REG - CT Automotive Group - Results for the year ended 31 December 2022
16/06/2023 07:00
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RNS Number : 9205C CT Automotive Group PLC 16 June 2023
16 June 2023
CT AUTOMOTIVE GROUP PLC
("CT Automotive" or the "Group")
Audited Results for the year ended 31 December 2022
Encouraging trading in 2023 - well positioned as operating conditions
stabilise
CT Automotive, a leading designer, developer and supplier of interior
components to the global automotive industry, today announces its results for
the year ended 31 December 2022 ("FY22").
Scott McKenzie, Chief Executive Officer of CT Automotive, commented:
"The Group navigated through a turbulent year and is now on an upward
trajectory, with new awards and customer wins. We responded to the challenging
operating conditions while focusing on executing our important strategic
priorities. This included opening our new facility in Mexico, winning new
contracts and making good progress with margin enhancement initiatives.
Trading in FY23 to date has been encouraging as market conditions have
improved, with increasing stability and visibility from customers. Meanwhile,
our roadmap to drive further efficiencies in the business is on track. While
macroeconomic uncertainty remains, the Board remains confident of achieving
its expectations for FY23 and delivering significant growth in the
medium-term."
Financial headlines
Audited Restated
FY 22 FY 21
$m $m
Revenue 124.3 127.8
Gross profit 14.9 25.2
Adjusted EBITDA* (7.1) 3.3
Adjusted loss before taxation* (14.5) (6.8)
Loss before taxation (18.8) (12.4)
Earnings per share (42.9)c (55.2)c
Net debt 12.2 9.1
* Adjusted for non-recurring items
Note: continuing operations excluding UK discontinued operations
· Group revenue from continuing operations was broadly maintained at
FY21 levels
· Strong FY22 production revenues despite volatile and short-term nature
of customer orders offsetting reduced tooling revenues
· Profitability impacted by increased production and distribution costs
as the Group reacted to maintain service
· Balance sheet strengthened following post period-end fundraise with
gross proceeds of $9.6m predominately to support working capital
Operational highlights
· Cost savings programme is progressing as planned
o Commenced in H2 FY22 to improve the profit margin across the Group's
operations and further enhanced in the new financial year with roadmap to
realise c.9 percentage points profit before tax margin improvement
· Supply chain disruptions and semi-conductors shortages impacted
production levels
· New customer wins including Rivian and Vinfast
· New manufacturing plant in Mexico opened and supplying customers
Current trading and outlook
· Encouraging current trading, with strong customer demand and order
book
· The Group's manufacturing facilities have recovered from the specific
operational challenges experienced in Q4 2022
· Global chip shortage is subsiding with the majority of semiconductor
suppliers already reporting or expecting a semiconductor surplus in 2023(1).
· Efficiency initiatives have started to come on stream and are
delivering run rate pre tax profit margin of approximately 7.6 per cent, in
line with plan
· No change to the Board's expectations for FY23
Notes
1.
https://advisory.kpmg.us/articles/2022/global-semiconductor-industry-outlook-2023.html
(https://advisory.kpmg.us/articles/2022/global-semiconductor-industry-outlook-2023.html)
For further information, please contact:
CT Automotive via MHP
Simon Phillips, Executive Chairman
Scott McKenzie, Chief Executive Officer
Anna Brown, Chief Financial Officer
MHP (Financial Tel: +44 (0)7834 623 818
PR)
CTAutomotive@mhpgroup.com (mailto:CTAutomotive@mhpgroup.com)
Tim
Rowntree
Charlie Barker
Liberum (Nominated Adviser and Broker) Tel: +44 (0)20 3100 2000
Richard Lindley
Benjamin Cryer
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, Turkey and the
Czech Republic.
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 roster
of OEM end customers, both directly and via Tier One suppliers including
Faurecia and Marelli. End customers include volume manufacturers, such as
Nissan, and luxury car brands such as Bentley and Lamborghini. In addition,
the Group supplies electric car manufacturers, including Lucid. It is also
working with e.Go Mobile, a German manufacturer which plans to launch a series
of small electric vehicles for the budget end of the market.
Strategic and operational review
Introduction
FY22 presented a series of unforeseen challenges for CT Automotive - both on
the supply and demand sides of our business. We responded to the challenging
operating conditions while focusing on several key strategic initiatives set
out at our IPO in late 2021. This has left the business in a stronger position
to deliver on our growth strategy and capitalise on improved market conditions
as we move through FY23.
We would like to express our gratitude for the unwavering support from the
shareholders, lenders, suppliers, employees and customers during the year.
Their backing has been instrumental as we navigated the challenges presented
to us.
In particular, we would like to thank our existing and new shareholders who
supported us in the recent fundraising which secured c$9.6m of gross proceeds.
The net proceeds of the fundraise will predominately be used to strengthen the
balance sheet and to provide the Group with flexibility to take advantage of
new pipeline opportunities as the business positions for growth. Additionally,
a small portion of the net proceeds will be deployed to realise further
efficiency savings including through investment in injection moulding
production processes and robotics.
Overview
CT Automotive is a leading manufacturer of kinematic parts and decorative
finishers for car interiors, supplying some of the world's largest Original
Equipment Manufacturers (OEMs). With manufacturing facilities located in
low-cost economies, we leverage our strategic presence to provide full service
through our efficient distribution centres, creating a streamlined and
robust supply chain.
Over the past year, CT Automotive has made further strides in the highly
competitive automotive industry.
We further strengthened our market position through significant new wins with
existing blue-chip customers such as Nissan, Ford and Lotus and also secured
partnerships with new electric vehicle (EV) start-ups such as Rivian.
We successfully opened a new production facility in Puebla, Mexico, in-line
with our plans outlined at our IPO in December 2021 and despite the headwinds
caused by the global pandemic. This strategic move has allowed us to diversify
some of our production away from China, secure an improved supply chain for
the Americas and enabled us to offer our customers in the region better
pricing.
We are pleased to report that the plant is now fully operational and is
performing to plan, after overcoming initial start-up issues during the first
few months caused by fluctuations in customer production schedules as a result
of supply chain issues detailed below.
During the year our business experienced significant challenges posed by
lockdowns in China, which resulted in the enforced closure of our factories
for up to 20% of the year. This also strained the supply chain and had a
ripple effect on our suppliers, causing significant inefficiencies and
production delays. Following the reversal of the zero-Covid policy towards the
end of FY22, our manufacturing facilities in China have been able to rapidly
return to full production capacity and drive efficiency back into the
business.
As previously announced, increased labour, production and utility costs have
led to the closure of our UK production facility in Sunderland with the
majority of production capacity relocated to other Group sites.
Performance summary
We are pleased to report that our revenues from continued operations remained
broadly flat at $124.3m (FY21: $127.8m), despite the challenges experienced
over the past year. Although customer demand continued to improve compared to
FY21 as the industry recovered from Covid-19, production levels were highly
unstable due to wider automotive supply chain disruptions and semi-conductor
shortages, which adversely impacted our profitability. Notwithstanding this,
we continued to secure significant new development contracts, which underpin
our future growth and demonstrate the OEMs' confidence in our capabilities.
Market conditions
The past year presented numerous hurdles for our business: semi-conductor
shortages hampering OEM production, China's 'zero-Covid' policy which led to
enforced plant closures, surging shipping container prices and general supply
chain disruptions. High inflation rates in the UK in the latter part of FY22
caused an increase in energy and materials prices and labour costs and led to
the decision to close our UK plant. In addition, the hyperinflationary
environment in Turkey drove up energy and material costs and led to wage
increases at our local facility. Despite these challenges, we were able to
share certain costs with our customers and maintain supply.
In order to better manage potential demand volatility, the Group is investing
in improved stock management processes and in increased automation of the key
production processes. The new stock management processes are aimed at
optimising inventory levels, thereby reducing costs and freeing up cashflow
through improved production planning and material management, freight packing
optimisation and a more efficient utilisation of production staff. The
Directors believe that these improvements will strengthen the Group and
improve operations but also better position the Group to mitigate similar
adverse events that may occur in the future.
Key achievements
Our new facility in Puebla, Mexico, opened in late 2022 to support local
supply to our North American customers and, following initial production
delays due to the impact of continued supply chain disruption, production is
now ramping up. The timely closure of our Sunderland production facility
helped to curtail future production losses in the UK.
During the latter part of FY22 we successfully introduced production line
efficiencies, while our new global supply chain office in Pune, India, has
already identified and secured significant material cost savings.
Importantly, last year we successfully launched several new interior programs,
showcasing the Group's wide range of engineering & design skills for air
vent, wrapped panels, interior lighting, console lids and kinetic assemblies.
In FY22 CT Automotive delivered a variety of new projects for example,
producing sun visors, mirror covers, footwell dividers and armrest hinges for
Lotus, air vents and cup holders for Ford and air vents and wrapped panels for
Marelli.
Strategic update
Our strategic focus is: on successfully securing new contracts, particularly
new EV platforms, and on achieving further cost savings.
New contracts
During FY22 the shift to EV accelerated faster than anticipated. We recognise
the need to monitor the transition of legacy automakers to EVs closely and the
increasing competition from Chinese OEMs presents a forward threat to European
and US OEMs. As the industry navigates through this period of transition, we
are well positioned to secure EV platform contracts with existing customers,
including Ford and a leading American EV OEM. In addition, with our
manufacturing capabilities in China, we are strategically well placed to
embrace the fast-growing Chinese EV market and domestic OEMs.
Margin enhancement initiatives
Our emphasis on cost savings is underpinned by a pricing strategy to ensure
the very best landed costs to our customers, acknowledging the industry
practice that, where applicable, cost increases of materials, labour, freight
and in some cases utilities are passed across to our customers.
In the second half of FY22 the Group commenced an efficiency programme to
target further cost savings across the Group and to realise an approximately
nine percentage point improvement in pre-tax profit margin. The efficiency
programme includes proposals to increase the flexibility of the Group's
workforce and increasing the agility of the Group in response to elevated
variability in customer order volumes. These proposals aim to ensure that the
Group maximises its profitability while global automotive volumes continue to
recover, and the Directors believe that these actions will ensure that the
Group is well placed to further benefit from anticipated increased production
volumes going forward.
As part of the efficiency programme, initial preparations are underway to
consolidate some of the Group's manufacturing operations in China to Ganzhou,
Jiangxi province, benefitting from comparatively lower labour costs.
Additionally, the Group's proposed investment in robotics will realise
efficiencies in the injection moulding process, with equipment expected to be
deployed at the Group's manufacturing facilities in China by Q4 2023, with a
short payback period. The combination of increased automation and the
consolidation of our manufacturing facilities in Jiangxi would significantly
improve our agility and responsiveness.
While the full benefits of these initiatives will be felt in FY24, action
already taken to date resulted in a run rate pre-tax profit margin of
approximately 7.6%. Action to be taken later in the year is expected to
realise a further approximately 3 percentage points of margin, resulting in a
run rate pre-tax profit margin by the end of the year of 10.5%.
Focus on quality
The automotive industry is widely recognised for its stringent quality
standards, as even a small number of non-conforming parts reaching the
customer can result in costly penalties. Consequently, the Group places
significant emphasis on maintaining exceptional quality. In addition to
delivering optimal cost efficiency to our customers, we prioritise providing
them with products of the highest quality. This commitment is upheld through
the implementation of rigorous quality checks (QC) throughout the production
process and the internal "firewall" quality teams during a "safe launch"
period of typically 90 days from the start of production during which 100% of
new product is inspected. As a testament to our dedication, CT Automotive
China and Turkey plants were recertified under the IATF 16949:2016 standard in
FY21, while our plant in Mexico is expecting the certification audit in late
FY23, further underpinning our commitment to excellence.
Health and safety
The well-being and safety of our employees take precedence above all else.
Recognising that certain operations conducted within our global facilities
possess inherent risks that could potentially lead to severe consequences,
including fatalities, we maintain strict adherence to robust health and safety
protocols. The efficacy of this approach is evident in the Group's global
health and safety incident report, which highlights zero occurrences of fatal
or severe injuries across all our plants throughout the year. We take immense
pride in this accomplishment. More information on this can be found in the
Sustainability Report section of the Annual Report.
Board changes
On 13 December 2022, the Group's Chief Financial Officer, David Wilkinson
notified the Board of his decision to step down for personal reasons and he
left the Group on 28 April 2023. David made a considerable contribution to the
development of CT Automotive over 11 years at the company and we wish him
well.
After the period-end, on 1 February 2023, we were pleased to announce the
appointment of Anna Brown. She was appointed to the Board as an Executive
Director of the Company on 28 April 2023, following an orderly handover
period. Anna brings substantial listed company and financial experience to the
role that will be invaluable as we continue to execute our growth strategy.
As previously announced, the Board intends to appoint a further non-executive
director with the individual to be a representative of one of the Company's
significant shareholders. A further announcement will be made in due course.
Our people
Throughout what has been a challenging year, one thing has remained
consistent, and that has been the resilience and commitment of our people. Day
in and day out, all around the globe, the employees at CT Automotive have been
dedicated and enthusiastic, their expertise has been vital in driving the
business forward. We thank them for their valuable contribution.
Sustainability and Corporate Social Responsibility (CSR)
We remain committed to sustainability and corporate social responsibility.
This commitment extends to our operations, our employees and our communities.
We are dedicated to continuously improving our environmental footprint,
promoting fair and ethical labour practices, and engaging in initiatives that
benefit our communities.
Current trading and outlook
Trading in the current year to date has been encouraging, with strong customer
demand and order books building. The Group's manufacturing facilities have
recovered from the specific operational challenges experienced in Q4 last
year:
· The Group has seen a rapid recovery in manufacturing at the Group's
facilities in China following the lifting of the Government's zero-Covid
policy measures.
· The Group's new facility in Puebla, Mexico is now fully operational.
The cost savings programme launched in the second half of FY22 continues to
progress in line with plan. Efficiency initiatives have started to come on
stream and are delivering margin improvements.
The Board is encouraged by stabilising order volumes since the start of FY23
and visibility for the year ahead. While macroeconomic uncertainty remains,
there are signs that customer schedules are strengthening and OEM automotive
supply chain issues are resolving.
As a result, the Board remains confident of achieving its expectations for
FY23, supported by the benefit expected from efficiency savings.
We are optimistic about the outlook for the automotive industry. With the
scrapping of the zero-Covid policy in China, we anticipate being able to
operate normally and return to stable rhythm in our production facilities.
With container shipping prices stabilising back to pre-pandemic levels, the
Group can take advantage of improved supply chain efficiencies. Additionally,
better allocation of semi-conductors and stabilised customer production
schedules will contribute to a more predictable operating environment where
efficiencies can be leveraged to reduce cost and improve margins.
We will continue to focus on efficiency and optimisation across our global
facilities. Our investment in the latest automation technologies will maximise
production efficiency and strengthen our competitive position.
As we look to the future, we are optimistic about the resilience and
adaptability of CT Automotive. We have a robust strategy in place, and we are
well positioned to capitalise on the improved stability of our operating
environment and the continued recovery in our global automotive end-markets.
Thank you once again for your steadfast support, and we look forward to a year
of progress and shared success.
Financial review
Revenue and margins
Total Group revenue from continuing operations was relatively stable with a
small decrease of 3% from $127.8m in FY21 to $124.3m in FY22.
Although highly unstable due to supply chain disruptions and semi-conductor
shortages, overall demand for interior components remained high. As a
result, our production revenue grew by 11% to $117.3m (FY21: $105.6m). Tooling
revenue reduced by 68% to $7.0m (FY21: $22.2m) predominately reflecting the
timing of completion and its project-based nature.
Gross profit margins were adversely impacted by the increased variability and
short-term nature of orders as the Group's customers reacted to available
supply elsewhere in their respective supply chains, which in turn increased
the Group's production costs as it responded to maintain service. Furthermore,
enforcement of the Chinese Government's zero-Covid policy resulted in the
temporary closure of some of the Group's manufacturing facilities and those of
local suppliers, leading to increased costs as the Group caught up on lost
production and expedited delivery of materials from local suppliers, as well
as finished goods to customers, at a higher cost. During the year the Group
incurred costs that, while part of the underlying results, are not expected to
repeat as we return to more stable trading conditions. These costs included
c.$5m in connection with higher than forecasted production inefficiencies and
expedited air freight costs following lockdowns in China.
The above production challenges, together with completing fewer tooling
projects, which typically generate higher margins, led to a decline in gross
profit to $14.9m (FY21: $25.2m) and consequently a deterioration in gross
profit margin to 12.0% in FY22 from a gross profit margin of 19.7 % in FY21.
Non-recurring items
During FY22 the Group incurred non-recurring costs of $4.3m (FY21: $5.6m).
These costs primarily related to pre-opening and start-up costs of $1.7m
(FY21: nil) in connection with the new production facility in Mexico, goodwill
impairment of $1.2m (FY21: nil) in relation to curtailing our US entity
activity as the operations in Mexico came on-stream and $0.7m (FY21: nil)
being an accounting adjustment reflecting the impact of hyperinflation in
Turkey.
EBITDA and operating result
FY22 underlying EBITDA was a loss of $7.1m (FY21: $3.3m profit) while reported
EBITDA was a loss of $11.4m (FY21: $2.3m loss) as a result of significantly
lower gross profit and after taking account of distribution expenses of $5.1m
(FY21: $5.5m) and administrative expenses of $27.3m (FY21: $28.6m). The
Group incurred $3.8m of foreign exchange losses (FY21: $1.5m) due to
unfavourable exchange rates movements primarily against US$. These are
included in administrative expenses. Depreciation and amortisation charges
remained at similar levels for the year at $5.4m (FY21: $5.1m). Therefore,
the resulting underlying operating loss was $12.6m (FY21: $1.8m) and reported
operating loss was $16.8m (FY21: $7.4m).
Taxation
Despite generating losses before tax of $18.8m (FY21: $12.4m), the Group has
recognised a tax charge of $3.1m (FY21: $1.2m tax credit). This is primarily
driven by the write off of deferred tax assets previously recognised in the UK
entities, resulting in a deferred tax charge of $2.4m (FY21: $1.4m credit).
In addition, the tax charge includes $0.6m (FY21: $0.3m) being a current year
tax expense in our manufacturing subsidiaries and a technical provision for a
tax uncertainty in a specific jurisdiction as required by IFRIC 23.
Discontinued operations
During FY22 the Group announced the closure of Chinatool Automotive Systems
Limited, a production facility in Sunderland, UK, which was impacted by severe
labour shortages and inflationary increases in energy costs and wages. Loss
for the year attributable to the discontinued operations was $2.8m (FY21:
profit of $0.1m).
Prior period adjustments
During the consolidation process, management identified an error with regards
to the calculation of the year-end inventory, which related to a number of
years. The adjustment relates to the calculation of the provision for
unrealised profits resulting from intra Group sales and a corresponding
absorption of overheads within inventory. The adjustment resulted in the
reduction of inventory, and therefore net assets, by $8.3m at 31 December
2021.
In addition, the Group has identified an error with regards to the transfer of
tooling assets from the Group balance sheet to cost of sales upon completion
of tooling and sale to the customer in FY21. As at 31 December 2021, the value
of property, plant and equipment has been reduced by $2.6m with a
corresponding increase in costs of sales in FY22.
Capital structure and interest
After taking into account the impact of prior period adjustments, the Group
saw its total asset value decrease to $79.1m (FY21: $108.5m) and net asset
value decrease to $2.6m (FY21: $27.3m).
Non-current assets remained broadly flat at $19.9m (FY21: $19.3m), reflecting
a $3.8m increase in right of use assets (FY21: $0.6m decrease) offset by a
goodwill impairment of $1.2m in relation to curtailing our US entity activity
as the operations in Mexico came on-stream and a write down of deferred tax
assets by $3.2m.
As at 30 June 2022, the Group recognised on its balance sheet $3.2m (FY21:
1.7m) of deferred tax assets in relation to losses which previously arose in
the UK. As at 31 December 2022, the Directors have re-assessed the
recoverability of these assets. Based on management forecasts of the taxable
profits specifically in relation to the UK statutory entities, we expect these
deferred tax assets to be recovered against future taxable profits in the UK
in FY24-FY26. The Directors have therefore concluded that sufficient taxable
profits arising in the UK to utilise these deferred tax assets would be
possible rather than probable and have chosen to derecognise these deferred
tax assets in accordance with the technical requirements of IAS12.
During FY22 the Group saw a $29.9m decrease in its current assets. This was
primarily driven by a decrease in trade debtor and other receivable balances
from $42.8m in FY21 to $26.9m in FY22 and the reduction in cash balances from
$13.4m in FY21 to $4.8m in FY22 as the Group switched its customers to shorter
payment terms and consumed cash to meet the increased production and
distribution costs requirements.
The Group continued to actively manage its working capital by deploying the
IPO proceeds, with the help of major customers and by utilising available
finance facilities. Net debt as at 31 December 2022 was $12.2m (FY21: $9.1m)
and included amounts drawn on the Group's trade loans and invoice finance
facilities with HSBC. As at the year end $16.7m of the facilities were
utilised (FY21: $16.5m) against total available facilities of c.$22m.
Although higher than originally anticipated due to increased interest rates
and utilisation of facilities during the year, when compared to FY21 levels,
FY22 net finance costs reduced to $2.0m (FY21: $4.4m). This was due to
repayment of $26.2m term loans, unsecured loans and CLBILs at the end of FY21
and early FY22 utilising the proceeds from the IPO.
Post balance sheet events: $9.6m fundraising and changes to share capital
On 27 April 2023 the Group announced a fundraise and achieved total gross
proceeds of $9.6m (before transaction costs of $0.5m).
The fundraising completed following the General Meeting on 15 May 2023 and the
admission of the new ordinary shares to trading on AIM on 16 May 2023.
The enlarged share capital of the Company following admission increased to
73,597,548 ordinary shares in aggregate.
The net proceeds of the fundraise of $9.1m will predominately be used to
strengthen the balance sheet and to provide the Group with flexibility to take
advantage of growth opportunities. Additionally, a small portion of the net
proceeds will be deployed to realise further efficiency savings including
through investment in injection moulding production processes and robotics.
Going concern
The Directors have assessed the Group's business activities and the factors
likely to affect future performance in light of the current and anticipated
trading conditions. In making their assessment the Directors have reviewed
the Group latest budget, current trading, available debt facilities, proceeds
from the recent fundraising and considered reasonably possible downside
sensitivities in performance and mitigating actions.
The Directors are confident that, after taking into account existing cash and
debt facilities available to the Group and the net proceeds of fundraising,
the Group has adequate resources in place to continue in operational existence
for a period of at least 12 months from the date of approval of the financial
statements being to June 2024 and have therefore adopted the going concern
basis of accounting in preparing the financial statements. In making their
assessment the Directors have considered the key factors listed below:
Fundraising
On 27 April 2023 the Group announced that it undertook a fundraise and
achieved total gross proceeds of $9.6m (before transaction costs of $0.5m).
The net proceeds of the fundraise of approximately $9.1m will predominately be
used to strengthen the balance sheet and to provide the Group with flexibility
to take advantage of growth opportunities. Additionally, a small portion of
the net proceeds will be deployed to realise further efficiency savings
including through investment in injection moulding production processes and
robotics.
HSBC facilities
The Group uses HSBC post-despatch trade loans and invoice financing facilities
as an additional working capital lever. These facilities have been committed
for 12 months since the IPO, however starting from January 2023 the facilities
are provided on a rolling 3-months basis, and these are expected to be renewed
going forward in light of the current trading and the post year end
fundraise. As at 31 December 2022 the amounts drawn on the Group's trade
loans and invoice finance facilities were $16.7m (FY21: $16.5m) against a
total facility of c.$22m. The Directors believe that should the HSBC
facilities be withdrawn, alternative funding options would be available to the
Group.
Scenario modelling
As a result of difficult trading conditions and losses incurred during FY22,
the Group has carefully considered its future liquidity position. In stress
testing the forecast cash flows of the business, the Directors modelled a base
case, several downside scenarios, a combined downside scenario and a set of
mitigating actions to the downside scenario. The base case was modelled on a
prudent basis, assuming flat revenues and using the production schedules and
cost estimates. Positive cash headroom is maintained under the base case
scenario.
Taking into account the trading conditions which existed during FY22 and
outlook, the Directors have identified certain specific key risks to the base
case assumptions and have modelled the scenarios as follows:
· Reduction in revenue risk: the entire market is down by 10% due to
global economic recession, reflecting a scenario similar to 2008-2009
downturn;
· Increased cost of sales risk: reflecting the impact of inflation in
cost of sales by 5% and 10% and inability to recover from customers;
· Stockholding risk: reflecting a scenario caused by disruption in
customer schedules and therefore the need to hold more than normal stock
levels required in the distribution centers;
· Availability of HSBC facilities: reflecting a withdrawal of HSBC
facilities following a 3 months' notice and failure to replace the facilities
with equivalent facilities on similar terms in October 2023.
In addition, the directors have modelled the first three risks above into a
combined downside scenario and considered several controllable mitigating
actions. The principal mitigating actions have been modelled as managing stock
levels and payment terms with customers and suppliers. Such mitigating
actions are within management's control and the business closely monitors
appropriate lead indicators to implement these actions in sufficient time to
achieve the required cash preservation impact.
Despite the combined impact of the above downside assumptions, the stress
testing model demonstrates that the business is able to maintain a positive
cash headroom.
As a result of the above considerations, the Directors consider that the Group
has adequate resources in place for at least 12 months form the date of the
approval of FY22 financial statements and have therefore adopted the going
concern basis of accounting in preparing the financial statements.
Consolidated Statement of Profit or Loss and other Comprehensive Income
For the year ended 31 December 2022
Restated*
Notes 2022 2021
$'000 $'000
Continuing operations:
Revenue 5 124,269 127,784
Cost of sales (109,407) (102,539)
Gross profit 14,862 25,245
Distribution expenses (5,059) (5,494)
Other operating income 6 650 1,431
Administrative expenses (27,287) (28,571)
EBITDA (before non-recurring items) (7,129) 3,254
Depreciation 8 (4,820) (4,632)
Amortisation 8 (602) (440)
Non-recurring items 7 (4,283) (5,571)
Operating loss 8 (16,834) (7,389)
Finance income 10 8
Finance expenses (1,997) (4,398)
Share of post-tax losses of equity accounted associates - (579)
Loss before tax (18,821) (12,358)
Taxation (charge) / credit 9 (3,054) 1,152
Loss for the year from continuing operations (21,875) (11,206)
Discontinued operations
(Loss) / profit for the year from discontinued operations 10 (2,789) 133
Loss for the year attributable to equity shareholders (24,664) (11,073)
Other comprehensive income
Items that are / may be reclassified subsequently to profit or loss:
Foreign currency translation differences - foreign operations (927) 280
Other comprehensive (loss) / income for the year, net of income tax (927) 280
Total comprehensive loss for the year (25,591) (10,793)
Total loss per share
From continuing operations:
Basic loss per share 11 (42.9)c (55.2)c
Diluted loss per share 11 (42.9)c (55.2)c
From continuing and discontinued operations:
Basic loss per share 11 (48.4)c (54.6)c
Diluted loss per share 11 (48.4)c (54.6)c
Consolidated Balance Sheet
As at 31 December 2022
Restated* Restated*
Notes 2022 2021 2020
$'000 $'000 $'000
Assets
Non-current assets
Goodwill 12 1,259 2,417 2,417
Intangible assets 13 528 520 545
Property, plant and equipment 14 7,302 7,681 9,584
Right of use assets 15 10,769 6,942 7,549
Investments in associates - - 1,443
Deferred tax assets - 1,745 308
19,858 19,305 21,846
Current assets
Inventories 16 27,342 31,504 34,058
Tax receivable 227 1,496 1,417
Trade and other receivables 17 26,880 42,782 44,626
Cash and cash equivalents 4,829 13,445 2,156
59,278 89,227 82,257
Current liabilities
Trade and other payables 18 (45,924) (50,029) (51,942)
Other interest-bearing loans and borrowings 19 (17,058) (22,587) (36,925)
Derivative financial liabilities (671) (15) -
Corporate tax payable (771) (655) (778)
Lease liabilities 15 (3,022) (2,844) (2,879)
(67,446) (76,130) (92,524)
Non-current liabilities
Other interest-bearing loans and borrowings - - (22,811)
Derivative financial liabilities (95) - -
Deferred tax liabilities (118) - -
Lease liabilities 15 (8,900) (5,144) (5,645)
(9,113) (5,144) (28,456)
Net assets / (liabilities) 2,577 27,258 (16,877)
Equity attributable to equity holders of the parent
Share capital 342 342 132
Share premium 54,717 54,717 -
Translation reserve (347) 580 300
Retained earnings (16,323) 7,431 18,503
Merger reserve (35,812) (35,812) (35,812)
Total equity / (deficit) 2,577 27,258 (16,877)
Total equity / (deficit)
2,577
27,258
(16,877)
The financial statements were approved by the Director and was signed on his
behalf by:
Simon Phillips
Director
Consolidated Statement of Changes in Equity
For the year ended 31 December 2022
Restated* Restated*
Share capital Share premium Translation reserve Retained Earnings Merger reserve Other reserve Total equity
$'000 $'000 $'000 $'000 $'000 $'000 $'000
At 1 January 2021 as previously published 132 - 300 24,668 (35,812) - (10,712)
Effect of restatement - - - (6,165) - - (6,165)
At 1 January 2021 (restated) 132 - 300 18,503 (35,812) - (16,877)
Total comprehensive income for the year
Loss for the year (restated) - - - (11,073) - - (11,073)
Other comprehensive income - - 280 - - - 280
Total comprehensive income for the year (restated) - - 280 (11,073) - - (10,793)
Contributions by and distributions to shareholders:
Reclassification of shareholder loan notes - - - - - 9,900 9,900
Conversion of loan notes / other liabilities into Ordinary Shares 57 12,352 - - - (9,900) 2,509
Share issue in relation to IPO 153 44,923 - - - - 45,076
Equity issue costs - (2,558) - - - - (2,558)
At 31 December 2021 (restated) 342 54,717 580 7,430 (35,812) - 27,257
Hyperinflationary monetary adjustment relating to 2021 - - - 911 - - 911
Restated at 1 January 2022 342 54,717 580 8,341 (35,812) - 28,168
Total comprehensive income for the year:
Loss for the year - - - (24,664) - - (24,664)
Other comprehensive income - - (927) - - - (927)
Total comprehensive income for the year - - (927) (24,664) - - (25,591)
At 31 December 2022 342 54,717 (347) (16,323) (35,812) - 2,577
Consolidated Statement of Cash Flows
For the year ended 31 December 2022
Restated*
2022 2021
$'000 $'000
Cash flows from operating activities
Loss from continuing operations (21,875) (11,206)
(Loss) / profit from discontinued operations (2,789) 133
Loss for the year after tax (24,664) (11,073)
Adjustments for:
Depreciation 5,345 4,932
Amortisation 602 440
Impairment of goodwill 1,158 -
Impairment of associate - 1,627
Finance income (10) -
Finance expense 2,090 4,474
Net fair value losses recognised in profit or loss 750 -
Impairment of lease assets 429 -
Loss on disposal of property, plant and equipment 825 1,012
Gain on renegotiation of lease (168) -
Taxation 3,103 (1,108)
Hyperinflation impact on operating profit 665 -
Share of post-tax losses of equity accounted associates - 579
(9,875) 883
Decrease in trade and other receivables 14,786 693
Decrease/(Increase) in inventories 1,104 2,554
(Decrease)/Increase in trade and other payables (618) (1,652)
Tax refund / (paid) 145 (529)
Net cash generated from operating activities 5,542 1,949
Cash flows from investing activities
Purchase of intangible assets (633) (421)
Purchase of property, plant and equipment (2,864) (1,670)
Investments in associates - (201)
Interest received 10 -
Net cash used in investing activities (3,487) (2,292)
Cash flows from financing activities
(Repayment) / drawdown of loan facilities (2,500) 2,500
Issue of convertible loan notes - 5,600
Share issue (net of transaction costs) - 42,518
Repayment of lease liabilities (3,607) (3,565)
Interest paid (2,090) (2,922)
Repayment of term loan - (15,599)
Repayment of CLBILs - (8,143)
Drawdown / (repayment) of trade loans 4,131 (5,698)
Repayment of invoice finance (3,880) (1,537)
Net cash (used in) / generated from financing activities (7,946) 13,154
Net (decrease)/increase in cash and cash equivalents (5,891) 12,811
Cash and cash equivalents at beginning of year 9,807 (2,677)
Effect of exchange rate fluctuations on cash held 555 (327)
Cash and cash equivalents at end of year. 4,471 9,807
Notes to the consolidated financial statements
1. Accounting Policies
Introduction
CT Automotive Group PLC (the "Company") is a Public company listed on AIM
incorporated, domiciled and registered in England in the UK. The registered
number is 10451211 and the registered address and principal place of business
is 1000 Lakeside North Harbour, Western Road, Portsmouth, PO6 3EN.
The Company's functional and reporting currency is USD, the Directors elected
to set the Company up in this way due to the international nature of the Group
and overall reliance on USD; the Group revenue is predominantly received in
USD and working capital facilities are also predominantly denominated in USD.
The Group financial statements consolidate those of the Company and its
subsidiaries (together referred to as the "Group"). The parent company
financial statements present information about the Company as an entity and
not about its Group.
The Group financial statements have been prepared and approved by the
Directors in accordance UK-adopted International Accounting Standards and with
the requirements of the Companies Act 2006 as applicable to companies
reporting under those standards.
The accounting policies set out below have, unless otherwise stated, been
applied consistently to all periods presented in these consolidated financial
statements.
There are no judgements or estimates that are deemed to have a significant
effect on the financial statements other than those stated in Note 2.
Measurement convention
The financial statements are prepared on the historical cost basis except that
the following assets and liabilities are stated at their fair value:
derivative financial instruments and the financial statements of the foreign
operation in Turkey which is subject to hyperinflationary accounting.
Going Concern
The Directors have assessed the Group's business activities and the factors
likely to affect future performance in light of the current and anticipated
trading conditions. In making their assessment the Directors have reviewed
the Group's latest budget, current trading, available debt facilities,
proceeds from the recent fundraising and considered reasonably possible
downside sensitivities in performance and mitigating actions.
The Directors are confident that, after taking into account existing cash and
debt facilities available to the Group and the net proceeds of fundraising,
the Group has adequate resources in place to continue in operational existence
for a period of at least 12 months from the date of approval of the financial
statements being to June 2024. In making their assessment the Directors have
considered the key factors listed below:
Fundraising
On 27 April 2023 the Group announced that it undertook a fundraise and
achieved total gross proceeds of $9.6m (before transaction costs of $0.5m).
The net proceeds of the fundraise of approximately $9.1m will predominately be
used to strengthen the balance sheet and to provide the Group with flexibility
to take advantage of growth opportunities. Additionally, a small portion of
the net proceeds will be deployed to realise further efficiency savings
including through investment in injection moulding production processes and
robotics.
HSBC facilities
The Group uses HSBC post-dispatch trade loans and invoice financing facilities
as an additional working capital lever. These facilities have been committed
for 12 months since the IPO, however starting from January 2023 the facilities
are provided on a rolling 3-months basis, and these are expected to be renewed
going forward in light of the current trading and the post year end
fundraise.
As at 31 December 2022 the amounts drawn on the Group's trade loans and
invoice finance facilities were $16.7m (FY21: $16.5m) against a total facility
of c.$22m. The Directors believe that should the HSBC facilities be withdrawn,
alternative funding options would be available to the Group.
Scenario modelling
As a result of difficult trading conditions and losses incurred during FY22,
the Group has carefully considered its future liquidity position. In stress
testing the forecast cash flows of the business, the Directors modelled a base
case, several downside scenarios, a combined downside scenario and a set of
mitigating actions to the downside scenario. The base case was modelled on a
prudent basis, assuming flat revenues and using the production schedules and
cost estimates. Positive cash headroom is maintained under the base case
scenario.
Taking into account the trading conditions which existed during FY22 and
outlook, the Directors have identified certain specific key risks to the base
case assumptions and have modelled the scenarios as follows:
· Reduction in revenue risk: the entire market is down by 10% due to
global economic recession, reflecting a scenario similar to 2008-2009
downturn;
· Increased cost of sales risk: reflecting the impact of inflation in
cost of sales by 5% and 10% and inability to recover from customers;
· Stockholding risk: reflecting a scenario caused by disruption in
customer schedules and therefore the need to hold more than normal stock
levels required in the distribution centers;
· Availability of HSBC facilities: reflecting a withdrawal of HSBC
facilities following a 3 months' notice and failure to replace the facilities
with equivalent facilities on similar terms.
In addition, the directors have modelled the first three risks above into a
combined downside scenario and considered several controllable mitigating
actions. The principal mitigating actions have been modelled as managing
stock levels and payment terms with customers and suppliers. Such mitigating
actions are within management's control and the business closely monitors
appropriate lead indicators to implement these actions in sufficient time to
achieve the required cash preservation impact.
Despite the combined impact of the above downside assumptions, the stress
testing model demonstrates that the business is able to maintain a positive
cash headroom.
As a result of the above considerations, the Directors consider that the Group
has adequate resources in place for at least 12 months form the date of the
approval of FY22 financial statements and have therefore adopted the going
concern basis of accounting in preparing the financial statements.
Basis of consolidation
Subsidiaries
Subsidiaries are entities controlled by the Group. 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. In assessing control, the Group takes into
consideration potential voting rights that are currently exercisable. The
acquisition date is the date on which control is transferred to the acquirer.
The financial statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the date that
control ceases.
Change in subsidiary ownership and loss of control
Changes in the Group's interest in a subsidiary that do not result in a loss
of control are accounted for as equity transactions.
Where the Group loses control of a subsidiary, the assets and liabilities are
derecognised along with any related non-controlling interests and other
components of equity. Any resulting gain or loss is recognised in profit or
loss. Any interest retained in the former subsidiary is measured at fair
value when control is lost.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses
arising from intra-group transactions, are eliminated. Unrealised gains
arising from transactions with equity-accounted investees are eliminated
against the investment to the extent of the Group's interest in the investee.
Unrealised losses are eliminated in the same way as unrealised gains, but only
to the extent that there is no evidence of impairment.
Discontinued operations
When the Group has sold or terminated a component that represents a separate
major line of business or geographical area of operations during the year, or
has classified the component as held for sale, its results are presented
separately, net of any profit or loss on disposal, in the statement of profit
or loss and other comprehensive income, with the comparative amounts restated.
Foreign Currency
Transactions in foreign currencies are translated to the respective functional
currencies of Group entities at the foreign exchange rate ruling at the date
of the transaction. Foreign currency monetary assets and liabilities are
translated at the rates ruling at the reporting date. Exchange differences
arising on the retranslation of unsettled monetary assets and liabilities are
recognised immediately in profit or loss. Exchange differences arising on the
retranslation of the foreign operation are recognised in other comprehensive
income and accumulated in the foreign exchange reserve.
The assets and liabilities of foreign operations, including goodwill and fair
value adjustments arising on consolidation, are translated to the Group's
presentational currency US Dollars at foreign exchange rates ruling at the
balance sheet date. The revenues and expenses of foreign operations are
translated at an average rate for the year where this rate approximates to the
foreign exchange rates ruling at the dates of the transactions.
Exchange differences arising from this translation of foreign operations are
reported as an item of other comprehensive income and accumulated in the
translation reserve. When a foreign operation is disposed of, such that
control is lost, the entire accumulated amount in the foreign currency
translation reserve, is reclassified to profit or loss as part of the gain or
loss on disposal. When the Group disposes of only part of its interest in a
subsidiary that includes a foreign operation while still retaining control,
the relevant proportion of the accumulated amount is reattributed to
non-controlling interests. When the Group disposes of only part of its
investment in an associate that includes a foreign operation while still
retaining significant influence, the relevant proportion of the cumulative
amount is reclassified to profit or loss.
Effective from 1 January 2022, the Group has applied IAS 29, Financial
Reporting in Hyperinflationary Economies, for its subsidiary in Turkey, whose
functional currency has experienced a cumulative inflation rate of more than
100% over the past three years. Assets, liabilities, the financial position
and results of foreign operations in hyperinflationary economies are
translated to US Dollar at the exchange rate prevailing at the reporting date.
The exchange differences are recognised directly in other comprehensive income
and accumulated in the translation reserve in equity. Such translation
differences are reclassified to profit or loss only on disposal or partial
disposal of the overseas operation. Prior to translating the financial
statements of foreign operations, the non-monetary assets and liabilities and
comprehensive income (both previously stated at historic cost) are restated to
account for changes in the general purchasing power of the local currencies
based on the consumer price index published by the Turkish Statistical
Institute. The consumer price index for the year ended 31 December 2022
increased by 47.8%. Monetary items are not restated because they are already
expressed in terms of the monetary unit current at the end of the reporting
period.
Comparative amounts presented in the consolidated financial statements were
not restated. Hyperinflationary accounting needs to be applied as if Turkey
has always been a hyperinflationary economy therefore as per CT Automotive
Group's policy choice, the differences between equity at 31 December 2021 as
reported and the equity after restatement of the non-monetary items to the
measuring unit current at 31 December 2022 were recognised in retained
earnings. The subsequent gains or losses resulting from the restatement of
non-monetary assets and liabilities are recorded in the Consolidated Statement
of Profit or Loss and Other Comprehensive Income.
Revenue
Revenue is measured at the fair value of the consideration received or
receivable. Provided it is probable that the economic benefits will flow to
the Group and the revenue and costs, if applicable, can be measured reliably,
revenue is recognised in profit or loss as follows:
Serial production goods are recognised as sold at a point in time when control
is passed to the customer, which depending on the incoterms (a series of
pre-defined commercial terms published by the International Chamber of
Commerce relating to international commercial law) can be when they are
delivered to the customer site or when the customer collects them.
Tooling and the provision of associated services is recognised at a point in
time when the performance obligations in the contract are satisfied and
control is passed to the customer, which is based on the date of issue of the
parts submission warrant (PSW) or a similar approval from customers, or other
evidence of the commencement of serial production. Monies received from
customers in advance of completing the performance obligations are recognised
as contract liabilities as at the balance sheet date and released to revenue
when the related performance obligations are satisfied at a point in time.
Discounts on the serial production contracts are considered one off and agreed
with the customers as part of the negotiation and as per the terms of the
contract, they are either paid in advance or otherwise. Discounts paid in
advance are recognised as a prepayment and recognised as a debit to revenue in
the period in which the related revenue is recognised. All other discounts are
recognised as a debit to revenue based on the period in which the related
revenues are recognised.
Revenue excludes value added tax or other sales taxes and is after deduction
of any trade discounts.
Government Grants
Government grants are recognised on the accrual basis and any performance
requirements are disclosed as required. Grants of a revenue nature are
recognised in the statement of profit or loss in the same period as the
related expenditure and recognised gross as other income.
During the year, the government grant income relates to government support
received in China relating to utilities and training subsidies, promotion of
foreign trade and COVID-19 recovery.
Expenses
Finance income and expenses
Finance expenses comprise interest payable on borrowings and interest on lease
liabilities which are recognised in profit or loss using the effective
interest method.
Interest income is recognised in profit or loss as it accrues, using the
effective interest method.
Non-recurring items
The Group recognises items within the statement of profit or loss that are
infrequent, unusual and not expected during the regular business operations as
non-recurring. These are disclosed as a separate line on the face of the
statement of profit or loss. Note 7 provides further details on the nature of
the non-recurring items.
Taxation
(a) Current taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax
is recognised in profit or loss except to the extent that it relates to items
recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable or receivable on the taxable income or
loss for the year, using tax rates enacted or substantively enacted at the
balance sheet date, and any adjustment to tax payable in respect of previous
years.
The current income tax charge is calculated on the basis of the tax laws
enacted or substantively enacted at the end of the reporting period in the
countries where the Company and its subsidiaries and associates operate and
generate taxable income. Management periodically evaluates positions taken in
tax returns with respect to situations in which applicable tax regulation is
subject to interpretation and considers whether it is probable that a taxation
authority will accept an uncertain tax treatment. The Group measures its tax
balances either based on the most likely amount or the expected value,
depending on which method provides a better prediction of the resolution of
the uncertainty.
(b) Deferred tax
Deferred tax is provided on temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. The following temporary differences are not
provided for: the initial recognition of goodwill; the initial recognition of
assets or liabilities that affect neither accounting nor taxable profit other
than in a business combination, and differences relating to investments in
subsidiaries to the extent that they will probably not reverse in the
foreseeable future. The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantively enacted at the
balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the temporary
difference can be utilised.
Goodwill
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is
allocated to cash-generating units and is not amortised but is tested annually
for impairment. In respect of equity accounted investees, the carrying amount
of goodwill is included in the carrying amount of the investment in the
investee.
Intangible assets
Research and development
Expenditure on research activities is recognised in profit or loss as an
expense as incurred.
Expenditure on development activities is capitalised if the product or process
is technically and commercially feasible and the Group intends, has the
technical ability and has sufficient resources to complete development, future
economic benefits are probable and if the Group can measure reliably the
expenditure attributable to the intangible asset during its development.
Development activities involve a plan or design for the production of new or
substantially improved products or processes. The expenditure capitalised
includes the cost of materials, direct labour and an appropriate proportion of
overheads and capitalised borrowing costs. Other development expenditure is
recognised in profit or loss as an expense as incurred. Capitalised
development expenditure is stated at cost less accumulated amortisation and
less accumulated impairment losses.
Intangible assets (including software)
Expenditure on internally generated goodwill and brands is recognised in
profit or loss as an expense as incurred.
Intangible assets that are acquired by the Group are stated at cost less
accumulated amortisation and less accumulated impairment losses.
Amortisation
Amortisation is charged to profit or loss on a straight-line basis over the
estimated useful lives of intangible assets. Intangible assets are amortised
from the date they are available for use. The estimated useful lives are as
follows:
Software - 1 - 5 years
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and accumulated impairment losses.
Where parts of an item of property, plant and equipment have different useful
lives, they are accounted for as separate items of property, plant and
equipment.
Depreciation is charged to profit or loss on a straight-line basis over the
estimated useful lives of each part of an item of property, plant and
equipment. The estimated useful lives are as follows:
Assets under construction - not depreciated
Plant and equipment - 2-5 years straight line
Furniture, fixtures and equipment - 2-5 years straight line
Motor vehicles - 2-5 years straight line
Depreciation methods, useful lives and residual values are reviewed at each
balance sheet date.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is
based on the first-in first-out principle and includes expenditure incurred in
acquiring the inventories, production or conversion costs and other costs in
bringing them to their existing location and condition. In the case of
manufactured inventories and work in progress, cost includes an appropriate
share of overheads based on normal operating capacity.
Net realisable value is the value that would arise on sale of inventories in
the normal course of business, minus a reasonable estimation of selling costs.
Impairment excluding inventories and deferred tax assets
The carrying amounts of the Group's non-financial assets, other than
inventories and deferred tax assets, are reviewed at each reporting date to
determine whether there is any indication of impairment. If any such
indication exists, then the asset's recoverable amount is estimated. For
goodwill, and intangible assets that have indefinite useful lives or that are
not yet available for use, the recoverable amount is estimated each period at
the same time.
The recoverable amount of an asset or cash-generating unit is the greater of
its value in use and its fair value less costs to sell. In assessing value in
use, the estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset. For the purpose of
impairment testing, assets that cannot be tested individually are grouped
together into the smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows of other
assets or groups of assets (the "cash-generating unit"). The goodwill acquired
in a business combination, for the purpose of impairment testing, is allocated
to cash-generating units, or ("CGU"). Subject to an operating segment ceiling
test, for the purposes of goodwill impairment testing, CGUs to which goodwill
has been allocated are aggregated so that the level at which impairment is
tested reflects the lowest level at which goodwill is monitored for internal
reporting purposes. Goodwill acquired in a business combination is allocated
to groups of CGUs that are expected to benefit from the synergies of the
combination.
An impairment loss is recognised if the carrying amount of an asset or its CGU
exceeds its estimated recoverable amount. Impairment losses are recognised in
profit or loss. Impairment losses recognised in respect of CGUs are allocated
first to reduce the carrying amount of any goodwill allocated to the units,
and then to reduce the carrying amounts of the other assets in the unit (group
of units) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other
assets, impairment losses recognised in prior periods are assessed at each
reporting date for any indications that the loss has decreased or no longer
exists. An impairment loss is reversed if there has been a change in the
estimates used to determine the recoverable amount. An impairment loss is
reversed only to the extent that the asset's carrying amount does not exceed
the carrying amount that would have been determined, net of depreciation or
amortisation, if no impairment loss had been recognised.
Associates
Where the Group has the power to participate in (but not control) the
financial and operating policy decisions of another entity, it is classified
as an associate. Associates are initially recognised in the consolidated
statement of financial position at cost. Subsequently associates are accounted
for using the equity method, where the Group's share of post-acquisition
profits and losses and other comprehensive income is recognised in the
consolidated statement of profit or loss and other comprehensive income
(except for losses in excess of the Group's investment in the associate unless
there is an obligation to make good those losses).
Profits and losses arising on transactions between the Group and its
associates are recognised only to the extent of unrelated investors' interests
in the associate. The investor's share in the associate's profits and losses
resulting from these transactions is eliminated against the carrying value of
the associate.
Any premium paid for an associate above the fair value of the Group's share of
the identifiable assets, liabilities and contingent liabilities acquired is
capitalised and included in the carrying amount of the associate. Where there
is objective evidence that the investment in an associate has been impaired
the carrying amount of the investment is tested for impairment in the same way
as other non-financial assets.
Classification of financial instruments issued by the Group
Financial instruments issued by the Group are treated as equity only to the
extent that they meet the following two conditions:
(a) they include no contractual obligations upon the Company (or Group as the
case may be) to deliver cash or other financial assets or to exchange
financial assets or financial liabilities with another party under conditions
that are potentially unfavourable to the Group; and
(b) where the instrument will or may be settled in the Company's own equity
instruments, it is either a non-derivative that includes no obligation to
deliver a variable number of the Company's own equity instruments or is a
derivative that will be settled by the Company's exchanging a fixed amount of
cash or other financial assets for a fixed number of its own equity
instruments.
To the extent that this definition is not met, the proceeds of any issues are
classified as a financial liability.
Non-derivative financial instruments
Financial assets and liabilities are recognised when the Group becomes party
to the contractual provisions of the instrument.
Non-derivative financial instruments comprise trade and other receivables,
cash and cash equivalents, loans and borrowings, and trade and other payables.
Trade and other receivables
Trade and other receivables are initially measured at their transaction price.
Trade receivables and other receivables are held to collect the contractual
cash flows which are solely payments of principal and interest. Therefore,
these receivables are subsequently measured at amortised cost using the
effective interest rate method.
Trade and other payables
Trade and other payables are recognised initially at fair value. Subsequent to
initial recognition they are measured at amortised cost using the effective
interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank
overdrafts that are repayable on demand and form an integral part of the
Group's cash management are included as a component of cash and cash
equivalents for the purpose only of the cash flow statement.
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less
attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost using the effective
interest method. See Note 19 for full details of classes of interest-bearing
borrowings.
Effective interest rate
The 'effective interest' is calculated using the rate that exactly discounts
estimates future cash payments or receipts (considering all contractual terms)
through the expected life of the financial asset or financial liability to its
carrying amount before any loss allowance.
Impairment of financial assets
A provision for impairment is established on an expected credit loss model
under IFRS 9. The amount of the provision is the difference between the
asset's carrying amount and the expected value of the amounts recovered.
The probability of default and the expected amounts recoverable are assessed
under reasonable and supportable past and forward looking information that is
available without undue cost or effort. The expected credit loss is a
probability weighted amount determined from a range of outcomes (including
assessments made using forward looking information) and takes into account the
time value of money.
Impairment losses and subsequent reversals of impairment losses are adjusted
against the carrying amount of the receivable and recognised in profit or
loss.
Derivative financial instruments
Derivative financial instruments are recognised at fair value. The gain or
loss on remeasurement to fair value is recognised immediately in profit or
loss. The Group utilises derivatives consisting of exchange contracts to
reduce foreign currency risk.
Convertible loan notes
A portion of loans from directors in the form of loan notes and other loans as
shown within Note 19 have been reclassified or converted from liability into
equity during the prior financial year consequent to change in the terms and
conditions of the loan agreements.
The instruments were evaluated for the conditions within IAS 32, namely, (a)
the instrument includes no contractual obligation to deliver cash or another
financial asset to another entity and (b) the instrument will or may be
settled in the issuer's own equity instruments.
Employee Benefits
Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which the
Group pays fixed contributions into a separate entity and will have no legal
or constructive obligation to pay further amounts. Obligations for
contributions to defined contribution pension plans are recognised as an
expense in profit or loss in the periods during which services are rendered by
employees.
Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis
and are expensed as the related service is provided. A liability is
recognised for the amount expected to be paid under short-term cash bonus or
profit-sharing plans if the Group has a present legal or constructive
obligation to pay this amount as a result of past service provided by the
employee and the obligation can be estimated reliably.
Provisions
A provision is recognised in the balance sheet when the Group has a present
legal or constructive obligation as a result of a past event, that can be
reliably measured and it is probable that an outflow of economic benefits will
be required to settle the obligation. Provisions are determined by discounting
the expected future cash flows at a pre-tax rate that reflects risks specific
to the liability.
All automotive products are sold with a warranty which mirrors the warranty
offered by the OEM to consumers.
Due to the thorough quality checking that is undertaken by the customers
during assembly, and the low risk nature of the products, it is company's
policy to only hold a small provision for warranty claims. This is supported
by the historically low value of warranty claims in the past few years which
the Directors do not consider to be material.
Leases
Identifying leases
The Group accounts for a contract, or a portion of a contract, as a lease when
it conveys the right to use an asset for a period of time in exchange for
consideration. Leases are those contracts that satisfy the following
criteria:
(a) There is an identified asset;
(b) The Group obtains substantially all the economic benefits from use of the
asset; and
(c) The Group has the right to direct use of the asset.
The Group considers whether the supplier has substantive substitution rights.
If the supplier does have those rights, the contract is not identified as
giving rise to a lease.
In determining whether the Group obtains substantially all the economic
benefits from use of the asset, the Group considers only the economic benefits
that arise use of the asset, not those incidental to legal ownership or other
potential benefits.
In determining whether the Group has the right to direct use of the asset, the
Group considers whether it directs, how and for what purpose the asset is used
throughout the period of use. If there are no significant decisions to be made
because they are pre-determined due to the nature of the asset, the Group
considers whether it was involved in the design of the asset in a way that
predetermines how and for what purpose the asset will be used throughout the
period of use. If the contract or portion of a contract does not satisfy these
criteria, the Group applies other applicable IFRSs rather than IFRS 16.
All leases are accounted for by recognising a right-of-use asset and a lease
liability except for:
• Leases of low value assets; and
• Leases with a duration of 12 months or less.
These other leases are recognised in profit or loss on a straight line basis
over the term of the lease.
Lease measurement
Lease liabilities are measured at the present value of the contractual
payments due to the lessor over the lease term, with the discount rate
determined by reference to the rate inherent in the lease unless (as is
typically the case) this is not readily determinable, in which case the
Group's incremental borrowing rate on commencement of the lease is used.
Variable lease payments are only included in the measurement of the lease
liability if they depend on an index or rate. In such cases, the initial
measurement of the lease liability assumes the variable element will remain
unchanged throughout the lease term. Other variable lease payments are
expensed in the period to which they relate.
On initial recognition, the carrying value of the lease liability also
includes:
• amounts expected to be payable under any residual value
guarantee;
• the exercise price of any purchase option granted in
favour of the Company if it is reasonably certain to exercise that option;
• any penalties payable for terminating the lease, if the
term of the lease has been estimated on the basis of a termination option
being exercised.
Right of use assets are initially measured at the amount of the lease
liability, reduced for any lease incentives received, and increased for:
• lease payments made at or before commencement of the
lease;
• initial direct costs incurred; and
• the amount of any provision recognised where the Company
is contractually required to dismantle, remove or restore the leased asset
Subsequent to initial measurement lease liabilities increase as a result of
interest charged at a constant rate on the balance outstanding and are reduced
for lease payments made. Right-of-use assets are amortised on a
straight-line basis over the remaining term of the lease or over the remaining
economic life of the asset if, rarely, this is judged to be shorter than the
lease term.
Earnings per share
Basic earnings per share ("EPS") is calculated by dividing the profit or loss
attributable to ordinary shareholders of the Company by the weighted average
number of ordinary shares outstanding during the period. Share options are
potentially dilutive, but the Group's loss means any potentially dilutive
instruments are anti-dilutive.
Segment Reporting
IFRS 8 'Operating Segments' requires operating segments to be determined based
on the Group's internal reporting to the Chief Operating Decision Maker. See
Note 4 for the accounting policy and related disclosures for segment
reporting.
Share-based payments
Equity-settled share-based payments to employees and others providing similar
services are measured at the fair value of the equity instruments at the grant
date. The fair value excludes the effect of non-market-based vesting
conditions.
The fair value determined at the grant date of the equity-settled share-based
payments is expensed on a straight line basis over the vesting period, based
on the Group's estimate of the number of equity instruments that will
eventually vest. At each reporting date, the Group revises its estimate of the
number of equity instruments expected to vest as a result of the effect of
non-market-based vesting conditions. The impact of the revision of the
original estimates, if any, is recognised in profit or loss such that the
cumulative expense reflects the revised estimate, with a corresponding
adjustment to reserves.
New standards, interpretations and amendments
There have been a number of amendments to existing standards which are
effective from 1 January 2022 but they do not have material effect on the
Group financial statements.
At the date of approval of the consolidated financial statements, the IASB and
IFRS Interpretations Committee have issued standards, interpretations and
amendments which are applicable to the Group. For the next reporting period,
applicable International Financial Reporting Standards will be those endorsed
by the UK Endorsement Board (UKEB).
Whilst these standards and interpretations are not effective for, and have not
been applied in the preparation of, these consolidated financial statements,
the following could have a material impact on the Group's financial statements
going forward:
New/Revised International Financial Reporting Standards Effective Date: Annual periods beginning on or after: UKEB adopted
IAS 12 Amendment to IAS 12: Deferred Tax related to Assets and Liabilities arising 1 January 2023 Yes
from a Single Transaction
IAS 1 Amendments to IAS 1: Classification of Liabilities as Current or Non-current 1 January 2024 No
IFRS 16 Amendment to IFRS 16: Lease Liability in a Sale and Leaseback 1 January 2024 No
Management anticipates that all relevant pronouncements will be adopted in the
Group's accounting policies for the first period beginning after the effective
date of the pronouncement.
There are no other standards and interpretations in issue but not yet adopted
that the directors anticipate will have a material effect on the reported
income or net assets of the Group.
2. Judgements in applying accounting policies and key sources of
estimation uncertainty
The Group makes certain estimates and assumptions regarding the future.
Estimates and judgements are continually evaluated based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. In the future, actual
experiences may differ from these estimates and assumptions. The estimates and
assumptions that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next financial year
are discussed below.
In preparing these financial statements, the Directors made the following
judgements:
Incremental borrowing rate used to measure lease liabilities
Where the interest rate implicit in the lease cannot be readily determined,
lease liabilities are discounted at the lessee's incremental borrowing rate.
This is the rate of interest that the lessee would have to pay to borrow over
a similar term, and with a similar security, the funds necessary to obtain an
asset of a similar value to the right-of-use asset in a similar economic
environment. This involves assumptions and estimates, which would affect the
carrying value of the lease liabilities and the corresponding right-of-use
assets.
To determine the incremental borrowing rate, the Group uses recent third-party
financing as a starting point, and adjusts this for conditions specific to the
lease such as its term and security.
The Group used an incremental borrowing rate of from 3.25% to 32.5% depending
on the specifics of the lease, particularly based on which country the
underlying asset is based in.
Deferred tax asset recognition
As at 30 June 2022, the Directors recognised $3.2m of deferred tax assets in
relation to deductible temporary differences arising in the UK. As at 31
December 2022, the Directors have re-assessed the recoverability of these
assets. Based on management forecasts of the taxable profits in the UK
entities, we expect these deferred tax assets to be recovered against future
taxable profits in the UK as follows: $67,000 to be recovered in 2023,
$935,000 to be recovered in 2024 and $2,198,000 to be recovered in 2025. As
the majority of the deferred tax assets are expected to be recovered in 2024
and 2025, and given the losses of the Group in 2022 were greater than
originally forecasted, the Directors concluded that sufficient taxable profits
arising in the UK to utilise this deferred tax asset would be possible rather
than probable. As a result, the Directors have chosen to derecognise
deferred tax assets of $3.2m in accordance with the requirements of IAS12.
Other key sources of estimation uncertainty:
Inventories provision
Inventory is carried at the lower of cost and net realisable value. Provisions
are made to write down obsolete inventories to net realisable value. The
provision is $1,601,000 at 31 December 2022 (2021: $1,268,000). A difference
of 10% in the provision as a percentage of gross inventory would give rise to
a difference of +/- $160,100 in gross margin.
Goodwill
The carrying amount of goodwill at 31 December 2022 was $1,259,000 (2021:
$2,417,000 which solely relates to Chinatool UK Limited. The goodwill relating
to Chinatool UK Limited was subject to annual impairment testing, and no need
for impairment was identified during the year. Details of the impairment
testing performed and sensitivity analysis performed is set out in Note 12.
During the year ended 31 December 2022, the Group has set up CT Automotive
Systems DE Mexico SA DE CV, a new production facility in Mexico aimed at
supplying automotive customers in North America. As a result, the future
trading activity via the US subsidiary IMS/Chinatool JV, LLC is going to be
significantly curtailed. Therefore, goodwill of $1,158,000 relating to
IMS/Chinatool JV, LLC was fully impaired during the year ended 31 December
2022.
Hyperinflation
The Group exercises significant judgement in determining the onset of
hyperinflation in countries in which it operates and whether the functional
currency of its subsidiaries or associates is the currency of a
hyperinflationary economy.
Various characteristics of the economic environment of each country are taken
into account. These characteristics include, but are not limited to, whether:
· the general population prefers to keep its wealth in non-monetary
assets or in a relatively stable foreign currency;
· prices are quoted in a relatively stable foreign currency;
· sales or purchase prices take expected losses of purchasing power
during a short credit period into account;
· interest rates, wages and prices are linked to a price index; and
· the cumulative inflation rate over three years is approaching, or
exceeds, 100%.
Management exercises judgement as to when a restatement of the financial
statements of a Group entity becomes necessary. Following management's
assessment, the Group's subsidiary in Turkey has been accounted for as an
entity operating in a hyperinflationary economy. The results, cash flows and
financial positions of Chinatool Otomotiv Sanayi Tic. Limited Sti. have been
expressed in terms of the measuring units current at the reporting date.
The movement in the general price index in the current period was 47.8% (2021:
11.1%).
3. Restatement of prior year
The Group has identified an error with regards to the calculation of year-end
inventory on consolidation which relates to a number of years. The error
relates to the calculation of provision for unrealised profits resulting from
intra group sales.
The earliest period being presented and restated in these consolidated
financial statements is the period ended 31 December 2020. As at 31 December
2020, the value of finished goods inventories has been reduced by $6,165,000,
with a reduction of retained earnings at this date of $6,165,000.
As at 31 December 2021, the value of finished goods has been reduced by
$8,275,000. Cost of sales for year ended 31 December 2021 has increased by
$2,110,000.
In addition, the Group has identified an error with regards to the transfer of
tooling assets from the Group balance sheet to cost of sales upon completion
of tooling and sale to the customer, which relates to 2021.
With regard to tooling projects completed in 2021, an additional $2,626,000 of
cost of sales should have been recognised.
As at 31 December 2021, the value of Property, plant and equipment has been
reduced by $2,626,000 with a corresponding increase in costs of sales.
Loss per share for the year ended 31 December 2021 has increased to 55 cents
per share.
4. Segment Information
Operating segments are reported in a manner consistent with internal reporting
provided to the Chief Operating Decision Maker (CODM). The CODM has been
identified as the management team including the Chief Executive Officer and
Chief Financial Officer. The segmental analysis is based on the information
that the management team uses internally for the purpose of evaluating the
performance of operating segments and determining resource allocation between
segments.
The Group has 3 strategic divisions which are its reportable segments.
The Group has the below main divisions:
1) Tooling - Design, development and sale of tooling for the automotive
industry.
2) Production - Manufacturing and distributing serial production
kinematic interior parts for the automotive industry.
3) Head office - Manages Group financing and capital management.
The Group evaluates segmental performance on the basis of revenue and profit
or loss from operations calculated in accordance with IFRS.
Inter-segment sales are priced along the same lines as sales to external
customers, with an appropriate discount being applied to encourage use of
Group resources at a rate acceptable to local tax authorities. This policy was
applied consistently in the current and prior year.
2022 Tooling Production Head Office Total
$'000 $'000 $'000 $'000
Revenue
Total revenue from customers 6,980 117,289 - 124,269
Depreciation and amortisation - (5,422) - (5,422)
Finance expense - (1,939) (58) (1,997)
Segment Profit/(Loss) 1,601 866 (21,288) (18,821)
Share of post-tax loss of equity accounted associates -
Group Loss before tax and discontinued operations (18,821)
2022 Tooling Production Head Office Total
$'000 $'000 $'000 $'000
Additions to non-current assets - 3,549 - 3,549
Reporting segment assets 1,517 77,071 548 79,136
Reportable segment liabilities (4,994) (70,051) (1,514) (76,559)
2021 (restated) Tooling Production Head Office Total
$'000 $'000 $'000 $'000
Revenue
Total revenue from customers 22,175 105,609 - 127,784
Depreciation and amortisation - (5,072) - (5,072)
Finance expense - (2,034) (2,364) (4,398)
Segment Profit/(Loss) 5,260 (7,550) (9,489) (11,779)
Share of post-tax loss of equity accounted associates (579)
Group Loss before tax and discontinued operations (12,358)
2021 (restated) Tooling Production Head Office Total
$'000 $'000 $'000 $'000
Additions to non-current assets - 1,879 - 1,879
Reporting segment assets 6,802 89,190 12,540 108,532
Reportable segment liabilities (3,628) (74,119) (3,527) (81,274)
External revenue by location of customers Non-current assets by location of assets
2022 2021 2022 2021
$'000 $'000 $'000 $'000
US 27,640 29,489 253 124
UK 16,603 15,685 2,395 4,213
Czech Republic 21,399 35,356 651 440
China 18,415 18,289 12,578 13,686
Turkey 12,806 9,690 1,450 555
Mexico 4,766 2,198 2,390 -
Spain 4,692 6,985 - -
Brazil 3,567 3,074 - -
Japan 3,162 1,521 - -
Thailand 2,378 2,187 - -
Slovakia 1,051 597 - -
Italy 986 1,041 - -
South Africa 960 869 - -
Germany 727 731 - -
Other 5,117 72 141 287
124,269 127,784 19,858 19,305
Due to the nature of the automotive industry becoming increasingly
consolidated with mergers, acquisitions and strategic alliances, the number of
customers under separate control is decreasing whilst the size of such
customers is increasing.
Analysis of concentration of customers, top 3 and
others:
In 2022 the Group had 3 major customers representing $50.4m (39%), $23.9m
(18%) and $20.1m (16%) of Group revenue.
In 2021 the Group had 3 major customers representing $42.7m (32%), $43.2m
(33%) and $13.3m (10%) of Group revenue.
5. Revenue
2022 2021
$'000 $'000
Disaggregation of revenue
An analysis of revenue by type is given below:
Sale of parts 117,289 105,609
Sale of tooling (including design and development) 6,980 22,175
124,269 127,784
An analysis of revenue by geographical market is given within Note 4.
All revenue is recognised from goods transferred at a point in time.
Contract balances
The following table provides information about significant changes during the
year in contract assets and contract liabilities from contracts with
customers:
Contract assets Contract liabilities
$'000 $'000
Balance as at 1 January 2022 - 2,925
Revenue recognised that was included in contract liabilities at the beginning - (1,016)
of the year
Increases due to cash received, excluding amounts recognised as revenue during - 2,248
the year
Movements due to foreign exchange - (39)
Balance as at 31 December 2022 - 4,118
The contract liabilities included within trade and other payables primarily
relate to the advance consideration received from customers on tooling
projects.
The contract assets and contract liabilities are recognised in profit or loss
when the performance obligations of each contract are satisfied which is at
the point that the contract is satisfied and control has passed to the
customer. As such, the Group does not recognise revenue on any partially
satisfied performance obligations.
The following table includes revenue expected to be recognised in the future
related to performance obligations that are unsatisfied (or partially
unsatisfied) at the reporting date.
2023 2024 Total
$'000 $'000 $'000
Tooling projects 10,047 - 10,047
All consideration from contracts with customers are accounted for as contract
assets or liabilities and released to the revenue once performance obligation
is fulfilled.
The Group applies the practical expedient in paragraph 121 of IFRS 15 and does
not disclose information about remaining performance obligations that have
original expected durations of one year or less.
6. Other operating income
2022 2021
$'000 $'000
Government grants 546 1,421
Other income 104 10
650 1,431
The government grant income relates to government support received in China
relating to utilities and training subsidies, promotion of foreign trade and
COVID-19 recovery.
7. Non-recurring items
2022 2021
$'000 $'000
AIM listing fees 31 1,810
Turkish foreign exchange losses - 1,113
Impairment of associate - 1,627
Impairment of goodwill 1,158 -
Impact of implementing IAS29 665 -
China housing fund contribution 453 -
Start-up costs in Mexico 1,738 -
Irrecoverable excess freight costs 238 1,021
4,283 5,571
The Directors consider that it is appropriate to remove the non-recurring
costs and certain non-trading items discussed below to better allow the reader
of the accounts to understand the underlying performance of the Group.
The AIM listing completed in December 2021 incurred one-off transaction costs
and advisory fees. Costs of $31,000 (2021: $1,810,000) have been recognised
within administrative expenses in relation to this.
In December 2021, the Turkish Lira was significantly depreciated against the
USD following unprecedented Government announcements in Turkey. This resulted
in the Group incurring one-off unrealised foreign exchange losses of $NIL
(2021: $1,113,000) arising in Chinatool Otomotiv San. Tic. Ltd Sti.
An impairment review of the loans and shareholdings the Group held in Marin
Engineering Limited and Scomadi (Thailand) Co. Ltd. was completed in 2021.
These balances were fully impaired before the loan was written off and the
shares were transferred to a third party. This resulted in a one-off
impairment charge of $NIL (2021: $1,627,000).
Global freight costs have temporarily increased significantly following the
pandemic and related logistic issues. This has resulted in freight container
costs exceeding the container rates quoted to customers. In recognition of
this expecting to normalise over time, the Group has negotiated with customers
to maximise the recovery of excess freight costs. There is however an element
of excess freight costs which is deemed irrecoverable amounting to $238,000
(2021: $1,021,000) recognised within distribution expenses.
In respect of the year ended 31 December 2022, the rate of inflation in Turkey
reached a level whereby it is considered hyperinflation and as a result the
Group has been required to restate the results of Chinatool Otomotiv San. Tic.
Ltd Sti in accordance with IAS29. The impact of this restatement is not part
of the underlying performance of the business and is therefore considered
non-trading.
During the year ended 31 December 2022, the Group's Chinese entities received
a backdated demand for Housing Fund contributions (a form of social insurance
in China) relating to the period 2010 to 2019. Since 2020 these contributions
have been correctly calculated and paid so this backdate charge will not
recur.
During the year ended 31 December 2022, the Group opened a new production
facility in Mexico and incurred $1,738,000 of pre-opening and start-up costs
which the Directors consider to be non-recurring in nature.
Goodwill of $1,158,000 relating to IMS/Chinatool JV, LLC was fully impaired
during the year ended 31 December 2022 as the setting up of CT Automotive
Systems DE Mexico SA DE CV is expected to curtail future trading through
IMS/Chinatool JV, LLC as US sales through the Mexican subsidiary will be
subject to lower tariffs. Management expect to move manufacturing and
distribution of existing North American projects to Mexico, and are tendering
for new North American projects on the basis of manufacturing and distribution
from Mexico. Moving manufacturing for these projects from China to Mexico will
reduce the exposure to Section 301 tariffs on imports into the US from China
and will improve the Group's competitive pricing for North American projects.
8. Expenses and auditors' remuneration
Restated
2022 2021
$'000 $'000
Operating loss is stated after charging:
Amortisation:
- Continuing operations 602 440
Depreciation:
- Continuing operations 1,608 1,697
- Discontinued operations 165 167
Foreign exchange 3,804 1,576
Depreciation of right-of-use assets:
- Continuing operations 3,212 2,935
- Discontinued operations 360 133
Cost of inventories 86,148 75,076
2022 2021
$'000 $'000
Auditors' remuneration
Audit of Group financial statements 164 158
Audit of financial statements of subsidiaries of the Company 309 241
9. Taxation
2022 2021
Recognised in profit or loss $'000 $'000
Current tax expense
Current year 621 135
Adjustments for prior periods 23 150
Current tax expense 644 285
Deferred tax credit
Origination and reversal of temporary differences 2,438 (993)
Adjustments for prior periods (88) -
Effect of changes in tax rates 60 (444)
Deferred tax charge / (credit) 2,410 (1,437)
Total tax charge / (credit) 3,054 (1,152)
2022 2021
$'000 $'000
Reconciliation of effective tax rate
Loss for the year (21,875) (11,206)
Total tax charge 3,054 (1,152)
Loss excluding taxation (18,821) (12,358)
Tax using the UK corporation tax rate of 19% (2021 - 19%) (3,576) (2,348)
Effect of tax rates in foreign jurisdictions 1,810 258
Non-taxable income 13 22
Non-deductible expenses 209 1,255
Adjustments for prior periods 1,328 150
Tax rate changes (590) (454)
Unrecognised deferred tax assets 3,845 -
Other differences 15 (35)
Total tax charge / (credit) 3,054 (1,152)
The UK Government announced in the March 2021 Budget that the main rate
corporation tax in the UK will increase from 19% to 25%. This was
substantively enacted by the balance sheet date and as a result deferred tax
balances at 31 December 2021 have been measured at 25%.
Included within tax payable is an IFRIC 23 uncertain tax payable totalling
$778,000 (2021: $618,000), which is a result of uncertainty in the tax
legislation in a certain jurisdiction.
10. Discontinued operations
On 30 September 2022, the Group made a decision to discontinue Chinatool
Automotive Systems Limited.
The results of the discontinued operations, which have been included in the
profit for the year, were as follows:
2022 2021
$'000 $'000
Revenue 3,958 5,155
Cost of sales (5,240) (6,108)
Other income 21 37
Distribution expenses (110) (9)
Administrative expenses (1,276) 1,178
Net finance income / expense (93) (76)
(Loss) / profit before tax (2,740) 177
Attributable tax expense (49) (44)
Net (loss) / profit attributable to discontinued operations (2,789) 133
During the year, Chinatool Automotive Systems Limited incurred a cash outflow
of $1,536,000 (2021: cash outflow of $1,580,000) to the Group's net operating
cash flows, paid $nil (2021: $543,000) in respect of investing activities and
paid $372,000 (2021: $324,000) in respect of financing activities.
Assets and liabilities of Chinatool Automotive Systems have not been
classified as held for sale at 31 December 2022 due to their immaterial nature
and because all short term assets and liabilities are expected to be either
settled or transferred to continuing Group operations. These are included in
the respective Group assets and liabilities and are as follows:
2022
$'000
Assets
Property, plant and equipment 68
Right of use assets 98
Inventories 219
Trade and other receivables 171
Cash 34
Total assets 590
Liabilities
Trade and other payables (810)
Overdraft (153)
Lease liability (494)
Current tax liability (46)
Deferred tax liability (37)
Total liabilities (1,540)
Net liabilities (950)
11. Loss per share
From continuing and discontinued operations: 2022 2021
Number Number
Weighted average number of equity shares 50,933,289 20,286,757
$ $
Earnings, being loss after tax (24,664,000) (11,073,000)
Cents Cents
Loss per share (48.4) (54.6)
In 2022 there were share options outstanding that could have a dilutive effect
on earnings per share in the future but are not taken into account in the
current period because the Group has reported a loss. In 2021 there were no
outstanding instruments that can result in diluted earnings per share to be
different from basic earnings per share.
From continuing operations: 2022 2021
Number Number
Weighted average number of equity shares 50,933,289 20,286,757
$ $
Earnings, being loss after tax before discontinued operations (21,875,000) (11,206,000)
Cents Cents
Loss per share (42.9) (55.2)
From discontinued operations: 2022 2021
Cents Cents
Basic and diluted (loss) / earnings per share (5.5) 0.7
12. Goodwill
$'000
Cost
Balance at 1 January 2021 & 31 December 2021 2,417
Additions -
Balance at 31 December 2022 2,417
Impairment
Balance at 1 January 2021 & 31 December 2021 -
Impairment charge 1,158
Balance at 31 December 2022 1,158
Net book value
31 December 2022 1,259
31 December 2021 2,417
Goodwill considered significant in comparison to the Group's total carrying
amount of such assets have been allocated to cash generating units or groups
of cash generating units as follows:
Goodwill
2022 2021
$'000 $'000
Chinatool UK Limited 1,259 1,259
IMS / Chinatool JV, LLC - 1,158
The recoverable amount of Chinatool UK Limited has been determined based on a
value-in-use calculation. This calculation uses forecasts approved by the
Directors which covers a four year period. These are detailed forecasts based
on customer schedules and expected project lifetimes. The detailed forecasts
have been reviewed for a four year period as this is considered to be the
range over which the customer schedules can be relied upon to create detailed
forecasts.
In performing these calculations, the future cashflows of Chinatool UK Limited
have been discounted at 14%. The Directors concluded that this discount rate
is appropriate having reviewed discount rates applied by competitors in our
sector, including businesses who are exposed to similar automotive supply
risks and applying a margin to take account of our size, the complexity of our
operations and levels of borrowing in the Group.
Using the stated assumptions, there is significant headroom between the
recoverable amount of goodwill relating to Chinatool UK Limited. Applying
sensitivity analysis to these calculations, a 2% increase to the discount rate
applied reduces the headroom, but still allows for of over $10m of headroom.
Goodwill of $1,158,000 relating to IMS/Chinatool JV, LLC was fully impaired
during the year ended 31 December 2022 as the setting up of CT Automotive
Systems DE Mexico SA DE CV is expected to curtail future trading through
IMS/Chinatool JV, LLC as US sales through the Mexican subsidiary will be
subject to lower tariffs. Management expect to move manufacturing and
distribution of existing North American projects to Mexico, and are tendering
for new North American projects on the basis of manufacturing and distribution
from Mexico. Moving manufacturing for these projects from China to Mexico will
reduce the exposure to Section 301 tariffs on imports into the US from China
and will improve the Group's competitive pricing for North American projects.
13. Intangible assets
Software
$'000
Cost
Balance at 1 January 2021 1,706
Additions 421
Effect of movements in foreign exchange (67)
Balance at 31 December 2021 2,060
Additions 633
Effect of movements in foreign exchange (244)
Balance at 31 December 2022 2,449
Amortisation and impairment
Balance at 1 January 2021 1,161
Amortisation for the year 440
Effect of movements in foreign exchange (61)
Balance at 31 December 2021 1,540
Amortisation for the year 602
Effect of movements in foreign exchange (221)
Balance at 31 December 2022 1,921
Net book value
At 31 December 2022 528
At 31 December 2021 520
Amortisation charge
The amortisation charge is recognised in the following line items in the
statement of profit or loss:
2022 2021
$'000 $'000
Administrative expenses 602 440
14. Property, plant and equipment
Plant and equipment Fixtures and fittings Motor vehicles Total
$'000 $'000 $'000 $'000
Cost
Balance at
1 January 2021 16,687 3,323 38 20,048
Additions 182 1,276 - 1,458
Disposals (1,049) (554) - (1,603)
Effect of movements in foreign exchange (554) (166) (4) (724)
Balance at 31 December 2021 15,266 3,879 34 19,179
Effect of hyperinflation 406 179 585
Additions 1,811 1,053 - 2,864
Disposals (2,654) (464) (11) (3,129)
Effect of movements in foreign exchange (1,484) (372) - (1,856)
Balance at 31 December 2022 13,345 4,275 23 17,643
Depreciation
Balance at 1 January 2021 8,571 1,855 38 10,464
Depreciation charge for the year 574 1,290 - 1,864
Disposals (255) (336) - (591)
Effect of movements in foreign exchange (150) (85) (4) (239)
Balance at 31 December 2021 8,740 2,724 34 11,498
Effect of hyperinflation 146 115 - 261
Depreciation charge for the year 367 1,406 - 1,773
Disposals (1,826) (429) (11) (2,266)
Effect of movements in foreign exchange (719) (206) - (925)
Balance at 31 December 2022 6,708 3,610 23 10,341
Net book value
At 31 December 2022 6,637 665 - 7,302
At 31 December 2021 6,526 1,155 - 7,681
15. Leases
The treatment of leases within the scope of IFRS 16 is disclosed in the
accounting policies (Note 1).
The Group leases buildings and machinery where payments are fixed until the
contracts expire. There is no variability in respect of payments and there is
not considered to be any significant judgement in relation to the lease terms.
Right of use assets Land and buildings Plant and machinery Total
$'000 $'000 $'000
At 1 January 2021 7,306 243 7,549
Additions 1,538 911 2,449
Depreciation (2,521) (547) (3,068)
Foreign exchange movement 4 8 12
At 31 December 2021 6,327 615 6,942
Effect of hyperinflation 35 - 35
Additions 8,089 435 8,524
Impairment (429) - (429)
Depreciation (2,866) (706) (3,572)
Foreign exchange movement (683) (48) (731)
At 31 December 2022 10,473 296 10,769
The range of incremental borrowing rates used during the year for right of use
asset additions is 3.25%-18.4% (2021: 3.25%-8.5%).
Lease liabilities Land and buildings Plant and machinery Total
$'000 $'000 $'000
At 1 January 2021 7,916 608 8,524
Additions 1,547 911 2,458
Interest expense 541 46 587
Foreign exchange movement (15) 8 (7)
Repayments (2,993) (581) (3,574)
At 31 December 2021 6,996 992 7,988
Effect of hyperinflation 38 - 38
Additions 7,918 437 8,355
Interest expense 526 44 570
Foreign exchange movement (760) (55) (815)
Repayments (3,069) (1,107) (4,176)
Reduction in lease liabilities (38) - (38)
At 31 December 2022 11,611 311 11,922
The maturity profile of the lease liabilities is as follows: 2022 2021
$'000 $'000
Under 1 year 3,022 2,844
1-2 years 2,373 1,637
2-5 years 5,327 2,594
More than 5 years 1,200 913
11,922 7,988
16. Inventories
Restated
2022 2021
$'000 $'000
Raw materials and consumables 6,605 8,627
Work in progress 7,735 6,654
Finished goods 13,002 16,223
27,342 31,504
Inventories recognised as an expense during the year is disclosed in Note 8.
The provision for inventories recognised during the year ended 31 December
2022 was $333,000 (2021: $229,000).
Trade loans are secured against inventories of $9,583,000 (2021: 5,452,000).
17. Trade and other receivables
2022 2021
$'000 $'000
Trade receivables 16,167 26,444
VAT receivable 633 -
Other receivables 1,832 2,633
18,632 29,077
Prepayments and accrued income 8,248 13,705
Total trade and other receivables 26,880 42,782
Included within trade and other receivables is $Nil (2021 - $Nil) expected to
be recovered in more than 12 months.
The carrying value of trade and other receivables classified at amortised cost
approximates fair value.
The Group does not hold any collateral as security.
The Group applies the IFRS 9 simplified approach to measuring expected credit
losses using a lifetime expected credit loss provision to trade receivables.
The expected loss rates are based on the Group's historical credit losses. Due
to the nature of the Group's customers, no credit loss provision has been made
at year end (2021 - $Nil). The key assumptions used in evaluating the credit
loss provision are the historical default ratio of these customers, any known
liquidity risks of the customers and based on the information available we
have assessed a range of possible outcomes.
As at 31 December 2022 trade receivables of $5,897,000 (2021 - $4,007,000)
were past due but not impaired. They relate to customers with no default
history. The ageing analysis of these receivables is as follows:
2022 2021
$'000 $'000
Not past due 10,270 22,174
Past due 1-90 days 4,260 3,498
Past due more than 90 days 1,637 772
16,167 26,444
Other classes of financial assets included within trade and other receivables
do not contain impaired assets.
Invoice finance balances are secured against trade receivables of $7,117,000
(2021: 10,997,000).
18. Trade and other payables
2022 2021
$'000 $'000
Current
Trade payables 21,793 24,938
Non-trade payables and accrued expenses 10,266 11,419
Other taxation and social security 2,449 7,388
Contract liabilities 4,118 2,925
Other payables 7,298 3,359
Total 45,924 50,029
Included within trade and other payables is $Nil (2021 - $Nil) expected to be
settled in more than 12 months.
All trade and other payables other than employee social security and taxes,
contract liabilities and provisions for losses on forward contracts (fair
value through profit or loss) are classified as financial liabilities measured
at amortised cost. The carrying value of trade and other payables classified
as financial liabilities measured at amortised cost approximates fair value.
Previously included within other payables at 31 December 2020 were $1,946,000
of balances due to Simon Phillips which were reclassified into Equity Loan
Notes on 14 September 2021 and subsequently settled by issue of Ordinary
Shares before 31 December 2021.
In addition to the shareholder loan notes, at 23 December 2021 Directors Loan
balances of $487,619 were satisfied by the issue of 249,615 Ordinary Shares to
the Directors.
19. Borrowings
This note provides information about the contractual terms of the Group and
Company's interest-bearing loans and borrowings, which are measured at
amortised cost.
2022 2021
$'000 $'000
Current liabilities
Unsecured bank overdraft 358 3,638
Current portion of secured bank loans 9,583 5,452
Invoice finance 7,117 10,997
Unsecured loans - 2,500
17,058 22,587
Total 17,058 22,587
Invoice finance balances are secured against trade receivables. Trade loans
are secured against inventories.
The currency profile of the Group's loans and borrowings is as follows:
2022 2021
$'000 $'000
USD 8,982 12,928
GBP 358 3,147
EUR 7,718 6,433
RMB - 79
17,058 22,587
Currency Nominal interest rate Contracted maturity Carrying amount 31 December 2022 Carrying amount 31 December 2021
$'000 $'000
Unsecured loans USD 10% 2022 - 2,500
Unsecured bank overdraft GBP 2.5% 2022 358 3,638
Trade loans EUR/USD 4.04% 2022 9,583 5,452
Invoice finance EUR/USD 3.75% 2022 7,117 10,997
17,058 22,587
Terms and debt repayments
The unsecured loans were initially drawn down as a 6 month loan in January
2021. An agreement was reached with the lender to extend repayment to January
2022 and the loans were repaid during the current period.
The Term Loan, which existed in the prior year, was repayable over equal
instalments to June 2023. Interest was paid quarterly in full. This term loan
was fully repaid on 24 December 2021.
The CLBILs, which existed in the prior year, was repayable over equal
instalments to 2023. Interest was paid monthly in full. The CLBILs were fully
repaid on 24 December 2021.
The loan notes, which existed in the prior year, were reclassified into equity
instruments on 14 September 2021 based on changes in their terms such that
they met the IAS 32 definition of equity.
The invoice finance facility allows 90% prepayment against eligible invoices
up to 120 days old. The invoice financing facility is secured against the
debts that it is drawn down on.
Trade loans are on a 70 days repayment basis.
The unsecured bank overdraft is repayable on demand and has no set repayment
schedules.
The movement of loans notes in the prior period is as follows:
Loan notes - liabilities Loan notes - equity
$'000 $'000
At 1 January 2021 7,426 -
Accrued interest 528 -
Conversion of shareholder loan notes to equity (7,954) 9,900
Issue of loan notes to third parties 5,600 -
Conversion of loan notes to Ordinary Shares (5,600) (9,900)
As at 31 December 2021 - -
The original shareholder loan notes due to Simon Phillips ($7,426,000 at 31
December 2020) were reclassified to equity instruments on 14 September 2021
based on changes in their terms such that they met the IAS 32 definition as
equity instruments. At the date of this conversion, $1,946,000 of other
shareholder balances due were also reclassified into equity instruments after
changes in their terms, in line with IAS 32. On 23 December 2021, the balance
of these loan notes ($9,900,000) was set off against $3,694,069 owed by Simon
Phillips and entities controlled by Simon Phillips, with the resulting balance
owed to him ($6,205,931) being satisfied in full by the issue to him of
3,176,871 new Ordinary Shares.
On 20 September 2021, $5,600,000 of new loan notes were issued to unrelated
third parties which were classified as a liability as per the terms of the
agreement, carrying an interest rate of 10% and due to be repaid on 31
December 2023. On 23 December 2021, these were converted into 5,034,898
Ordinary Shares. These were issued at a 43% discount to the AIM listing
placing price.
2022 Opening balance 1 January Cash received / (paid) on principal Other movements (incl FX) New leases Interest accrued Interest paid Closing balance 31 December
$'000 $'000 $'000 $'000 $'000 $'000 $'000
Trade loans 5,452 4,131 - - 377 (377) 9,583
Unsecured loans 2,500 (2,500) - - 30 (30) -
Invoice finance 10,997 (3,880) - - 688 (688) 7,117
Lease liabilities 7,988 (3,606) (815) 8,355 570 (570) 11,922
Balance at 31 December 2022 26,937 (5,855) (815) 8,355 1,665 (1,665) 28,622
2021 Opening balance 1 January Cash movements Foreign exchange movements Other movements Closing balance 31 December
$'000 $'000 $'000 $'000 $'000
Term loan 15,603 (16,042) (4) 443 -
CLBILs 8,190 (8,351) (47) 208 -
Trade loans 11,150 (6,092) - 394 5,452
Unsecured loans - 2,250 - 250 2,500
Loan notes 7,426 (8,010) 56 528 -
Invoice finance 12,533 (1,537) - 1 10,997
Lease liabilities 8,524 (1,116) (7) 587 7,988
Balance at 31 December 2021 63,426 (38,898) (2) 2,411 26,937
20. Post balance sheet events
On 27 April 2023 the Group announced that it undertook a fundraise and
achieved total gross proceeds of $9.6m (before transaction costs of $0.5m).
The fundraising was completed through a combination of subscription and
placement of 22,664,259 new ordinary shares at an issue price of 34 pence per
share. The issue price represented a discount of approximately 31% to the
closing middle market price of 49 pence per ordinary share on 26 April 2023,
being the latest practicable date prior to the fundraising announcement.
The new ordinary shares represented approximately 44% of the existing issued
share capital of CT Automotive Group plc.
The fundraising completed following the General Meeting on 15 May 2023 and the
admission of the new ordinary shares to trading on AIM on 16 May 2023.
The enlarged share capital of the Company following admission increased to
73,597,548 ordinary shares in aggregate.
The net proceeds of the fundraise of approximately $9.1m will predominately be
used to strengthen the balance sheet and to provide the Group with flexibility
to take advantage of growth opportunities. Additionally, a small portion of
the net proceeds will be deployed to realise further efficiency savings
including through investment in injection moulding production processes and
robotics.
21. Alternative performance measures
The Annual Report includes Alternative Performance Measures (APMs) which are
considered by Management to better allow the readers of the accounts to
understand the underlying performance of the Group. A number of these APMs are
used by Management to measure the KPIs of the Group. The Board also monitors
these APMs to assess financial performance throughout the year.
The APMs used in the Annual Report include:
- Adjusted EBITDA - calculated as EBITDA adjusted for
non-recurring items
- Adjusted EBITDA margin - calculated as adjusted EBITDA divided
by revenue in the year
- Adjusted operating profit - calculated as Operating
profit/(loss) adjusted for non-recurring items
- Adjusted operating profit margin - calculated as adjusted
operating profit divided by revenue in the year
EBITDA is calculated based using Operating profit/(loss) before interest,
taxes, depreciation and amortisation.
Detail of each of the non-recurring items is disclosed in Note 7.
Adjusted EBITDA and adjusted EBITDA margin 2022 2021
$'000 $'000
Adjusted EBITDA from continuing operations (7,129) 3,254
Non-recurring items
- AIM listing fees (31) (1,810)
- Turkish foreign exchange losses - (1,113)
- Impairment of associate - (1,627)
- Impairment of goodwill (1,158) -
- Impact of implementing IAS 29 (665) -
- Backdated Housing fund contribution (453) -
- Start-up costs in Mexico (1,738) -
- Irrecoverable excess freight costs (238) (1,021)
EBITDA (11,412) (2,317)
Adjusted EBITDA margin (6.2%) 6.6%
Adjusted operating (loss) / profit and adjusted operating profit margin from 2022 2021
continuing operations
$'000 $'000
Adjusted operating profit (12,551) (1,818)
Non-recurring items
- AIM listing fees (31) (1,810)
- Turkish foreign exchange losses - (1,113)
- Impairment of associate - (1,627)
- Impairment of goodwill (1,158) -
- Impact of implementing IAS 29 (665) -
- Backdated Housing fund contribution (453) -
- Start-up costs in Mexico (1,738) -
- Irrecoverable excess freight costs (238) (1,021)
Operating loss (16,834) (7,389)
Adjusted operating profit margin (10.1%) 2.4%
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