to delivering improved financial performance whilst being fully focused to stay on track with our ambitious long-term growth plans.

Market

Looking at the automotive market at a macro level, the pace and breadth of innovation in vehicles is considerable. We just have to look at the changing landscape of electronics, powertrain, connectivity, smart design, not to mention related digital services. There are significant implications for the car's interior environment as a result, with major challenges arising from an engineering and value perspective. Autonomous vehicles will only heighten this.

These increasing innovation challenges are re-shaping conventional automotive structures and relationships across OEMs and the tiers of suppliers as well as between the traditional automotive companies and the 'purer' technology companies. The consequential trends may be to drive consolidation and M&A activity but it will also likely encourage sharing of platforms and manufacturing along with outsourcing certain design and technology development. This will inevitably force more critical and focused thinking on what is core to the OEMs and the tiers of suppliers. Our strategy at Autins is to offer clearly differentiated and specialised products that not only play to our core capabilities but also provide a clear advantage to the customer. We plan to do this by partnering with OEMs and Tier 1s alike, so that we can increasingly become and be seen as their NVH partner; supporting them throughout their programme life-cycle, solving their problems.

Strategy

Our strategy has been refreshed as part of our annual business planning cycle and centres on our intent to drive sustainable profitable growth. Our focus is for Autins to be a specialist solutions provider and to operate as one company in everything we do. Our investment programme to fuel our growth is well aligned with this whether it is in new product development and testing capability or in our facilities and manufacturing processes and capacity.

These respective investments in capability and capacity position Autins to capitalise on the significant growth potential in our target markets. Our initial priority has been to ensure that our growth path is clear, focused and being followed and furthermore, to establish a business model that can deliver on this growth potential and be able to scale effectively. In light of this, our operating performance needs to be continuously improving so that we see these scaling benefits reach all the way to the bottom line.

Dividend

The Board is proposing a first final dividend of 0.8 pence per share. The Board continues to adopt a progressive dividend policy alongside continuing investment in the business. The dividend will be paid to shareholders on the register on 19 January 2018 on 16 February 2018.

People

We have outstanding employees and, on behalf of the Board, we would like to thank them all for their ongoing support and commitment to Autins. Our success is built upon a foundation of managing to harness and deploy their experience and expertise across the entire Group, as one company.

Outlook

In the near term, our results will be weighted to the second half of the year. This reflects our ongoing growth in conjunction with our continued investment. Across the full year, we are confident that 2018 will be a period of significant progress for Autins as we work to realise the full potential of the Group.

12 December 2017

Financial Review

Revenue

The Group continued to grow with total revenue up 29% at £26.4 million (FY2016: £20.4 million).

Sales of components increased by 26% to £24.8 million (FY2016: £19.7 million). Direct sales to the Group's largest customer accounted for 64% of Group revenues (FY2016: 65%). The Board expects this concentration to reduce in the coming year as revenues from new customer programmes begin volume production.

Within component manufacturing, flooring revenue grew by 50% to £0.9m (FY2016: £0.6m) with the Swedish DBX business acquired in April 2016 adding £0.1m year on year.

The UK component manufacturing business continued to be a major driver in terms of organic growth, with sales increasing by 20% to £22.0 million (FY2016: £18.4 million). Non-automotive components revenue in the UK increased by £0.2m with ongoing development of the product range to allow access to new markets.

Having secured new work with a major European OEM, German automotive revenues have more than doubled to £1.1m in the year. The Board expect continued growth in the coming year as this contract is implemented across more of the OEMs plants.

Swedish automotive revenues were £0.8m (FY2016: £0.3m) having benefitted from a combination of new platform launches in the second half of 2017 and a full year's trading following the acquisition of the remaining 51% on 20 April 2016.

Sales of tooling increased as anticipated to £1.5 million (FY2016: £0.6 million), with a number of new pressed and moulded components developed and entered into volume production.

Gross margin

Component gross margins increased to 34.6% (FY2016: 33.1%) with the continued benefit of new higher value added contracts secured in previous years.

The Board continues to seek opportunities to improve margins with commercial focus on higher added value products and materials, development of a common operational strategy and targeted capital investments designed to improve efficiency.

EBITDA and operating profit

Adjusted EBITDA was £2.0m (FY2016: £1.4m) with an adjusted operating profit of £1.5m (FY2016: £1.0m) after excluding exceptional and non recurring costs as noted below. Management believe these adjusted measures are more indicative of the underlying business.

Unadjusted EBITDA was £0.9m (2016: £0.9m) after charging £0.55m (FY16: £0.2m) of exceptional costs, and £0.6m (FY2016: £0.3m) of non-recurring incremental start-up costs for the Neptune facility.

Exceptional and non-recurring items

The Group incurred exceptional remuneration and associated costs of £0.2m (FY2016: £nil) as a result of the resignation of the former Chief Executive Officer, Jim Griffin, on 1 February 2017, and subsequent appointment of Michael Jennings.

Following the change of Chief Executive, a review of group staffing was conducted to ensure it was aligned to the Group's strategic growth ambitions and a one company culture. This resulted in a further £0.1m of exceptional costs in the year (FY2016: £nil).

During the year, the Group incurred £0.2m (FY2016: £nil) of costs performing critical repairs to production presses within the Rugby facility. Whilst the Board believe that these repairs arose from an inherent design fault, this is being contested by the equipment manufacturer and the repairs have therefore been expensed as incurred. We continue to work with independent assessors and the equipment manufacturer to achieve an agreed resolution.

Further legal and professional costs of £0.1m were incurred in relation to the Group's IPO in the year (FY2016: £0.2m).

Amortisation of £0.2m (FY2016: £0.2m) in relation to acquired intangible assets has been excluded from adjusted operating profit.

The Group's Neptune production facility has, whilst working towards full operational status, incurred further non-recurring start-up costs for Neptune of £0.6m (FY2016: £0.3m) in the year. This has been part of an extended commissioning period of the plant with ongoing refinement and commercialisation of the Neptune product for use in European OEM markets. Attributable commissioning costs in FY17 totalled £0.4m and have been capitalised. Our current completion schedule indicates we will bring the asset into full use from 1 January 2018, at which time depreciation will commence in line with our accounting policies.

Joint ventures

The Group's current year share of joint venture activities relates solely to Indica Automotive, a foam conversion business based in Northampton. The comparative year included pre-acquisition losses at the Group's Swedish business prior to its full acquisition on 20 April 2016.

Indica Automotive's turnover increased by 43% to £2.6m (FY2016: £1.8m) with a profit before tax of £0.5m (FY2016: £0.4m) after £0.05m of exceptional costs (FY2016: £Nil). The Group's share of profit after tax was £0.2m (FY2016: £0.1m). The business continues to invest in customer facing staff and capital equipment in support of profitable growth and diversification away from the Group who remain the current largest customer.

Currency 

The Group trades in currencies other than sterling, its base currency, due to its three overseas operations and certain raw material supplies. It therefore has a level of operational transactions conducted in Swedish krona and euro. The Group is also subject to currency variation in the re-translation of the results and net assets of those overseas operations.

As a result of the Neptune capital purchase stage payments, the currency with the greatest impact on Group results in the year has been the US dollar. The raw material supply agreement with IkSung means that there will be an ongoing potential transactional risk on our results from the US dollar as Neptune volumes increase.

The Group held no forward currency contracting arrangements at either year-end. During the current year the Group held a forward purchase contract for US dollar in relation to the final IkSung stage payment.

The Group's structure and trading balance are such that net currency exposure is naturally reduced. The Board will continue to monitor the situation and use derivatives to manage the Group's foreign currency risks where the underlying operational business or significant capital expenditure increase exposure. Transactions of a speculative nature are, and will continue to be, prohibited.

Net finance expense 

The Group applied cash from the IPO to significantly reduce bank debt in the prior year and this year settled £1.1m of loan notes outstanding from an earlier buyout of minority shareholders. As a result of this reduced gearing, net finance expense for the year fell significantly to £0.1m (FY2016: £0.6m).

Taxation 

The lower effective tax rate reflects enhanced R&D claims for the current and prior periods, together with utilisation and recognition of brought forward tax losses.

The creation of a dedicated technical Research and Development ('R&D') team together with an expectation of ongoing development of the Neptune product mean that the effective tax rate is likely to remain below the UK statutory level at least in the short term.

The Group's overseas subsidiaries continue to have significant taxable losses available. This will, in the short-term, offset expected trading profits in Germany and Sweden that both have higher corporation tax rates than the UK. As a result of trading in the year and forecasts for FY2018, the Group has recognised a deferred tax asset of £0.2m (FY2016: £0.1m) in relation to these losses. The Group has a further £0.1m (2016: £0.2m) unrecognised tax asset in respect of losses in the German subsidiary.

Earnings per share 

The weighted average number of shares in issue has increased by 7.58m as a result of new shares issued in relation to the Group's IPO on 22 August 2016.

As a result, despite the increased level of profit in the year, earnings per share decreased to 1.82p per share (2016: 2.03p per share).

Had the same weighted average number of shares been applied to the prior year then the FY2016 EPS comparative would have been 1.3p per share.

Dividends 

The Board propose a final dividend of 0.8p per share for the current year. Our dividend policy remains to balance reinvestment in support of the Group's growth strategy whilst progressively growing returns in line with earnings.

Net (debt)/cash and working capital 

The Group ended the year with net debt (cash and cash equivalents less loan notes, bank financing and hire purchase agreements) of £2.0m (FY2016: net cash £3.3m) that included cash and cash equivalents of £1.4m (FY2016: £6.3m). During the year cash was applied to settle loan notes of £1.1m, make the final capital stage payments on the Neptune line of US$2.2m as well as further capital investments and fund working capital. The Group has £0.9m (FY2016: £1.3m) of hire purchase agreements in the UK and £0.4m (FY2016: £0.5m) of long term, asset-backed bank loans in Sweden. These reflect the investments in capacity for growth across the Group prior to the IPO and refinance to HSBC. There were no new hire purchase agreements and £0.1m of new asset backed loans in the year.

As reported last year, the Group had, in support of IPO costs, secured £0.25m of short term extended arrangements with certain key suppliers which were normalised in the year.

Debtors increased in the year reflecting the Group's growth, with the position magnified by the £2m year-on-year increase in component revenue in the final quarter, as well as £0.25m higher tooling sales.

As part of the IPO process, the Group refinanced with HSBC in November 2016 having secured additional facilities to support growth and implementing a central banking platform that allows greater central cash and debt management. The HSBC facilities come without formal covenants and are over a three-year term to November 2019. 

The Directors are satisfied that future funding requirements for the Group's planned growth are adequately supported by these new banking arrangements. 

Acquisitions, goodwill and intangible assets

There were no acquisitions made in the year, but the fair values attributed to the assets of our Swedish entity were revised during the period resulting in an increase to non separable goodwill.

Capital expenditure

Total capital additions were £2.6m (FY2016: £5.0m) in the year. The Group continued to invest in plant for capacity expansion for growth, as well as investment in laboratory and specialist testing equipment for the Group's Technical Centre and R&D team.

In bringing the Neptune operation towards full operational capability, a further £0.85m was spent in the year on commissioning and line improvements.

Financial risk management 

Details of our financial risk management policies will be outlined within the Annual Report and Accounts.

James Larner

Chief Financial Officer

12 December 2017

Consolidated income statement

All amounts relate to continuing operations.

Consolidated statement of comprehensive income

Consolidated statement of financial position

Consolidated statement of cash flows

Non cash transactions

Ordinary shares with a value of £500,000 were issued to settle the consideration for the balance of the acquisition of Autins AB (formerly Scandins AB) and of the non-controlling interest in Autins GmbH (formerly RI Rheinland Insulations GmbH) in the year ended 30 September 2016.

The Group acquired plant and equipment at a cost of £nil (2016: £240,000) under hire purchase arrangements and at 30 September 2016 there was a capital accrual of £1,410,000 which was subsequently settled in the year ended 30 September 2017

Reconciliation of movements in net cash/financing liabilities

Consolidated statement of changes in equity

For the year ended 30 September 2017

The cumulative currency differences reserve may be reclassified subsequently to profit and loss.

1. Basis of preparation of financial statements

While the financial information included in this annual financial results announcement has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards as endorsed for use in the European Union (IFRSs), this announcement does not contain sufficient information to comply fully with IFRSs.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 September 2017 or 2016, but is derived from those accounts. Statutory accounts for the year ended 30 September 2016 have been delivered to the Registrar of Companies and those for the year ended 30 September 2017 will be delivered following the Company's annual general meeting.

The auditors have reported on those accounts; their reports were unqualified and did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports.

Their reports for the year end 30 September 2017 and 30 September 2016 did not contain statements under s498 (2) or (3) of the Companies Act 2006.

The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date.

The consolidated financial statements present the results of the Company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full.

Subsidiaries are all entities over which the Group has control. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Any non-controlling interest in a subsidiary entity is recognised at a proportionate share of the subsidiary's net assets or liabilities. On acquisition of a non-controlling interest, the difference between the consideration paid and the non-controlling interest at that date is taken to equity reserves.

2. Revenue and segmental information

Revenue analysis

Segmental information

The Group currently has one main reportable segment in each year, namely Automotive (NVH) which involves provision of insulation materials to reduce noise, vibration and harshness to automotive manufacturers. Turnover and operating profit are disclosed for other segments in aggregate as they individually do not have a significant impact on the Group result. These segments have no significant identifiable assets or liabilities.

Factors that management used to identify the Group's reportable segments

The Group's reportable segments are strategic business units that offer different products and services.

Measurement of operating segment profit or loss

The Group evaluates performance on the basis of operating profit/(loss). Automotive remained the only significant segment in the year although there has been investment and costs incurred in the development and commissioning of equipment which can manufacture both automotive and other products.

The Group's non automotive revenues including acoustic flooring and building products are included within the others segment. Neither element is considered significant.

Segmental analysis for the year ended 30 September 2017

Segmental analysis for the year ended 30 September 2016

Revenues from one customer in 2017 total £16,960,000 (2016: £13,158,000). This major customer purchases goods from Automotive Insulations Limited in the United Kingdom. There are no other customers which account for more than 10% of revenue.

External revenues by location of customers

The only material non-current assets in any location outside of the United Kingdom are £1,157,000 (2016: £1,099,000) of fixed assets and £629,000 (2016: £574,000) of goodwill in respect of the Swedish subsidiary.

3. Profit from operations

The operating profit is stated after charging:

IPO related expenses

IPO costs spanned the prior year end as a result of the timing of the IPO. Exceptional costs therefore include a further £92,000 of IPO related administrative expenses. Costs of £648,000 in the prior year were offset by £466,000 recharged to Director shareholders who sold shares (£182,000 net).

In addition in the prior year, auditors remuneration of £199,000 in respect of corporate finance services and £11,000 in respect of other assurance services were included in August 2016 share issue costs which were allocated between the share premium account and operating costs.

Other exceptional costs

During the year Jim Griffin resigned as CEO and was replaced by Michael Jennings generating £158,000 of exceptional costs. Following this change of Chief Executive a review of Group staffing was conducted to ensure it was aligned to the Group's strategic growth ambitions with a consequential further £116,000 of exceptional expense in the year. Other exceptional costs of £184,000 relate to critical press repairs that arose following the identification of structural cracks in the head of three new presses within the UK (2016: £nil).

Solar Nonwovens operating loss

The ongoing start up process and commissioning of the major plant for the Neptune line resulted in an operating loss of £590,000 (2016:£261,000) from the incremental costs of the operation and the specific premises taken on for the plant.

Research and development costs

The Group strategically invested in research and development work as disclosed above in order to deliver growth in future periods. Revenue grants of £121,000 (2016: £264,000) are in relation to government assistance on research projects.

4. Finance expense

5. Earnings per share

Earnings per share have been calculated based on the share capital of Autins Group plc and the earnings of the Group for both years. There are options in place over 309,076 (2016: 436,152) shares that were anti-dilutive at the year end but which may dilute future earnings per share.

6. Annual report and accounts

The annual report and accounts will be posted to shareholders shortly and will be available to members of the public at the Company's registered office at Central Point One, Central Park Drive, Rugby, CV23 0WE and on the Company's website www.autins.co.uk/investors.

7. Annual General Meeting

The Annual General Meeting of Autins Group plc will be held at the offices of Freeths LLP, 3rd Floor, The Colmore Row Building, Colmore Circus, Queeensway, Birmingham, B4 6AT on 2 February 2018 commencing at 12 noon.