Automotive supplier secures waivers ahead of possible covenant breaches

The semi-conductor shortage that is impacting the global automotive market threatens to short-circuit the pandemic recovery plans of manufacturer Autins.

Latest data from Japan and China out today has shown how the shortage of semi-conductors is impacting factories and economies across Asia, which continues to affect car production in the UK and elsewhere.

Autins specialises in acoustic and thermal insulation products for car makers and this disruption is resulting in lower sales, especially at key customer Jaguar Land Rover.

The Rugby-based company has warned this could result in it breaching covenants in September and has secured waivers from its two lenders.

If the supply problems continue, it forecasts it may breach UK covenants from the end of the year although the group would remain with a positive EBITDA and “strong” cash headroom.

Its options at that point would include waiving specific covenants, resetting the levels of the UK covenants, or enabling covenants to reflect Group performance as a whole.

Kamran Munir, who joined Autins as chief financial officer at the start of 2020, told TheBusinessDesk.com: “With the latest disruption that we’ve got going on, we looked forward and thought ‘there’s a risk here for September that could prevail’, so we wanted to engage the banks and the lenders early in that discussion.

“If this disruption carries on at such a significant level for a long stretch of time, that would cause a breach. However, having shown the forecast to the lenders their stance has been supportive and our funding discussions are all about how we try and retest those for a period of time, so that we’re not breaching.”

Autins is also applying for a recovery loan from the Government and is pursuing commercial sales opportunities which, through its invoice finance facility, would “improve cash and covenant headroom immediately”.

Gareth Kaminski-Cook, chief executive of Autins, said: “During Q2 and Q3, our sales have been significantly impacted by the well-publicised semi-conductor supply issues. However, the strong underlying demand for cars and reassuring statements from semi-conductor manufacturers that they will begin to meet automotive demand during the summer suggests that we should start to see a recovery later this calendar year.

“Despite the challenges posed to our auto customers by the global semi-conductor shortage and the likely impact on automotive revenues in H2, we remain positive on the outlook for the medium to long term.”

The semi-conductor supply issues have overshadowed Autins’ progress in non-automotive areas as it continues to diversify its revenues.

Non-auto sales now account for 17% of the group’s turnover, up from 7% a year ago. Its flooring division delivers almost all of these revenues, but it is seeing progress in the office pods market which it believes is “a nascent market set to grow over the coming years”.

There is also progress on reducing its reliance on its main customer, Jaguar Land Rover, which is now less than half of its revenues.

“We continue to successfully execute our strategy to diversify outside the UK and into new sectors,” said Kaminski-Cook.

“Our target is for non-auto to become 30% of our sales in the next 2-3 years. We expect the business to be well over £30m post-Covid and we want to grow it beyond that. So, 30% of a number above £30m in the future.”