25 January 2022

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 year ended 30 September 2021.

Financial Overview

·       Revenue increased by 8.9% to £23.4 million (FY20: £21.5 million)

·       Adjusted gross profit increased by 5.4% to £6.3 million (FY20: £6.0 million¹)

·       Reported EBITDA maintained at £1.1 million (FY20: EBITDA¹ £1.1 million)

·       Cash flow from operations of £1.0 million (FY20: £1.5 million)

·       Operating loss reduced by 46.6% to £0.7 million (FY20: loss of £1.3 million)

·       Reported loss after tax reduced by 37.1% to £1.1 million (FY20: loss of £1.7 million)

·       Loss per share decreased by 37.1% to 2.74 pence (FY20: 4.35 pence)

·       Adjusted net debt² increased to £2.7 million (FY20: £1.9 million)

Operational Highlights

·         Revenue improvement reflected a marginal automotive recovery, but mainly growth of £1.7 million in non-automotive revenue, primarily in our flooring applications.

·         Neptune sales increased by 64% to £7.1 million (FY20: £4.3 million) despite pandemic supply chain disruption.

·         Flooring sales grew 161% to £4.7 million (FY20: £1.8 million).

·         Gross margin reduced to 27.0% (FY20: 28.0%¹), 1.4% reduction from cessation of transient sub-contract PPE sales.

·         Further operational efficiency improvements and Neptune manufacturing yield gains bolstered automotive margins against disrupted volume reductions and related cost increases.

·          Further strong performance seen in Germany; sales grew by 69% to £7.5 million (FY20: £4.6 million) and EBITDA increased to £0.9 million (FY20: £0.4 million).

·         Consistent EBITDA of £1.1 million achieved, despite considerable pandemic and semi-conductor disruption challenges.

·         Operating cash inflow was £1.0 million (FY20: inflow of £1.5 million) despite £0.5 million additional inventory, primarily reflecting a strategic buffer investment for critical Far East supplies.

·         £0.9 million of debt was repaid from the operating cash inflow.

·         Post period end, in December 2021, the Company raised £3.0 million (£2.8 million net) via the placing of 15 million new ordinary shares at a price of 20 pence per share with new and existing investors.

1      Adjusted gross profit for FY20 excludes a £0.2 million exceptional inventory impairment, and a further £0.3 million of exceptional restructuring costs are excluded from EBITDA. Gross margin without adjustments in FY20 would be 27.3%. See note 2 for reconciliation.

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

Gareth Kaminski-Cook, Chief Executive, said:

"Despite the ongoing semi conductor challenges facing our UK automotive market, the Group has grown 9% over the past year, driven by ongoing success in Germany, in the flooring market and sales of Neptune products. In the short term, our first priority is to protect the business and ensure that we are in a strong position to capture the automotive market recovery which will surely come. Autins has a unique opportunity to establish a leading position in the development of future Noise Vibration and Harshness needs for EVs and other alternative fuels." 

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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

Continued strategic progress despite automotive market uncertainty

Despite making progress in key strategic areas and achieving sales growth in FY21, the performance for the Group has been constrained due to the global shortage of semi-conductors that limited the ability of our key OEM customers to manufacture vehicles to meet market demand.

Financial performance

Group sales for the year were up 8.9% to £23.4 million (FY20: £21.5 million).

Sales in our core automotive business declined in the second half of the year (compared to H1) due to a reduction in vehicle production by OEMs caused by the global shortage of semi-conductors.  However, automotive sales in the second half were still an improvement on the equivalent period of the prior year, which was severely impacted by Covid disruptions.

Our German business continued its strong performance, growing sales by 69% to £7.5 million (FY20: £4.65 million). This reflected strong flooring sales and some additional automotive revenues compared to FY20.

Adjusted gross margin reduced to 27.0% (FY20: 28.0%) primarily due to cessation of PPE sales and raw material cost price increases which were only partially offset by continued operational improvements. EBITDA (after IFRS 16 adjustments) was stable at £1.1m (FY20: £1.1m).  The operating loss for the Group narrowed to £0.7 million for the year (FY20: loss £1.3 million).

Net debt (excluding IFRS 16 debt) increased to £2.7 million (FY20: £1.9 million) and cash equivalents reduced to £1.2 million (FY20: £2.8 million).  With the reduced cash headroom and the short-term uncertainty on the timing of recovery in the automotive market, the Board decided to raise £3.0 million (gross) via a placing of new shares to ensure the Company is in a position to capitalise on market recovery.  In addition, the Company renegotiated certain of its banking obligations. These actions were completed after the year end and are described further below.

Strategy

The business made good progress in key strategic areas in FY21. 

We continued to use our noise, vibration and harshness ("NVH") expertise to diversify into new markets with European sales increasing by 51% to £9.2 million.  We also made progress diversifying away from our core automotive market with non-automotive revenue growing by 53% to £4.8 million.  Flooring sales were a particular highlight and we are also seeing success in the emerging office pod market.

Neptune, our proprietary melt blown material, continues to be attractive to both existing and new customers due to its specific acoustic and thermal performance and its lighter weight.  It was pleasing to see Neptune product sales increase by 64% to £7.1 million in the year.  We are undertaking investment projects to increase the manufacturing capacity and operational efficiency of our Neptune plant in anticipation of continued sales growth.

We remain committed to becoming a leading NVH specialist to automotive manufacturers in Europe and continue to focus on positioning Autins as an electric vehicle NVH solutions provider.  We are already supplying key brands in this space and are concentrating our R&D efforts on increasing our electric vehicle product solutions while enhancing the environmental credentials of our Neptune material by increasing recycled content.

In the short term, we have taken steps to protect the Group from the reduced vehicle production caused by the global shortage of semiconductors.  We are well placed to benefit from the automotive market recovery once these supply side issues are resolved.

Post year end placing and banking facilities

In December 2021, the Group completed a placing of 15 million new ordinary shares raising £3.0 million (gross).  The Board intends to use these funds to provide the Group with a working capital buffer while the automotive market recovers from the semi-conductor supply issues and to fund increased working capital for growth in Germany and for UK safety stocks.  Part of the proceeds will be allocated to invest in the Neptune manufacturing facilities (to further increase capacity and profitability) and to accelerate electric vehicle product development and other commercial activities.

In addition, the Group has negotiated waivers of its banking covenants to March 2023 and a six month deferral of capital repayments. 

The combination of these actions has significantly improved the Group's liquidity position.

People

In all areas of our operations, the staff of Autins have shown energy, initiative and loyalty throughout the year.  We have had to respond to the lower than expected demand from our core automotive market by adjusting our staffing costs appropriately.  As furlough payments were phased out, we have looked at more flexible ways of working and I would like to thank all of our staff for the support and adaptability that they have shown.

Our people are our greatest asset and we remain committed to providing a safe and rewarding environment for all of our staff.

Ian Griffiths stepped down from the Board in March 2021 having joined at its IPO in 2016.  I would like to thank Ian for his valuable contributions to our Board discussions and wish him well for the future.

Environmental, Social and Governance

During the year we strengthened our ESG policy to include commitment targets to be carbon neutral by 2050 in the UK and to have achieved a 68% improvement by 2030.  We continuously undertake initiatives to improve the efficiency of our manufacturing equipment so that we use less energy and water, whilst reducing waste and increasing the proportion of renewable energy used.  We converted all lighting to LED in the UK and Sweden during the year.  Key areas for improvement in the short-term are continuing reduction of our carbon footprint at our Tamworth Neptune facility and a reduction in staff churn.

We are committed to playing our part in reducing emissions and increasing the environmental benefits of our products and working practices.  Our future is about sustainable growth and Autins has made ESG a central commitment of the business to support decarbonisation and a better environment, promote our social responsibilities and ensure fairness and promote diversity.

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 is currently operating with 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.  We are 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, debt levels and expected capital requirements with a view to reinstating a progressive dividend policy at the appropriate time.

Outlook

In the short term, automotive revenue performance will continue to be constrained by the global shortage of semiconductors.  The Board anticipates improvement in the supply of semiconductors during the second half of 2022 but, due to our financial year end date, this is likely to have a limited impact on FY22 automotive sales. 

The outlook for our non-automotive sales remains strong in the short-term and we will continue to focus on diversification of customers and markets.

The medium term outlook remains positive.  Retail demand for cars remains good and this should result in a strong recovery in automotive sales from current levels once the supply of semiconductors has normalised.  In addition, innovation in flooring and demand for our Neptune technology is underpinning growth in new markets and driving momentum for expansion in Europe.   

The Board expects these factors to improve the sales growth of the Group in the medium term.

Adam Attwood

Chairman

Chief Executive Officer's Review

Delivering operational improvements and accelerating diversification

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 wide 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 truly European business.

Growth in a challenging year

Modest market recovery at the beginning of the financial year delivered some improvement in volumes, which, when combined with improved overhead and operating cost control, led us to finish the half year with a strong EBITDA, operating cash flow and net debt position.  UK automotive sales declined from April onwards as the semi-conductor crisis deepened and this depressed financial performance in the second half of the financial year resulting in a consistent EBITDA for the full year.

Despite these headwinds, it is pleasing to report that we finished the year with Group sales up 9% year on year at £23.4million. German sales flourished, growing 69% to £7.6 million and we capitalised on significant project wins from the previous year to deliver flooring sales growth of 161% to £4.7 million and Neptune based product growth of 64% to £7.1 million. 

Delivering the growth strategy

The diversification strategy is progressing well, where dedicated commercial resource has delivered non-automotive sales growth of 60% which now represents 20% of our sales mix, up from 8% last year (PPE sales excluded).  European sales are now 39% of Group sales, up from 25% last year.

We won 32 projects with 22 different customers during the year, most of which are blue chip brands. 14 projects were won with Neptune products.  The project enquiry pipeline value for FY22 and beyond remains healthy. Continuing our progress in diversification, we began supply of Neptune to DAF trucks in September 2021 and post year end have received our largest purchase order for the supply of Neptune into the walls and ceilings of office pods to be delivered to the US market. 

Looking forward

In the short term, our first priority is to protect the business during the ongoing semi-conductor crisis and ensure that we are in a strong position to capture the automotive market recovery which will surely come in due course.  I would like to thank our shareholders for supporting the recent £3.0 million equity raise, which enables us to protect the interests of all our stakeholders and enables the leadership team to focus on driving sales growth in our core and new markets, whilst improving the profitability of the operations.

Our Group strategy remains unchanged.  We will continue to leverage the superior properties of Neptune and our acoustic and thermal expertise to win market share in automotive NVH and accelerate growth in flooring, workspace solutions and commercial vehicles.  We will also continue to evaluate new, profitable markets and maintain a laser focus on operating costs and margins.

Our core market is undergoing its biggest transformation ever and Autins has a unique opportunity to establish a leadership position in the development of future NVH needs for EVs and other alternative fuels. We have extensive experience in EVs having provided NVH solutions for JLR, AMG, LEVC and Polestar, but future fully electric platforms will create a set of new NVH challenges and we intend to be at the forefront of developing the solutions.

Gareth Kaminski-Cook
Chief Executive Officer

Financial Review

Maintaining business fitness and improving resilience against challenging market fundamentals

In H1, the Group saw partial recovery in automotive volumes and strong growth in European flooring applications. Combined with prior and continuing operations and cost structure improvements this yielded an EBITDA of £1.1 million, a narrowly positive profit after taxation, and an operating cash inflow of £1.0 million. With the Invoice Financing (IF) bank facility also increasing with sales, cash headroom improved to £6.1 million. This performance was encouraging (with the estimated UK volume recovery being no better than 75%) and validated the Group's ability to make significant returns once volumes recover nearer to normal levels.

In H2, the semi-conductor supply disruption then caused significant and unexpected continued monthly revenue reductions; as measured against detailed communicated OEM twelve to sixteen week operational rolling demand schedules. The mid-month and mid-week reductions could be as high as 50%, with the lowest revenue points being July and August (which also usually include holiday plant shutdowns). This was seasonally unusual given that the H2 demand profile is typically stronger than H1 driven by demand from new car registrations. There has been steady revenue recovery since the August lows and ongoing improvement is expected. Overall automotive revenues in H2 were down almost 30% against H1. This drove EBITDA to become negative in H2, with lower operating cash flow. Stock buffering against supply chain disruption and repayment of the £0.75 million CBILS bullet loan also impacted cash headroom.

To strengthen the balance sheet, increase working capital and provide a market recovery buffer, in December 2021 the Group completed a £3.0 million equity placing, largely from existing shareholders, and also obtained further bank support in the form of agreed capital payment deferments and covenant waivers which are described more fully below.

Revenue

Automotive revenues remained disrupted throughout FY21. UK and Sweden were the most impacted, with the disruption causing volume reductions in excess of 50% at certain points in H2. UK Tooling revenues reduced by 76% to £0.3 million (FY20 £1.3 million) as OEMs also slowed new launch and development activities.  Counter to this, Germany experienced significant automotive growth overall from additional contract volume wins, with the supply chain disruption being less acute for the German market until very late in FY21.

Revenues on PPE items in the UK declined from £1.2 million in FY20 to £0.1 million in FY21.The PPE revenues should be considered transient for the FY20 (prior year) peak pandemic period. This was partially offset in the UK with revenues from initial development and launch volumes demand of non-automotive office pods and working space solutions. Both of these markets remain target growth areas for the Group, with sales continuing to increase in the period since the year end, associated with favourable customer product performance feedback.

The most significant revenue growth for the Group in FY21 was in flooring applications from Germany, which grew 161% year on year to £4.6 million. Neptune sales grew 64% to £7.1 million in FY21 (FY20: £4.3 million), primarily within automotive end applications.

Gross margin

Automotive margins were largely stable over the year. This was the net result of a combination of adverse cost push and volume reduction factors, being offset by improvements from operational efficiency actions, improvements in Neptune processes and manufacturing methods and the growth of Germany's non-automotive flooring applications. This is explained further below.

UK Automotive margins had a slightly weaker mix than the prior year, with some traditionally strong products having come to end of life cycle with the OEMs. However, Neptune sales grew as noted above by 64%, and this significantly improved the overall absorption of manufacturing fixed costs in our Tamworth facility. Despite cost push factors mainly relating to Far East container shipments costs and scrim materials, other procurement improvements were made to hold internal Neptune contribution margins steady. The net result is an improved end to end margin on Neptune products, which should continue to improve further with expected Neptune volume increases over the longer term, with some new contract volumes having already been won.

The gross margins on German flooring applications are consistent with our 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 are significantly additive, which is illustrated further below.

Revenue reduction on PPE items as noted above reduced overall gross margin. Much of the FY20 work for face visors was on a subcontract manufacturing basis having no materials costs, and face mask revenues were a mix of sales to both resellers and end users derived from our patented Neptune materials. This profile naturally yielded above average margins. The PPE impact alone is the equivalent of 1.4% gross margin reduction for the Group. With total Group gross margins at 27.0% for FY21, compared with 28.0% (adjusted gross margin) for FY20, the intrinsic aggregate gross margin across all non PPE products is an improvement of 0.4%. As automotive volumes recover towards normalised levels, this should yield further improved absorption of facility fixed costs and the gross margin percentage would be expected to recover further.

EBITDA and operating profit

FY21 EBITDA was consistent at £1.1 million (FY20: £1.1 million) after adjusting for exceptional and non-recurring costs as noted below. The reported statutory operating loss was £0.7 million (FY20: operating loss of £1.3 million), representing an improvement of £0.6m.

Germany sales were £7.6 million (FY20: £4.6 million) and the associated EBITDA was £0.9 million (FY20: £0.4 million) being 12% of Group sales. This helped to offset the EBITDA reductions in UK and Sweden. Sweden revenues were consistent with the prior year at £1.6 million (FY20: £1.6 million) and yielded an EBITDA of £0.2 million (FY20: £0.3 million). UK Revenues reduced to £14.3 million (FY20: £15.4 million) given the automotive supply disruption, and EBITDA reduced to £0.0 million (FY20: £0.4 million). These stated measures exclude the impact of management recharges into Europe, and apply Group plc costs entirely against the UK entities. UK EBITDA and operating profit also benefitted from £0.1 million of release from provisions for bad and doubtful debts, following an extended focus on debtor collection improvement over the prior 18 months.

The Directors also note that £0.65 million (FY20: £1.0 million) of employment costs were met by income from the government job retention scheme, in the relevant publicised support periods in the UK, and their overseas equivalents in Sweden and Germany. There were no other financial support grants during the year (FY20: £0.1 million). In total, government financial support received was approximately £0.45 million lower in FY21 than the prior year.

The FY20 EBITDA is stated after excluding items that management considered to be a result of significant one-off events, including the restructuring costs associated with the detailed review of operations, which followed the new CFO appointment in January 2020. These included employee severance costs and the planned scrapping of inventory to enable improved floor space utilisation with the aim of reducing premises costs. Exceptional costs relating to restructuring in FY20 were £0.3 million, and exceptional inventory impairments were £0.2 million. Management information used in running the Group is measured with a focus on the underlying operational performance and, as such, these items were excluded. There are no such adjustments or exceptional costs recorded in FY21.

The Board acknowledge 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 and adjusting items

There were no exceptional costs charged in FY21. As noted above, in FY20 the Group incurred an exceptional cost of sales of £0.16 million relating to inventory rationalisation and exceptional administrative costs of £0.29 million as a result of a change of Chief Financial Officer.

To be consistent with analysts measure of the Group's performance, amortisation of £0.2 million (FY20: £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 for exceptional costs and amortisation, would be £0.5 million (FY20: £0.6 million).  

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 the access to low cost material and finished component sources provided by its other parent, Indica Industries PV, based in India.

Indica Automotive's turnover increased by 14% to £2.4 million (FY20: £2.1 million). H1 21 revenues were £1.5 million (H1 20: £1.5 million), and revenue declined by 40% in H2 as call offs for existing parts were reduced, given an equivalent impact from the semi-conductor supply constraints. Further margin and overhead cost control actions were taken by management, and £0.05 million of UK furlough income was received, helping to generate a profit after tax of £0.1 million (FY20: £0.1 million). Sales overheads were increased, as the sales organisation was expanded for future growth.

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 are expected to increase from our German business, this would allow us to 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 FY20 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 may implement a formal hedging strategy.

Net finance expense

The finance expense remained consistent at £0.5 million (FY20: £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 (FY20: £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 FY21, with no capital repayments having been made under agreed extension terms. The CBILS short term bullet loan of £0.75 million received in July 2020, at a net zero cash interest cost for the first 12-month period, was repaid to agreed terms in August 2021. The CBILS 6 year term loan of £2.0 million remained outstanding at 30 September 2021 (FY20: £2.0 million), and attracts an interest rate of 3.99% above base rate.

The primary UK invoice financing facility remained undrawn throughout FY21, in line with our strategy to optimise working capital, with an extended focus on debtor collections yet maintaining a timely payment cycle to trade creditors. Inventory continued to be rationalised where possible, however an investment of up to £0.5 million was made in strategic buffer stocks for flooring business growth and protection against Far East supply disruption. Modest short-term overdrafts only prevailed within our Sweden operations and were reduced over the year to end FY21 at £0.02 million (FY20: £0.15 million). Our key Far East suppliers continued to extend the Group's direct open credit throughout FY21, and so the bank trade finance facility was not utilised. Car and equipment finance leases further reduced in FY21 as some agreements completed during the year, with no renewals, which reduced interest costs to £0.02 million (FY20: £0.03 million).

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

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 is considered to be supportable based on the Group's expected trading.

The Group's technical R&D and applications teams have, as in prior years, continued to enhance materials applications, improve processes and develop new products. The pandemic and semi-conductor supply chain disruption to revenues has meant that significant net losses continue to remain available. Accordingly, the Group strategy remains to utilise the losses to obtain actual R&D tax credit cash refunds to maximise liquidity. An R&D tax credit claim will be submitted for FY21 in the usual course. R&D claims for the years ended September 2019 and September 2020 were submitted in FY21 with repayment having subsequently been received. 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 £0.95 million in the UK (FY20: £0.77 million).

The Group's German subsidiary is expected to fully utilise its remaining tax losses in FY21 which will 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 expected trading profits. The Group has a further £0.3 million (FY20: £0.03 million) unrecognised tax asset in respect of Swedish tax losses.

Earnings per share

Loss per share was 2.74 pence (FY20: loss per share 4.35 pence) reflecting the loss in the year. The weighted average number of shares was 39,600,984 in the year (FY20: 39,600,984). Calculations of earnings per share and the potential dilution arising from the senior management share option scheme in future periods are presented in the note below.

Dividends

The Board are not proposing a final dividend for the current year (FY20: £nil) and no interim dividend was paid (FY20: £nil).

Net debt and working capital

The Group ended the year with net debt of £2.7 million (FY20: £1.9 million) excluding the IFRS16 calculated lease liabilities of £5.6 million as disclosed in the reconciliation of movements in cash and financing liabilities.

No additional borrowing facilities were obtained or utilised during the year. In the prior year the Group secured a £1.5 million five-year term loan from MEIF, and £2.75 million of UK CBILS loan funding. Of the CBILS funding £0.75 million was a one-year bullet loan and was repaid to terms in August, with the balance of £2 million outstanding as at the year end.  Hire Purchase liabilities were reduced by £0.1m. Total debt was reduced by £0.9m.

The Group has £0.2 million (FY20: £0.3 million) of hire purchase agreements in the UK.  There were no new hire purchase agreements in the year and the short-term trade import facility was not utilised (FY20: £0.1 million was utilised).

The Group has continued with working capital optimisation in the year, which has been partially described above. Trade debtors improved in the year with a reduction of overdue balances from additional focus and applied resource. There was a release from the bad debt provision in the year of £0.1 million (FY20: £0.0 million). Some of the prior year's provision has been retained against historic overdue invoices which the Group continues to steadily resolve.

Trade creditors reduced in line with activity levels in the year, with payments being made to terms, usually on a weekly cycle. The net movement of debtors and creditors was a £0.2 million inflow. Stocks were increased by £0.5 million, primarily owing to additional buffers being held, as described earlier. 

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.

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 has been agreed in the form of covenant waivers with testing to resume at the end of March 2023. In light of the external trading environment the bank has also indicated a willingness to revise the covenants to better reflect the Group's forecasted trading levels once there is improved visibility over the resolution of the semi-conductor disruption, which is anticipated to occur in advance of the next covenant test date in March 2023. The waivers are coupled with a minimum 6 month capital deferment holiday on both the outstanding CBILS and MEIF term loans. As at 14 January 2022, shortly before the reporting date, the prevailing cash headroom for the Group is in excess of £5.0 million (FY20: £5.6 million). This includes undrawn balances on the UK invoice financing facility which has in excess of £2 million available, with its operational limit currently agreed at £3.5 million against relevant trade receivables. Despite the Covid trading backdrop, the Group reported positive operating cash flows of £0.9 million, and £0.75 million of CBILS loans were repaid during the year.

Whilst the operating cash flows benefit from a combination of improved working capital and cost management, they are also impacted by significant decreases in revenues as a result of the pandemic and semiconductor disruption. The Group has also made further operational and overhead cost improvements, including significant carefully considered headcount reductions which improve the cost structure by more than £0.7 million per annum, with continuing programmes in place to make additional cost and profit improvements.

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 January 2023 for the purpose of assessing the going concern basis of preparation, with further forecasts going out to 30 September 2027. These take into consideration the current and expected future impacts of the pandemic and semiconductor supply recovery timelines, diversification and development of customer product ranges and also have regard to the committed business and enquiry levels from existing customers. The Directors have also considered the impact of current and future demand levels for new vehicles, the migration to EV's 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 loan repayments and interest costs are expected to be adequately covered by operating cash generation over the period and the Group has significant liquidity headroom within its facilities to accommodate all reasonably foreseeable cash flow requirements in the event of changes to its demand as a result of prevailing supply chain conditions, or other economic factors, with further flexibility also available to favourably manage the cost base in respect of operating costs, should the need arise, or flex other payment structures to increase cash headroom.

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 target of £0.5 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 of £9.4 million in FY22 and £14.4 million in FY23. These revenue levels compare with UK revenues of £14.3 million in FY21, £16.8 million in FY20 and £21.3 million in FY19. This compares with UK revenues of £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 will be met, especially having regard to further additional mitigating actions which remain available to the Group.

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 and to allow for the more volatile demand pattern in the current economic environment. 

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 2021 (both existing and generated in the year) by reference to discounted cashflow forecasts for separately identifiable cash generating units. These forecasts are based on Board approved budgets, and extended forecasts where appropriate considering an assessment of likely conversion from pipeline to revenue.

Having considered the assumptions, headroom and a range of reasonably foreseeable sensitivities indicated by these assessments the Board are able to conclude that the carrying values are fully recoverable.

Capital expenditure

Additions to tangible fixed assets were £0.4 million (FY20: £0.2 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 £0.03 million (FY20: £0.13 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