Autins Group Q&A: Diversifying the business with a lot of market share to go after (LON:AUTG)

Autins Group plc (LON:AUTG) Chief Executive Officer Gareth Kaminski-Cook caught up with DirectorsTalk for an exclusive interview to discuss their final results, how they rapidly responded to supply PPE, where the recovery and growth is coming from in 2021, a strong client list of blue-chip automotive companies and how big a part non-auto will become in the future.

Q1: Autins Group announced last week results for the 12 months ended 30th of September 2020. Now, it’s clear that the business is in really good shape, but what specific actions has the management team taken through 2020?

A1: Well, obviously, it was a very challenging year, but we did deliver some really good improvements in the business during the year.

So, we’ve managed to improve the balance sheets in the cash position and so we finished the year with £5.6 million of headroom and that gives us a lot of breathing space. So, we transitioned short term funding support into secure longer-term debt, so we took on £4.5 million of new loan funding with great five-year terms, £3 million of that was CBILS and as a result, we fully paid down the invoice finance facility which we still have access to. So that’s given us a lot of comfort on the balance sheet.

We still maintained a gross margin of 28%, despite sales being 20% lower and that’s a result of significant improvement in the operational efficiencies in the business and we took about £1 million of overheads out of the business, which will have the full year benefit of this coming year. So, in a difficult year, there were a lot of good achievements. We generated£1.5 million of operating cash inflow and reduced the debt by over £400,000, all of which is not a mean feat when the sales were 20% lower in the year.

What it means is that our breakeven point on the businesses probably about 20% lower than it would have been in the sales that we had in the previous pre-COVID year and that’s great progress.

The final thing I’d pick up is the German business still grew 7% year on year, despite COVID, and the profits improved from £100,000 to £400,000.

So, it was a difficult year, but a lot of real fundamental underlying progress in the business so a lot of really good work.

Q2: You also must have been very proud of your staff last year and how they rapidly responded to pivot in the business to supply PPE, whilst the automotive market was shut down?

A2: Absolutely. Well, we had no choice, we had to do something different.

I’m very, very proud of the team, great team, the agility, creativity and the expertise to take our own manufactured materials and design and launch face masks within three weeks, and subsequently gained BSI accreditation was really quite remarkable.

At the peak, we were supplying back 40,000 masks a week and in addition to that, we supplied 7 million foam parts to a company that was supplying into NHS visor contracts. Now all of that contributed about £1.2 million of revenue to the business and whilst all the auto plants were shut down, that was very helpful to the cashflow for the business. So extremely proud of the team.

Since the autumn, the demand for the PPE has dropped off a cliff basically, now that foreign low-quality imports have saturated the markets again, we’re still supplying them, to low level though, so it’s not going to be a strategic segment.

What I think we’ve really learned is that when we focus the business on non-auto segments, other segments with real focus, we can create new business and that’s given us confidence to invest harder and work harder on the non-auto markets.

Q3: Just looking ahead, where is the recovery and the growth going to come from in 2021? What are your customers actually telling you?

A3: So, the auto market will recover, it’s a question of when that starts. We did see a fast recovery at the end of August through to until October and it’s when will that begin again now?

In addition to that, we have won a lot of new business over the last two years, which is due to start or it’s due to benefit from the market recovering. Last year, we won 25 new contracts with over £11 million in annualised value, 19 of those were in automotive, 7 in flooring commercial – that’s off highway vehicles – and office parts. So, some of those contracts already started at a low level because it’s the COVID period, and some will start doing this year, and some next year but when the markets recover, this will support a rapid growth and is a good foundation for the future.

During the year, we did notably win BMW Mini and also Audi e-tron, another electric vehicle, into our portfolio of vehicles we supply. We’ve won some very large contracts in flooring as well and we’ve won three new customers on commercial vehicles.

Our customers though, the automotive customers, regarding that market recovery, they’re saying their executive and luxury vehicles brands sales are very strong. Currently their own production is behind because they have supply chain challenges, which are well-published publicized, but when the recovery does start, they’re telling us, make sure that you’ve got the supply and the capacity in place to meet the heightened demand from them.

So, it does look positive, it’s just about when does that really kick in?

Q4: As you say, you’ve got an incredibly strong client list of blue-chip automotive companies, do you see BMW or Volkswagen becoming as big as JLR in the future?

A4: That’s a good vision and why not. There’s no reason why the European business shouldn’t be much bigger than the UK business and that is the vision we have, it’s just a matter of time.

We’ve grown the customer base and expect to keep winning additional business across Europe whilst adding more customers. The Neptune technology really has helped to open the doors to the blue-chip customers in Europe and then we back that up with world class quality and on-time delivery performance.

So, we’re easy to do business with and the breadth of our offering is valued by our customers, but these companies didn’t know us five years ago, so we just have to build our reputation, have some patience but the direction of travel is, is really excellent.

We now have over £40 million of inquiry pipeline out there, and that conversion rate has been really quite good, and it gets better so this all bodes very well for the future growth across Europe.

Q5: Now, as you mentioned earlier, you, you are working hard to build out your non-auto business. How big a part of Autins Group do you see that becoming in the future?

A5: Well, currently, it’s very small, it grew from 7% to 14% in this last year, so it’s still progressed very well.

The flooring business has done very well, it will double in this coming year based on wins we had in this last year. I’d expect over the next two to four years, that it will become 30% of our business, we certainly want to diversify the business, have more customers, more outside UK so we’ve got spreading our business and there’s a lot of market share to go after in Europe. There are lot of non-auto segments that we can supply, we’ve picked a few that we’re really going to focus on.

Our experience is that when you have dedicated commercial resource and that’s what we’ve had on flooring for many years, then you can really build your reputation with those customers in those markets. Our activity in the summer with PPE gave us the confidence and, if you like, the burning platform to say, we’ve got to now commit resource so we do now have commercial dedicated commercial resource in UK and that will underpin our ongoing growth there.

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