CTA Ct Automotive Group Plc

26 September 2024

CT Automotive Group PLC

("CT Automotive" or the "Group")

"Good visibility for both 2024 and 2025 with further margin improvement"

CT Automotive, a leading designer, developer and supplier of interior components to the global automotive industry, today announces its results for the half year ended 30 June 2024 ("H1 24").

Simon Phillips, Chief Executive Officer of CT Automotive, commented:

"Our focus on delivering margin improvement continues to come through with profit before tax on track to be in line with market expectations for the full year and the profit before tax margin slightly ahead.

For the first-half, gross profit margin improved by 250bps to 28.7%, compared to H1 23, reflecting successful cost reduction initiatives. As a result, the Company has delivered an Adj. PBT of $4.1million, a substantial improvement of 59% on the prior year. Existing customer volumes have aligned back to current demand as expected. However, five key contract wins from existing customers in H1 24, worth an estimated $27.5m annually¹ have boosted our order book through to 2027, which with further prospects leave the business well placed to grow revenue by taking market share."

Financial highlights⁺

* Adjusted for non-recurring items as explained in Notes 4 and 13 of the consolidated condensed financial statements

** Net debt excludes IFRS 16 lease liabilities

⁺Note: the above figures are derived from continuing operations excluding UK discontinued operations

HY24 financial highlights

·    Total revenues of $60.5m (H1 23: $68.2m)

o  Tooling revenues almost doubled to $4.5m (H1 23: $2.4m) providing an enhanced pipeline for future revenues

o  Production revenues reduced to $56.0m (H1 23: $65.8m) as a result of volumes declining in line with the broader automotive market

·    Five contract wins in the period from existing customers, worth an estimated $27.5m annually[1] to supply components for new EV models from global OEMs as well as two hybrids and one ICE

·    Gross profit margin improved by 250bps to 28.7%, as a result of management action to reduce direct cost from the start of 2023

·    Adjusted PBT grew by 59% to $4.1m (H1 23: $2.5m), reflecting savings in direct and indirect costs

·    Positive operating cash generation in H1 24, resulting in net debt of $5.8m (excluding IFRS 16) (H1 23: $9.0m)

·    Discussions are progressing well towards securing a new borrowing facility, and are expected to complete imminently

HY24 operational update

·    A solid period with all production facilities working to plan both in terms of output and the longer term delivery of additional capacity with further efficiencies driving improved margins

o  China recorded strong gross profit margin improvement and is pursuing further cost reduction programmes which, if successful, are to be rolled-out group wide

o  Inflationary pressures in Türkiye have eased with an improving outlook as tighter monetary policy takes effect

o  Mexico has good visibility on incoming contracts to expand current revenues, capitalising on demand from US companies looking to near-shore supply

Current trading and outlook

·     Trading in the initial months of H2 24 has been robust across the Group and the Board anticipates that, with the successful margin improvement initiatives made across the business, profit before tax is on track to be in line with market expectations for the full year and the profit before tax margin slightly ahead

·      Relentless focus on both direct and indirect costs, utilising digitisation, robotics and artificial intelligence to improve and expand automation of the Group's operations

·      Expanded business development team across key OEM markets to drive future revenue growth

·     New programmes that commenced production in 2024 have added to revenue visibility for 2025 and looking further ahead we have a strong order book of programmes commencing between 2025 and 2027 as well as a good pipeline of RFQ's

[1] Estimated annual value is based on customer nominations from underlying OEM and is expected to span five to six years

Investor Presentation

The Company will hold an investor presentation to discuss the interim results, followed by a Q&A session, on 26 September 2024 at 11.00am. To attend, please register with PI World via this link: https://bit.ly/CTA_HY24_results_webinar

Enquiries:

Notes to editors

CT Automotive is engaged in the design, development and manufacture of bespoke automotive interior finishes (for example, dashboard panels and fascia finishes) and kinematic assemblies (for example, air registers, arm rests, deployable cup holders and storage systems), as well as their associated tooling, for the world's leading automotive original equipment suppliers ("OEMs") and global Tier One manufacturers.

The Group is headquartered in the UK with a low cost manufacturing footprint. Key production facilities are located in Shenzhen and Ganzhou, China complemented by additional manufacturing facilities in Mexico, Türkiye and Czechia.

CT Automotive's operating model enables it to pursue a price leadership strategy, supplying high quality parts to customers at a lower overall landed cost than competitors. This has helped the Group build a high-quality portfolio of OEM customers, both directly and via Tier One suppliers including Forvia and Marelli.  End customers include volume manufacturers, such as Nissan, Ford, GM and Volkswagen Audi Group, and premium luxury car brands such as Bentley and Lamborghini.  In addition, the Group supplies all our customer base with a range of products for PHEV and BEV platforms and supplies electric car manufacturers, including Rivian and a US based major EV OEM.

The Group currently supplies component part types to over 57 different models for 22 OEMs. Since its formation, the Group has been one of the very few new entrants to the market, which is characterised by high barriers to entry.

Use of alternative performance measures

The commentary uses alternative performance measures, which have been adjusted for certain non-recurring items. An explanation of the items identified as non-recurring and that have been adjusted can be found in Notes 4 and 13 of the consolidated condensed interim financial statements.  Non-recurring items are items which due to their one-off, non-trading and non-underlying nature, have been separately classified by the Directors in order to draw them to the attention of the reader and allow for a greater understanding of the operating performance of the Group. 

CEO Statement

Overview

I am pleased to report on a positive set of results for the first six months of 2024. The business has good visibility on its growth trajectory for 2025 and subsequent years, and with less than 5% share of the global market at present, continues to see substantial scope for growth.

In 2024 the global Automotive supply chain experienced a challenging period caused by OEM destocking, a somewhat volatile and uncertain transition from internal combustion engines (ICE) to EV's, as well as weaker underlying consumer demand caused by higher interest rates. This is impacting the entire industry, especially the larger OEM's.

Despite this, as a smaller, lower cost and more agile operator with the ability to respond quickly, CT Automotive continues to perform well, take market share and grow profits.  In H1 we grew adjusted PBT by 59%, enjoyed five new business wins on our customers' platforms and have been very active in responding to multiple RFQ's across our customer base.

Our confidence in our products and operating model alongside our ability to deliver across all vehicle types gives us the belief in our ability to win further market share with both existing and new customers to drive revenue growth. As a result, in H1 we expanded our sales teams across the organisation to capitalise on these significant, tangible opportunities ahead.

We continue to focus on costs and are now trialling a number of technologies to drive automation across all areas of the business and improve efficiency allowing us both to optimise margins and invest in the Group's future.

Trading

The Company has strong visibility over both booked production and tooling revenues for the remainder of 2024 and into 2025.

As anticipated, production demand in the current year declined in line with the broader automotive market, with total revenues 11% lower in H1 versus the same period in 2023. These trends are expected to continue into H2 but will be offset by further improvements in the Group's margin that will come from cost reduction programmes put in place over the past 18 months, further costs savings to commence in H2, as well as an increased mix of higher margin tooling revenues.

In H1 2024 gross margin improved once again to circa 29%, building on last year's growth from 12% to 22%, benefitting from the annualisation of last year's cost saving measures as well as some new initiatives. Moreover, we are planning future cost reduction programmes which will utilise robotics, digitisation and artificial intelligence to drive further automation across all aspects of the Company's operations.

Adjusted PBT grew to $4.1m (H1 23: $2.5m) supported by the cost reduction programmes as well as savings in operating expenditure, driving EPS growth of 176% with EPS on continuing operations of 4.7c.

New business development

Momentum in our order book is building and in H1 this year, we were awarded five new contracts from existing customers, worth an estimated $27.5m2 annually. These include EV models  hybrids and one ICE with revenue coming on stream from the start of 2026, reflecting typical long product cycles. These wins highlight our customers' confidence in our ability to deliver a high-quality product at the right unit cost in a timely manner. Prospects for further growth are positive with a strong pipeline of RFQ's.

We anticipate further opportunities for new business and so have taken the key decision during H1 to invest in expanding our New Business Development team, adding sales expertise into Korea, Türkiye, Europe, Mexico and North America. This investment is a reflection of our confidence in the opportunity to continue to grow through existing customer referrals as well as adding new leading auto manufacturers as customers.

2 Estimated annual value is based on customer nominations from underlying OEM and is expected to span five to six years

Manufacturing base

China

Our relentless focus in China on reducing costs delivered a material improvement in gross profit margin. This has been enabled by the annualization of our cost reduction programmes in 2023 and initiatives commenced in 2024. We expect to see some sales migrate from China to Mexico as North American OEM's and Tier One suppliers near-shore supply. In response, we are right-sizing operations to match demand.

China is the Group's centre for testing cost reduction programmes, all of which going forward will be automation led. Currently, we are trialling the application of robotics to assembly processes, injection moulding and painting. Similarly, we are trialling AI for basic administrative tasks, with the potential to significantly reduce headcount. Each programme that is successful will then be rolled out across Türkiye and Mexico.

Türkiye

Our manufacturing site in Gebze, Türkiye traded well, primarily supplying the domestic market. The easing of inflationary pressures in Türkiye due to a tighter national monetary policy position has been helpful over the period. The business has an effective cost escalation system in place to pass on inflationary and currency cost increases, and management have also introduced shortened payment terms further reducing the Company's exposure. The ability to provide a total solution in Türkiye from design to production differentiates this business from peers and means it is well placed to continue to attract new customers.

Mexico

The decision to open a manufacturing site in Puebla, Mexico in 2022 is proving to be a pivotal decision for the business. In H1, the site performed well with trading delivering to plan. Alongside this, demand has expanded significantly as US companies look to relocate production. This is in part to be tax efficient, but also to be close to their home market. To accommodate future demand, additional capacity will be added over the next 18 months. In addition, CT Automotive México has now successfully achieved the commercially important IATF 16949:2016 and ISO 9001:2015 certifications.

Sustainability

We are very mindful of our responsibilities to create a sustainable business that will allow all stakeholders to prosper whilst reducing our impact on the environment. In 2024, as part of furthering our commitment, we were pleased to receive the Ecovadis Silver Award. Placing us in the top 15% of companies assessed by Ecovadis, scoring highly in Environment, Ethics, Labour and Human rights and Sustainable Procurement.

To support our various stakeholder groups, we are also working with Integrum which provides real time ESG data analysis for investors who are faced with more granular ESG reporting and more stringent regulatory requirements.

People

I am, as ever, very grateful to our entire workforce for their continued efforts to develop the business and deliver consistently high-quality products to our automotive customers from around the world. It is their collective endeavours which underpin our future success.

Current trading and outlook

Trading in the initial months of H2 24 has been robust across the Group and the Board anticipates that with the successful margin improvement initiatives made across the business that profit before tax is on track to be in line with market expectations for the full year and the profit before tax margin slightly ahead.

Visibility over the Company's expected trading performance in 2025 has improved as we benefit from a full year's revenue contribution from new programmes which commenced part way through 2024 as well as further programmes coming on stream through the year

In addition, there is a good pipeline of new business prospects, further supported by the investment made in expanding our global business development team.

Automation is an exciting area for the business and will enable further fixed cost reductions over time to support our low-cost positioning and afford us the ability to increase investment behind the business.

The automotive industry is undergoing a transitional period with a slower than expected move away from ICE, leading to changes in production levels and delays in new launches. Nevertheless, CT Automotive is navigating these conditions well, supported by two key drivers. Firstly, we are deploying a range of strategies to capitalise on the market share opportunity, and secondly, the automation led cost reductions we are currently trialling have the potential to drive a further step change in efficiency.

Financial review

Revenue and margins

During the first half of 2024 the Group generated total revenue of $60.5m, compared to $68.2m revenue generated during the comparative prior period.  The $7.7m reduction in revenue was due to production volumes aligning with consumer demand, which resulted in $56.0m of production revenues (H1 23: $65.8m).  This was partially offset by an increase in tooling revenue from $2.4m in H1 23 to $4.5m in H1 24, as the number of tooling projects increased from 5 to 7.

Despite a reduction in revenue, the Group's gross profit was maintained at $17.4m, broadly similar to H1 23 levels of $17.8m.  Gross margins improved to 28.7% (H1 23: 26.2% and FY23: 21.6%) further benefitting from materials and labour cost savings as a result of ongoing efficiency and margin improvement initiatives. As part of these initiatives, labour savings contributed 1.6% towards H1 24 gross margin improvement, while materials savings contributed 5.9% when compared to FY23 gross margin.

Non-recurring items

During H1 24 the Group has reduced its non-recurring items to $0.3m (H1 23: $1.2m).  These non-recurring items represented the impact of accounting for hyperinflation in Türkiye.   For further details, see Notes 4 and 13 of the consolidated condensed financial statements.

EBITDA and operating result

H1 24 adjusted EBITDA was $7.4m (H1 23: $6.7m) while reported EBITDA was $7.1m (H1 23: $5.4).  The improvement in adjusted EBITDA mainly came from an increased tooling gross profit and a reduction in distribution and administrative expenses.  A reduction in distribution expenses was due to container rates settling to pre-Covid levels and lower sales volumes.  An improvement in administrative expenses mainly came from the overheads savings initiatives.  During H1 24  the Group incurred $0.7m of foreign exchange losses (H1 23: $0.3m gains) due to exchange rate movements primarily against the US$ and from intercompany  balances.

Depreciation and amortisation charges reduced to $2.1m (H1 23: $3.0m) benefitting from the extended useful economical lives of plant and machinery which were revised at the end of December 2023.  Therefore, the resulting adjusted operating profit was $5.3m (H1 23: $3.7m) and reported operating profit was $5.0m (H1 23: $2.4m).

Profit from continuing operations and EPS

H1 24 adjusted profit before tax was $4.1m (H1 23: $2.5m), while reported profit before tax was $3.8m (H1 23: $1.3m), taking into account non-recurring items of $0.3m (H1 23: $1.2m).  Profit after tax from continuing operations was $3.5m (H1 23: $1.0m), resulting in basic EPS from continuing operations of 4.7c (H1 23: 1.7c).  

Discontinued operations

During the first half of 2024 the Group has completed the liquidation of CAS, its UK manufacturing subsidiary.  H1 24 gain attributable to the discontinued operations was $0.2m (H1 23: $0.4m loss) and related to a release of previously booked provisions which were not required.

Capital structure, working capital and interest

Since December 2023 year end, the Group saw its net asset value increase to $21.6m (FY23: $17.0m), main driver being $3.6m of net profits generated during the period.

Non-current assets remained broadly the same at $18.0m (FY23: $18.1m), while the current assets have reduced to $60.3m since the year end (FY23: $66.3m) and current liabilities reduced to $51.3m (FY23: $62.0m).

During the first half of 2024 the Group continued to actively manage its trade payable balances in China, contributing to a reduction from $43.4m to $36.7m.  This was the primary driver for the reduction in current liabilities.  This in turn has contributed to a reduction in cash and cash equivalents to $4.4m (FY23: $9.4m).  It should be noted that the year-end cash balance was boosted by the timing of December payroll payments in China of $1.7m which took place in early January 2024.

Net debt as at 30 June 2024 was $5.8m (FY23: $3.8m) and included cash and amounts drawn on the Group's trade loans and invoice finance facilities with HSBC.  After applying IFRS 16 accounting for right-of-use assets on current and non-current lease liabilities, net debt as at 30 June 2024 was $14.4m (FY23: $12.7m).

The Group uses HSBC post-dispatch trade loans and invoice financing facilities as an additional working capital lever. As at 30 June 2024 the amounts drawn on the Group's trade loans and invoice finance facilities were $10.2m (FY23: $13.2m) against total available facilities of c.$21m.  Net finance costs remained at similar levels at $1.2m (H1 23: $1.1m).

As previously announced, the Group is well advanced to refinance the current HSBC facilities to put in place an asset backed facility.  It is anticipated that, once in place, the new facility would support the Group's international expansion plans and will be committed over the medium -term.  We are expecting to complete the refinancing process and make an announcement in the coming weeks.