Autins Group Regulatory News (AUTG)

29 June 2020

Autins Group plc

(the "Company" or the "Group")

Interim Results

Autins Group plc (AIM: AUTG), UK based manufacturer of the patented Neptune melt-blown material and specialist in the design, manufacture and supply of acoustic, filtration (PPE) and thermal insulation solutions, announces its results for the six months ended 31 March 2020.

Financial Summary

· Revenue decreased by 3.2% to £13.22 m (H1 19: £13.66m)

· Gross profit increased by 6.1% to £3.84m (H1 19: £3.62m)

· Gross margins up to 29.0% (H1 19: 26.5%)

· EBITDA profit of £0.71m, incorporating IFRS16 adjustments

· Adjusted EBITDA1 of £0.27m (H1 19: EBITDA loss of £0.16m)

· Adjusted Loss Before Tax1,2 of £0.29m (H1 19: loss of £0.55m)

· Loss After Tax of £0.64m (H1 19: loss of £0.98m)

· Loss per Share of 1.62p (H1 19: loss of 4.42p)

· Adjusted net debt3 of £2.34m (H1 19: £4.66m)

1: Adjusted EBITDA is stated on a consistent basis to H1 19.The H1 20 measure is therefore stated before IFRS 16 lease liability adjustments as well as adding back £0.16m of non recurring costs in respect of the change in CFO (H1 19 £0.31m related to restructuring of overhead costs and bank facilities).

2: Adjusted LBT further excludes £0.12m (H1 19: £0.12m) amortisation of intangible costs

3. Net debt is cash less bank overdrafts, invoice discounting, hire purchase finance and right of use lease liabilities.  Adjusted net debt excludes the IFRS 16 lease liabilities, consistent with H1 19.

Operational Highlights

First Half

· Autins was awarded nine new automotive contracts during H1, with an annualised value of £2.7m (of which £1.0m is expected to benefit FY20)

· 69% of the contracts are in the UK, including our first win on the Mini platform, and 31% in Germany, including a first win on an Audi platform for the electric Etron

· Operational cost and efficiency improvement targets of £2m p.a. were 85% achieved as at 31 March 2020

· Strong operational recovery to profit (pre-exceptional costs) in Q2 2020

· The Company appointed Kamran Munir as CFO on 1st January 2020

· The Company secured £1.5m of long term Midlands Engine Investment Fund ("MEIF") funding to support growth and working capital

Post Period End

· There has been a significant fall off in demand for automotive products during the first few months of H2 and we do not expect this to return to pre-COVID levels in the current financial year

· As a result of COVID-19 and the subsequent closure of all OEM facilities in Europe, Autins closed its plants in all three countries on 22nd March 2020

· The Company has utilised the furlough schemes (in UK, Germany and Sweden) to protect cash and retain skilled labour. Initially the majority of staff were furloughed. Recently, since automotive deliveries re-started and PPE orders have been won over the last few weeks, approximately 50% of the workforce have been re-engaged

· The Company submitted an application for a £2.75m CBILS loan funding through its bankers, HSBC. A term sheet to secure this has been agreed by all respective parties, and preparation of formal legal documentation has commenced

· During April, Autins launched a range of safety face masks in UK using the patented lightweight micro-fibre Neptune technology as the filtration layer and is seeking certification to the respirator BS EN149 FPP2 type for medical applications

· Autins has received an initial order to supply 2 million foam parts for face visors and is looking to extend this demand

· Since the reporting date a range of PPE products and solutions have been developed and sales in the last 2 months have reached £0.4m.

Gareth Kaminski-Cook, Chief Executive, said:

"Like many businesses we have not been able to operate as normal since the arrival of COVID-19. This has been a very tough few months which has seen a temporary but significant fall in automotive demand, necessitating the short term closure of our sites in UK, Germany and Sweden. We would like to thank all of our staff, both those furloughed and the few who remained at work, for having been highly cooperative and supportive during this period.

"An important focus was to secure funding for the Group. Through CBILS and other government schemes, I am delighted with the progress we have made.

"Whilst it is good to see our core automotive market is now beginning to return, we took the opportunity during this period to adapt and best play our part to make a difference in the fight against Covid-19, whilst protecting the Company, our employees and our shareholders.

"We are proud to have successfully applied our material, design and manufacturing skills to deliver much needed safety products based on Neptune, to Britain's key workers, the general public and people returning to their places of work.

We see a bright future where our unique patented Neptune technology underpins three strategies for growth, in automotive NVH, PPE markets of Europe and as a fundamental melt-blown material that has filtration capabilities, in addition to acoustic and thermal performance."

For further information please contact:

About Autins

Autins is a UK based manufacturer of the patented Neptune melt-blown material and specialises in the design, manufacture, and supply of acoustic, filtration and thermal products. Its key markets are automotive, flooring, office furniture, PPE and face mask products.As previously announced, Autins took the decision in March to close the majority of its manufacturing plants and furlough a significant proportion of its staff as a result of plant shutdowns across the European automotive sector. Prior to the onset of the Covid-19 pandemic, the Board was pleased with the progress made by the Group, with the operating performance in the first five months of the financial year being ahead of management expectations and much improved compared to the same period last year. This has been driven by significant improvements in operational efficiencies and better overhead cost control. All three operating countries have been EBITDA positive and the Company continued to win significant new business.

Board changes and employees

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

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

Operational and Financial Review

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

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

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

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

Revenue

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

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

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

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

Gross margin

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

EBITDA and operating profit

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

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

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

Exceptional items

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

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

Joint venture

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

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

Net finance expense

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

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

Taxation

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

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

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

Dividends

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

Net debt and financing

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

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

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

Capital expenditure

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

Government support and cost conservation measures

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

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

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

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

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

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

Going Concern

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

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

Outlook

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

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

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

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

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

Interim Consolidated Income Statement

Interim Consolidated Statement of Comprehensive Income

Interim Consolidated Statement of Financial Position

Interim Consolidated Statement of Changes in Equity

Interim Consolidated Statement of Cash Flows

Notes to the Interim Consolidated Financial Information

1. Accounting policies

Description of business

Autins Group is a public limited company domiciled in the United Kingdom and listed on the Alternative Investment Market of the London Stock Exchange ('AIM'). The principal activity of the Group is the supply of Noise Vibration and Harshness ('NVH') insulating materials primarily to the automotive industry. The address of the registered office is Central Point One, Central Park Drive, Rugby, Warwickshire, CV23 0WE.

Basis of preparation

In preparing these interim financial statements, the Board have considered and applied the impact of new standards which will become applicable for the FY20 Annual Report and Accounts which deal with the year ending 30 September 2020.

With the exception of the adoption of IFRS 16 Leases, which is effective for accounting periods starting on or after 1 January 2019, there are not expected to be any changes in the Group's accounting policies compared to those applied at 30 September 2019.

A full description of those accounting policies are contained within our FY19 Annual Report and Accounts which are available on our website.

This interim announcement has been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards issued by the International Accounting Standards Board, as adopted by the European Union as effective for periods beginning on or after 1 October 2019.

New accounting standards applicable to the period

The Group has adopted the following new standard (effective 1 October 2019) in these interim financial statements:

IFRS 16 Leases (effective 1 January 2019). IFRS 16 is effective for accounting periods beginning on or after 1 January 2019 and impacts the group results for the year ending 30 September 2020. It sets out the principles for the recognition, measurement, presentation and disclosure of leases and replaces IAS 17 Leases and IFRIC 4 Determining whether an arrangement contains a lease. Instead of recognising an operating expense from operating lease payments, the Group instead recognises and presents right of use assets and lease liabilities in its statement of financial position measured by discounting lease payments for qualifying contracts at an incremental interest rate. Interest is charged on its discounted lease liabilities and depreciation on its right-of-use assets, impacting profit/(loss) from operations and the finance expense.

On transition to IFRS 16 at 1 October 2019, the Group has adopted the modified retrospective approach applying certain practical expedients, excluding leases with a duration of less than one year. The net present value of the future lease payments at this date is recognised as an opening transition liability of £6.00m and right-of-use assets were recorded as a £5.49m adjustment to assets, measured primarily by reference to the net present value at lease inception depreciated to the date of transition, together giving rise to a £0.51m charge taken directly to retained earnings reflecting the difference between the finance charges arising in the initial years of the lease terms prior to the transition date determined using an effective interest rate and the straight line depreciation of the assets. Prepaid rent and lease incentive accruals previously recognised are removed and incorporated in the calculation of the IFRS 16 balances. Depreciation of £364,000 has been charged in respect of the assets for the period and finance charges of £147,000 incurred compared with £470,000 of operating lease rentals that would have been charged under the previous basis, an increase of £41,000 in the total charges included in the income statement (see tables in note 6 for the full impact on the financial statements). The comparatives for the year ended 30 September 2019 have not been adjusted and are presented in accordance with IAS17.

New accounting standards applicable to future periods

There are no new standards, interpretations and amendments which are not yet effective in these financial statements, expected to have a material effect on the Group's future financial statements.

The financial information does not contain all of the information that is required to be disclosed in a full set of IFRS financial statements. The financial information for the six months ended 31 March 2020 and 31 March 2019 is unreviewed and unaudited and does not constitute the Group's statutory financial statements for those periods within the meaning of the Companies Act 2006.

The comparative financial information for the full year ended 30 September 2019 has, however, been derived from the audited statutory financial statements for that period. A copy of those statutory financial statements has been delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified, did not include references to any matters to which the auditor drew attention by way of emphasis without qualifying its report and did not contain a statement under section 498(2)-(3) of the Companies Act 2006.

The board have considered appropriate cash flow projections, modelling the impact of an extended downturn, together with the other principal risks identified by the Group, have been prepared. These show that the Group, with the benefit of CBILs funding as described above, which includes £1m of permanent liquidity headroom, could withstand a plausible downside trading scenario with reasonable sensitivities having been considered. Accordingly, these financial statements have been prepared on a going concern basis with the expectation that the CBILs process will complete within the coming weeks, substantively as per the agreed term sheet.

The financial information in the Interim Report is presented in Sterling, the Group's presentational currency.

Basis of consolidation

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.

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.

Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the management team including the Chief Executive, Chief Financial Officer and Chairman.

The Board considers that the Group's activity constitutes one primary operating and one separable reporting segment as defined under IFRS 8. Management consider the reportable segment to be Automotive NVH. Revenue and profit before tax primarily arises from the principal activity based in the UK. Management reviews the performance of the Group by reference to total results against budget.

The total profit measure is operating (loss)/profit as disclosed on the face of the consolidated income statement. No differences exist between the basis of preparation of the performance measures used by management and the figures in the Group financial information

2 Revenue

Segmental information

The Group currently has one main reportable segment in each year/period, namely Automotive NVH which involves provision of insulation materials to reduce noise, vibration and harshness to automotive manufacturing. 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.

Measurement of operating segment profit or loss, assets and liabilities

The accounting policies of the operating segments are the same as those applied by the Group in the FY19 annual report and accounts after making appropriate adjustments for the impact of IFRS16 and as disclosed in note 1.

The Group evaluates performance on the basis of operating (loss)/profit.

Segmental information (continued)

Segmental information (continued)

Reporting of external revenue by location of customers is as follows:

3 Earnings per share

Loss per share is calculated based on the share capital of Autins Group plc and the earnings of the Group for all periods. There are options in place over 552,262 (H1 19: 980,400) shares that were anti-dilutive at the period end, but which may dilute future earnings per share.

4 Non-recurring and exceptional items

The Company acquired 100 per cent of the issued share capital of Acoustic Insulations Limited on 29 April 2014 as part of an overall refinancing package to fund strategic investments and additional working capital to support the growth of the Group. This acquisition recognised £1,909k of intangible assets which creates an annual amortisation charge of £237k.

The Group incurred exceptional costs of £160k in the period in respect of the change of Chief Financial Officer including recruitment fees and compensation costs.

In response to the challenging trading conditions affecting the automotive industry the Group completed a significant overhead cost out programme in the prior period and year and sought to adjust its funding arrangements to suit a period of uncertainty. This programme required a number of redundancies (with associated costs) and additional legal and professional expenses associated with a review of the Group's overall banking facilities and structure resulting in an exceptional charges of £160k.

5 Taxation

Given the Group's trading loss and the ongoing impact of Covid-19 on the current year deferred taxation assets have been reduced in respect of the utilisation of losses carried forward as this is no longer considered sufficiently probable in the short term.

6 Impact of transition to IFRS16

Impact on the Interim Consolidated Statement of Comprehensive Income

Impact on the Interim Consolidated Statement of Financial Position

Impact on the Interim Consolidated Statement of Cash Flows