CT Automotive Group plc (LON:CTA), a UK-headquartered company that designs, develops and supplies interior components for the global automotive industry, has announced a proposed placing of new ordinary shares of 0.5 pence each in the capital of the Company at a price of 34 pence per Placing Share to raise approximately £5.1 million (before expenses).
In addition, certain of the Directors, namely Simon Phillips and Scott McKenzie, intend to participate by way of a direct subscription with the Company of new Ordinary Shares. It is intended that the Director Subscription will comprise approximately £100,620 in aggregate through the issue of 295,940 new Ordinary Shares, at the Issue Price.
Furthermore, certain of the Company’s existing Shareholders have committed to subscribe for, in aggregate, 7,102,574 new Ordinary Shares at the Issue Price raising gross proceeds of approximately £2.4 million.
It is intended that the Placing, the Director Subscription and the Subscription will result in the Company raising total gross proceeds of approximately £7.6 million.
Capitalised terms used in this announcement (including the appendix) have the meanings given to them in the section headed “Definitions” at the end of this Announcement, unless the context provides otherwise.
Liberum Capital Limited is acting as nominated adviser, sole bookrunner and sole broker in connection with the Placing.
Liberum will commence a bookbuilding process in respect of the Placing immediately following the publication of this Announcement.
Fundraising highlights
● Fundraising to raise approximately £7.6 million (before expenses) through the issue of the Placing Shares, the Subscription Shares and the Director Subscription Shares (together the “New Ordinary Shares”) at 34 pence per New Ordinary Share.
● The Issue Price represents a discount of approximately 31 per cent. to the closing middle market price of 49 pence per Ordinary Share on 26 April 2023, being the latest practicable date prior to the publication of this Announcement.
● The New Ordinary Shares will represent approximately 44 per cent. of the existing issued share capital of the Company (the “Existing Ordinary Shares”).
● Executive Chairman Simon Phillips and Chief Executive Officer Scott McKenzie have indicated their intention to subscribe for, in aggregate, 295,940 Director Subscription Shares in the Director Subscription, raising gross proceeds of approximately £100,620.
● The Subscribing Shareholders have committed to subscribe for, in aggregate, 7,102,574 Subscription Shares in the Subscription, raising gross proceeds of approximately £2.4 million.
● It is expected that the Placing will raise gross proceeds of approximately £5.1 million. The final number of Placing Shares to be placed will be determined by Liberum, in consultation with the Company, at the close of the Bookbuilding Process and the result will be announced as soon as practicable thereafter. The timing for the close of the Bookbuilding Process and the allocation of the Placing Shares will be determined together by Liberum and the Company.
● The Fundraising is conditional upon, among other things, the resolutions (the “Resolutions”) required to implement the Fundraising being duly passed by Shareholders at the general meeting proposed to be held at the offices of Fieldfisher LLP, 9th Floor, Riverbank House, 2 Swan Lane, London EC4R 3TT at 11.30 a.m. on 15 May 2023 (the “General Meeting”).
● The Placing is subject to the terms and conditions set out in the appendix (the “Appendix”) to this announcement (this “Announcement”). The Appendix forms part of this Announcement.
● The Fundraising is not being underwritten.
Use of proceeds
The net proceeds of the Fundraising of approximately £7.2 million 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 are expected to be deployed to realise further efficiency savings including through investment in injection moulding production processes and robotics.
Background to and reasons for the Fundraising
CT Automotive is a designer, developer and supplier of interior components to the global automotive industry with operations across China, Europe and Mexico. It has embedded relationships with a blue chip client base and long term visibility of orders, with market volumes now beginning to recover and a strong pipeline of opportunities.
During the year to 31 December 2022, the automotive sector was impacted by the continuation of global supply chain challenges, including a shortage of semi-conductors, which resulted in a global reduction in OEM production volumes. While revenue was relatively stable, the increased variability and short-term nature of orders as the Group’s customers reacted to available supply elsewhere in their respective supply chains, increased the Group’s production costs as it reacted to maintain service and this impacted on profitability. 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 significant destocking and 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.
The Group incurred non-recurring costs in FY2022 primarily in connection with:
– Production inefficiencies and expedited air freight costs, not all of which the Group was able to pass on to customers, as a result of lockdowns in China due to the zero Covid policy;
– Foreign exchange losses caused by unfavourable exchange rates movements against the US dollar, particularly the Turkish Lira; and
– Higher finance costs due to increased interest rates and utilisation of debt facilities.
Overall, non-recurring costs had a total impact on the Group’s profitability in FY2022 of $13.3 million.
In addition, the Group incurred a number of exceptional costs in the year. These predominately related to higher than anticipated costs to set up and commence production at the Group’s new site in Mexico, as well as increased costs of transporting required components to the site. Following the closure of the Group’s UK production site, the Group has also recognised a charge for the write-down of certain assets and also an accounting charge on account of hyper-inflation in Turkey.
A summary of key FY2022 financial items is set out below:
| FY2022 (unaudited) | FY2021 | |
| Revenue | $125.3m | $127.7m |
| Adjusted EBITDA | $(4.9)m | $11.0m |
| Adjusted operating profit/ (loss) | $(9.6)m | $5.7m |
| Exceptional costs | $(4.8)m | $(5.6)m |
| Operating profit/ (loss) | $(14.4)m | $0.1m |
| Underlying loss before tax | $(11.4)m | $(1.8)m |
| Loss before tax | $(16.3)m | $(4.9)m |
| Net debt | $12.6m | $9.6m |
Note: FY2022 results are unaudited; continuing operations excluding UK manufacturing
While the Group was impacted by these exceptional and non-recurring items, the Directors do not believe that these items will continue to impact performance in FY2023. As the trading environment firstly stabilises and subsequently volumes recover to normalised pre-Covid levels, the Group’s established relationships and pipeline provide a foundation for growth. The Group also made good progress with several strategic initiatives in FY2022 that will further support margin improvements.
Implementation of efficiency programme
The Group commenced an efficiency programme in the second half of FY2022 to improve profit margin across the Group’s operations and to reflect the changing demand environment in the short term.
In aggregate, the Group has identified a roadmap to realise an approximately nine percentage point improvement in pre tax profit margin compared to the underlying pre tax profit margin in FY2022, with savings expected across labour and materials, with further benefits from improved pricing and inflation-based customer cost recovery. The Group also successfully negotiated improved payment terms with customers and suppliers to reduce the Group’s working capital requirements and improve overall cash flow.
Savings identified under the efficiency programme include proposals to increase the flexibility of the Group’s workforce and increase 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.
While the full benefits of these initiatives will be felt in FY2024, action already taken to date is expected to result in a run rate pre tax profit margin of approximately 7.6 per cent. 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 per cent. This includes investment in robotics to 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.
New Business Wins
During FY2022 the Group deepened its relationships with customers and was awarded a number of new contracts. These awards are a demonstration of the strength of the CT Automotive proposition and are expected to deliver annual revenues of over $19.5 million, with the associated programmes from these new awards anticipated to commence in the second half of FY2024 and into FY2025. In addition to the new production awards, the Group also expects to generate engineering, design and development revenues associated with the preparation and commencement of new programmes. New production wins are expected to result in engineering, design and development revenues of approximately $10.8 million, the majority of which is expected to be recognised in H2 2023 and FY2024.
New business tendering continues, and the Group has an identified pipeline of opportunities with an estimated annual production value of approximately $72.6 million. These production programmes have associated engineering, design and development revenues of approximately $34.0 million.
Positive Current Trading and Outlook
Trading in the first three months of the year has been encouraging with strong customer demand and order books building into the new financial year, despite the Chinese New Year which represents a seasonal low for the Group due to local site closures. 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 2022 continues to progress in line with plan. Efficiency initiatives have started to come on stream and are delivering the margin improvements described above.
The Board is encouraged by stabilising order volumes since the start of 2023 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 market expectations for FY2023, supported by the benefit expected from efficiency savings.
Net Assets
The Board has continued to actively manage its working capital and net debt as at 31 December 2022 was $12.6 million. Net debt includes amounts drawn on the Group’s trade loans and invoice finance facilities with HSBC, which can be withdrawn on three months’ notice from HSBC. The Directors believe that should the HSBC facilities be withdrawn, alternative funding options would be available to the Group.
| FY2022 (unaudited) | FY2021 | |
| Intangible assets & goodwill | $3.0m | $3.0m |
| Tangible fixed assets | $8.9m | $10.3m |
| Right of use assets | $8.7m | $6.9m |
| Deferred Tax | $3.1m | $1.7m |
| Inventories | $38.4m | $39.6m |
| Trade and other receivables | $30.9m | $41.8m |
| Cash | $4.5m | $13.4m |
| Other interest bearing loans and borrowings | $(17.1)m | $(23.0)m |
| Trade and other payables and provisions | $(48.9)m | $(48.0)m |
| Right of use liabilities | $(9.1)m | $(7.5)m |
| Net assets | $22.5m | $38.2m |
Use of Proceeds
The net proceeds of the Fundraising of approximately £7.2 million 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 are expected to be deployed to realise further efficiency savings including through investment in injection moulding production processes and robotics.
Intended Appointment of non-executive director
The Board intends to appoint a further non-executive director following completion of the Fundraising, with the individual to be a representative of one of the Company’s significant shareholders. A further announcement will be made in due course.
Details of the Fundraising
Placing
The Company is proposing to raise, in aggregate, approximately £5.1 million (before commissions, fees and expenses) by means of the Placing. The Placing Shares, in aggregate, will represent approximately 29 per cent. of the Existing Ordinary Shares.
The Appendix sets out further information relating to the Bookbuilding Process and the terms and conditions of the Placing. The Placing is conditional upon, inter alia the Resolutions being passed at the General Meeting and the Company receiving funds due under the Subscription and Director Subscription prior to the General Meeting. Persons who have chosen to participate in the Placing, by making an oral, electronic or written offer to acquire Placing Shares, will be deemed to have read and understood this Announcement in its entirety (including the Appendix) and to be making such offer on the terms and subject to the conditions herein, and to be providing the representations, warranties, agreements, acknowledgements and undertakings contained in the Appendix.
Liberum will commence the Bookbuilding Process immediately following the publication of this Announcement. The number of Placing Shares to be issued will be determined at the close of the Bookbuilding Process.
The book will open with immediate effect following this Announcement. The timing of the closing of the Bookbuilding Process and allocations are at the absolute discretion of Liberum and the Company. Details of the number of Placing Shares will be announced as soon as practicable after the close of the Bookbuilding Process. The Placing is not being underwritten.
Director Subscription & Subscription
Simon Phillips and Scott McKenzie have indicated their intention to subscribe for approximately £80,496 and £20,124 respectively pursuant to the Director Subscription. It is expected that Simon Phillips and Scott McKenzie will enter into conditional subscription agreements (“Director Subscription Agreements“) in respect of the issue of the Director Subscription Shares.
The Company has entered into conditional subscription agreements (“Subscription Agreements“) with certain existing Shareholders in respect of the issue of the Subscription Shares.
Pursuant to the terms of the proposed Director Subscription Agreements and the Subscription Agreements, each are conditional on:
· the Resolutions being passed (without amendment) at the General Meeting or any adjournment thereof;
· the relevant Director or Subscriber complying with their obligations under the respective agreements; and
· Admission of the Director Subscription Shares or Subscription Shares (as the case may be) taking place by no later than 8.00 a.m. on or around 16 May 2023.
A circular, containing further details of the Fundraising and convening the General Meeting in order to pass the Resolutions (the “Circular”), is expected to be despatched to Shareholders on or around 28 April 2023 and the Circular, once published, will be available on the Company’s website at https://ct-automotive.net/investors/.
The New Ordinary Shares, when issued, will be fully paid and will rank pari passu in all respects with the existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after the date of issue. If all of the New Ordinary Shares are allotted pursuant to the Fundraising, it would represent an increase of approximately 44 per cent. of the existing issued ordinary share capital of the Company.
The Company is seeking to raise proceeds from the Fundraising of approximately £7.6 million on a non-pre-emptive basis. This represents approximately 44 per cent. of its existing issued ordinary share capital.
Admission, settlement and CREST
Application will be made to the London Stock Exchange for admission of the New Ordinary Shares to trading on the AIM market (“AIM”) of London Stock Exchange plc (the “London Stock Exchange”) (“Admission”).
It is expected that Admission will take place on or before 8.00 a.m. on 16 May 2023 and that dealings in the New Ordinary Shares on AIM will commence at the same time.
The Fundraising is conditional upon, among other things, the Resolutions required to implement the Fundraising being duly passed by the shareholders of the Company (the “Shareholders”) at the General Meeting proposed to be held at the offices of Fieldfisher LLP, 9th Floor, Riverbank House, 2 Swan Lane, London EC4R 3TT at 11.30 a.m. on 15 May 2023, upon Admission becoming effective and upon the placing agreement between the Company and Liberum (the “Placing Agreement”) not being terminated in accordance with its terms.
This Announcement should be read in its entirety. In particular, you should read and understand the information provided in the “Important Notices” section of this Announcement.
The person responsible for arranging the release of this Announcement on behalf of the Company is Simon Phillips, a director of CT Automotive.
Expected Timetable for the Fundraising
| 2023 | |
| Announcement of the Fundraising | 27 April |
| Expected date of announcement of results of the Placing | 27 April |
| Publication and posting of the Circular and form of proxy (the “Form of Proxy”) | no later than 28 April |
| Latest time and date for receipt of Forms of Proxy and CREST voting instructions | 11.30 a.m. on 11 May |
| General Meeting | 11.30 a.m. on 15 May |
| Results of the General Meeting announced through a Regulatory Information Service | 15 May |
| Admission and commencement of dealings in the New Ordinary Shares | 8.00 a.m. on 16 May |
| Where applicable, expected date for CREST accounts to be credited in respect of New Ordinary Shares in uncertificated form | 16 May |
| Where applicable, expected date for despatch of definitive share certificates for New Ordinary Shares | 31 May |
Each of the times and dates above refer to London time and are subject to change. Any such change will be notified to Shareholders by an announcement through a Regulatory Information Service. All events listed in the above timetable following the General Meeting are conditional on the passing of the Resolutions at the General Meeting.
