Publication of Admission Document and Notice of GM

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

 

Avingtrans plc

("Avingtrans" or the "Company")

 

Acquisition of Hayward Tyler Group plc

 

Proposed issue of New Ordinary Shares

 

Admission of the Enlarged Share Capital to trading on AIM

 

and

 

Notice of General Meeting

 

 

Avingtrans (AIM: AVG), which designs, manufactures and supplies critical components, modules and associated services to the energy and medical sectors, announces that further to its announcement of 30 June 2017, it will publish today an admission document in connection with the proposed acquisition of Hayward Tyler Group, to be effected by means of a Court-sanctioned scheme of arrangement.

 

The Acquisition will constitute a reverse takeover under the AIM Rules for Companies and as such is conditional, inter alia, on approval by Avingtrans Shareholders which will be sought at a general meeting of the Company to be held on 17 August 2017, notice of which is set out at the end of the Admission Document.

 

Consideration in respect of the Acquisition will be satisfied by the issue of the New Ordinary Shares and Admission is expected to occur, and dealings in the Enlarged Share Capital commence, on AIM at 8:00 am on 1 September 2017.

 

The Admission Document will be posted to Avingtrans Shareholders today and will be available to download from the Company's website (www.avingtrans.plc.uk).

 

The Scheme Document, explaining the background to, and the details of, the Offer, was posted to HTG Shareholders on 28 July 2017 in order to seek their support for and approval of the Offer.

 

Acquisition Highlights

·    The strength of the Company's balance sheet will result in a combined entity with a very low level of net debt and the headroom to pursue major growth opportunities, both organically and via further acquisitions.

·    Some duplicate costs can be removed and buying power augmented.

·    Both businesses enjoy leadership positions in their respective energy market niches, particularly in the nuclear sector.

·    Both the Avingtrans subsidiary, Maloney Metalcraft Limited and the HTG subsidiaries, Peter Brotherhood Limited and Hayward Tyler Ltd, have long pedigrees in the oil and gas market. Whilst this sector remains subdued at present, the Board believes that the Enlarged Group will be better able to win new business and to enhance its standing in the market.

·    In the power sector, HTG Group's core business would benefit from the increased scale and strengthened balance sheet of the Enlarged Group, with targeted investment supporting an accelerated drive towards niche leadership.

·    The Board believes that the enhanced scale of the business and greater access to the Chinese energy market will enable the Enlarged Group to achieve critical mass and make inroads into the Chinese nuclear energy market.

·    The Board believes that Shareholders of the Enlarged Group could benefit from an enhanced market valuation in the future due to the scale of the Enlarged Group and its growth potential.

 

Issue Highlights

·      Consideration for the Acquisition is to be satisfied by the issue of up to 11,535,000 New Ordinary Shares (depending on the rounding of fractional entitlements) on the basis of one New Ordinary Share for every 4.755 Scheme Shares. Confirmation of the exact number of New Ordinary Shares to be issued will be confirmed by way of an announcement following the Scheme Record Time and prior to Admission.

·      Scheme shareholders will own approximately 37.6% of the Enlarged Group upon admission

·      The anticipated market capitalisation upon admission will be £75.2 million, based on the Company's closing mid-market price of 245p on 31 July 2017 (being the Business Day prior to release of this announcement).

 

Steve McQuillan, CEO of Avingtrans, commented:

"This acquisition represents the next stage in the Group's stated "buy and build" strategy in regulated engineering niche markets and the Board sees significant operational and financial benefits arising from the combination of the businesses.

 

The Board believes that the Acquisition will substantially augment the market position of the Energy business, which, together with the Medical division, will potentially increase shareholder value."

 

Enquiries:

 

Avingtrans plc Roger McDowell, Chairman Steve McQuillan, Chief Executive Officer Stephen King, Chief Financial Officer	01354 692391
N+1 Singer (Nominated Adviser) Shaun Dobson Richard Lindley Lauren Kettle	020 7496 3000
Newgate (Financial PR) Adam Lloyd / Ed Treadwell / James Browne	020 7653 9850

 

About Avingtrans plc:

Avingtrans is engaged in the provision of highly engineered components, systems and services to the energy, medical, industrial and traffic management industries worldwide.      

 

Energy and Medical

Stainless Metalcraft Ltd - Chatteris, UK and Chengdu, China

Provider of safety-critical equipment for the energy, medical, science and research communities, worldwide, specialising in precision pressure and vacuum vessels and associated fabrications, sub-assemblies and systems.   Maloney Metalcraft Ltd - Aldridge, UK

Designs, manufactures and services oil and gas extraction and processing equipment, including process plant for dehydration, sweetening, drying and compression.   Crown International  Ltd - Portishead, UK

Designs and manufactures market-leading pole and support systems for roadside signage and safety cameras, rail track signalling and gantries.   Composite Products Ltd - Buckingham, UK Centre for composite technology, parts and assemblies, serving customers in industrial markets.

Scientific Magnetics - Abingdon, UK Designs and manufactures superconducting magnet systems and associated cryogenic systems for a variety of markets, including magnetic resonance imaging (MRI), nuclear magnetic resonance (NMR), magnetic separation, surface science and nano-science.

 

 

Admission and Acquisition Statistics

 

Number of Ordinary Shares in issue at today's date	19,171,123
Number of New Ordinary Shares being issued by the Company on completion of the Acquisition1	up to 11,535,000
Enlarged Share Capital immediately following the Acquisition and Admission2	up to 30,706,123
Percentage of Enlarged Share Capital represented by the New Ordinary Shares	37.6%
Percentage of Enlarged Share Capital represented by the Existing Ordinary Shares2	62.4%
Anticipated market capitalisation upon Admission3	£75.2 million
ISIN	GB0009188797
SEDOL	0918879
TIDM	AVG
Website	www.avingtrans.plc.uk

 

1    The approximate number of New Ordinary Shares to be issued (subject to the rounding of fractional entitlements for New Ordinary Shares) as determined using the ratio of 1 New Ordinary Share for every 4.755 HTG Shares (excluding the Restricted Shares) pursuant to the terms of the Offer.

2    Assuming that 11,535,000 New Ordinary Shares are issued pursuant to the Acquisition.

3    Based on the Closing Price per Share of 245 pence on 31 July 2017 being the closing mid-market price on the Business Day prior to the date of this announcement and the expected Enlarged Share Capital of 30,706,123, assuming that up to 11,535,000 New Ordinary Shares are issued pursuant to the Acquisition.

 

Expected timetable of principal events

 

Announcement of the Acquisition	30 June 2017
Publication of this Admission Document and notice of General Meeting and Form of Proxy	1 August 2017
Latest time and date for receipt of Forms of Proxy	11.00 a.m. on 15 August 2017
General Meeting	17 August 2017
Completion of the Acquisition	31 August 2017
Effective Date*	31 August 2017
Cancellation of admission of HTG Shares to trading on AIM	1 September 2017
Admission effective and dealings in the Enlarged Share Capital commence on AIM	8.00 a.m. on 1 September 2017
Crediting of the New Ordinary Shares to CREST accounts	1 September 2017
Latest date for despatch of the share certificates in respect of the New Ordinary Shares to be issued to HTG Shareholders	14 September 2017

 

All future times and/or dates referred to in this announcement are subject to change at the discretion of the Company and N+1 Singer and if any of the above times or dates should change, the revised times and/or dates will be notified by an announcement on a regulatory information service. All times are UK times unless otherwise specified.

 

* Further details of the Scheme timetable are included in the Scheme Document published by HTG in connection with the Acquisition on 28 July 2017

 

Background to the Acquisition and strategic rationale

 

The Company has a track record of growing businesses, either from start-up or via strategic acquisition, developing them internationally and crystallising value through sales at an appropriate stage in their development.

 

The Existing Group grew both its Machine Tools and Aerospace divisions to become international leaders in their chosen niche markets, underpinned by a number of acquisitions. The Existing Group's Machine Tools division, JenaTec, was disposed of in November 2012 for £13.45 million. This disposal provided the initial funds to develop the Aerospace business, Sigma Components, which was further expanded by its acquisition of Rolls-Royce's internal pipe manufacturing business in January 2016. Sigma Components was subsequently sold in May 2016 for an enterprise value of £65 million, following which £19.4 million was returned to Shareholders via a tender offer.

 

The Board's objective is to continue its proven 'buy and build' strategy in regulated engineering niche markets, where it sees consolidation opportunities, with the intention of increasing shareholder returns over the medium to long term. The Company intends to crystallise these gains at the appropriate time with periodic sales of businesses and return the proceeds, or a portion thereof, to Shareholders of the Enlarged Group. Previous deals have clearly demonstrated the success of this approach. Avingtrans

has built strong brands and value from smaller constituent parts, demonstrating well-developed deal-making skills and a clear understanding of asset values and creating substantial increases in shareholder value.

 

After the disposal of Sigma Components, the Board and the executive management team spent considerable effort in pinpointing suitable assets to strengthen the position of its Energy division. Furthermore, as noted in the interim results statement in February 2017, the current operations are in the process of being split into two divisions, with the Medical business to become a separate entity. To this end, the Existing Group made the small technology enabling acquisition of Space Cryomagnetics Limited, trading as Scientific Magnetics, in February 2017.

 

The Existing Group has the opportunity to substantially augment the market position of its Energy business through the Acquisition. HTG Group's businesses specialise in motors, pumps, compressors and steam turbine generators used in applications in the power, oil and gas and nuclear sectors of the energy market. The Board believes that these capabilities will complement and augment the Existing Group's own expertise in these areas and will strengthen its market leadership.

 

The Board believes that the Enlarged Group will have strong prospects in the energy sector, as well as a stable platform in the medical and biomedical equipment markets, which will potentially increase shareholder value, enhanced by prudent deployment of its proven acquisition and expansion strategy.

 

About Hayward Tyler Group

 

HTG Group is focused on delivering performance-critical solutions to meet current and future global energy needs. It designs, engineers, manufactures and services performance-critical motor, pumping and power solutions across the global energy sector. HTG Group has two businesses; Hayward Tyler and Peter Brotherhood, which employ over 500 staff globally and trade from facilities in the UK, the USA, China and India.

 

Hayward Tyler

Hayward Tyler specialises in the design, manufacture and servicing of performance-critical motors and pumps in challenging environments. A multi-million pound investment has been made in a Centre of Excellence at its Luton headquarters. The HTG Directors believe that this Centre of Excellence is the world's most advanced facility for specialist motor manufacture and it also provides significant additional support for R&D and the training and development of its workforce. The Hayward Tyler brand has been providing engineered products for over 200 years. Hayward Tyler generated revenue in the year to 31 March 2017 of £46.5 million, of which 28 per cent. was derived from original equipment sales and 72 per cent. from the aftermarket (which includes spares and shop and field service).

 

Peter Brotherhood

The Peter Brotherhood business was acquired by HTG in a trade and assets deal in October 2015. The business was subsequently renamed Peter Brotherhood in order to benefit from the reputation of a brand which this year has its 150th anniversary. Peter Brotherhood specialises in the design, manufacture and servicing of performance-critical steam turbines, turbo gen-sets, compressors, gear boxes and combined heat and power systems. Peter Brotherhood's expertise covers a range of industries, with over 1,500 units sold to over 100 countries globally. Peter Brotherhood generated revenue in the year to 31 March 2017 of £16.2 million, of which 35 per cent. was derived from original equipment sales and 65 per cent. from the aftermarket (which includes spares and shop and field service).

 

Key strengths

 

The Directors believe that Hayward Tyler Group's key strengths include:

 

·      the Hayward Tyler and Peter Brotherhood brands, which between them have over 350 years of engineering heritage, pedigree and experience;

 

·      its focus on R&D has resulted in the development of a range of innovative products which are specifically designed to operate in challenging environments;

 

·      its highly skilled and experienced engineering workforce;

 

·      its strong position in its respective energy market niches, in particular in the subsea oil and gas sector, coal fired power plant sector and nuclear sector;

 

·      it has a strong aftermarket service operation;

 

·      it has a number of key long term strategic alliances with multinational OEMs and partners, including TechnipFMC, Shanghai Apollo in China, Ebara Corporation in Japan, FSubsea in Norway and Tomco in South Africa; and

 

·      it is in a good strategic position for growth as a result of recent investment, including the newly opened Centre of Excellence.

 

Strategy of the Enlarged Group

 

The stated strategy of the Existing Group has been to "buy and build" in regulated engineering niche markets, where the Board sees potential consolidation opportunities, which can lead to significantly increased shareholder returns over the medium to long term. The Acquisition represents the next step in this strategy. The Directors aim to crystallise gains with periodic sales of businesses at advantageous times, enabling the Existing Group to return the proceeds to Shareholders. The Company calls this strategy "PIE" (Pinpoint-Invest-Exit). Previous deals, such as the disposal of the Existing Group's aerospace division, Sigma Components, in May 2016 for net cash proceeds of £52 million, have clearly demonstrated the success of this approach, producing substantial increases in shareholder value. The Directors intend for the Enlarged Group to continue to pursue this strategy and will continue to consider potential consolidation opportunities, which, in the Board's view, could lead to significantly increased Shareholder returns in the medium to long term.

 

The Board's primary focus in the short term will be the full integration of HTG Group's operations, its objective being for the Enlarged Group to become a leading world-class supplier in the energy and medical markets of low volume, consistently high quality products, with a reputation for delivery on-time and on-budget. The Enlarged Group will have production facilities in its three key geographical markets (the Americas, Asia and Europe) with high volume/lower cost facilities in Asia, and product development and realisation in the UK and the USA. The Enlarged Group will invest in breakthrough and disruptive technologies in the energy and medical markets, commensurate with the sector skills and expertise that it possesses and can readily develop.

 

Adding to the Existing Group's presence in the UK and China, HTG Group has operations in the USA and Asia Pacific region. The Enlarged Group intends to exploit this expanded global footprint by driving sales and strengthening existing relationships. By consolidating complementary but fragmented business units, the Enlarged Group will adopt a cohesive approach in offering a broader range of products and services; complete end-to-end solutions in energy and medical fields including service and operational support through the lifecycle of the product. This enhanced range of offerings and multiple touch points should also enable the Enlarged Group to target a broader range of potential customers.

 

The Board will continue to focus on and invest in the ongoing development of its employees' skills and capabilities, in order to establish the Enlarged Group as a world-class manufacturing company and continue to develop its strong technical expertise, particularly in niche (highly regulated) markets. The Existing Group has in place a large apprenticeship scheme to train the next generation of engineers and applies the same high standard of safety and operational practices across its UK and international sites, as well as the continuation of Hayward Tyler's successful graduate development programme.

 

Avingtrans' primary focus for its Energy division is the nuclear market; decommissioning, life extension and "new nuclear" markets - in particular, nuclear waste storage containers - as well as a variety of other niches in the renewable energy sector.

 

In addition, the Directors will continue to build on HTG Group's strong footprint in the wider power and energy sectors; in particular the provision of traditional power generation, motor solutions, steam turbines, combined heat and power units and gas to power units, in various sectors, with a principal focus on the power, oil and gas, marine, water and industrial sectors.

 

The Directors intend that the Enlarged Group, in particular following the addition of Hayward Tyler, will use its strong combination of skills in dealing with difficult materials, coded welding and large machining to create a first-rate manufacturing platform and build on its established trajectory for decommissioning products. The Directors believe that UK nuclear decommissioning represents a very significant opportunity for the Enlarged Group. With Metalcraft having already won a £47m 10 year contract with Sellafield (and a recent £11m, three-year extension) for the provision of waste storage containers. The combination of the Metalcraft capability and market penetration, coupled with the pedigree of Hayward Tyler across the global nuclear sector (with its installed base in the US, Sweden, Finland and South Korea) provides a powerful platform, from which to launch the Enlarged Group's capabilities more broadly.

 

The key focus of the Enlarged Group's Medical division is to become a market leader in the production of high integrity components and systems for medical and scientific equipment manufacturers in specific niche markets, including for MRI derivatives, proton therapy and NMR. The Board will also consider strategic bolt-on acquisitions to enhance the offering of this division, in particular with service and technology development capabilities.

 

Current trading

 

Existing Group

In an announcement released on 26 June 2017, the Company confirmed that in respect of trading for the year ended 31 May 2017, although revenue was slightly behind management outlook, Avingtrans closed the year with adjusted profit before tax marginally ahead of internal expectations and net cash of £26.4m. The Company was also pleased to report a strong current order book for its Energy and Medical division. The Directors confirm that there has been no significant change to the trading performance of the Existing Group since the date of that announcement.

 

HTG

On 30 June 2017, HTG announced its results for the year ended 31 March 2017. Overall HTG revenue in the period was slightly higher at £62.7 million (FY2016: £61.6 million), with the increase due to the full-year contribution from Peter Brotherhood, with HTG EBITDA at breakeven. Against a backdrop of challenging end markets and continuing uncertain economic times, HTG's performance was dampened in the first half of 2017 before recovering strongly in the second half of 2017. Gross profit margin was 28 per cent. (FY2016: 33 per cent.) reflecting the lower than anticipated turnover which did not fully support factory overheads including labour, rent and utilities, which was geared-up to support a turnover of £80 million or more in the year. The underlying gross profit margin, however, was strong at 43 per cent. (FY2016: 41 per cent.) noticeably ahead of the HTG's KPI target of 35 per cent. The trading loss before tax for the year was £3.7 million (FY2016: profit of £5.1 million).

 

Net debt increased from £8.6 million at 31 March 2016 to £22.1 million at 31 March 2017 mainly driven by capital expenditure and the increase in working capital. At 31 March 2017 net debt comprised:

 

·      Term borrowings of £8.1 million (FY2016: £5.9 million);

·      Finance leases of £3.6 million (FY2016: £1.6 million); and

·      Drawings under revolving credit facilities of £11.5 million (FY2016: £6.2 million) offset by cash of £1.2 million (FY2016: £5.1 million).

 

Board of Directors and Proposed Director

 

The Board is currently comprised of Roger McDowell (Non-executive Chairman), Steve McQuillan (Chief Executive Officer), Stephen King (Chief Financial Officer), Graham Thornton (Non-Executive Director) and Leslie Thomas (Non-Executive Director).

 

Ewan Lloyd-Baker, the Chief Executive Officer of HTG will be appointed as a Non-Executive Director on Admission. Further information required by Schedule 2(g) of the AIM Rules for Companies in respect of Ewan Lloyd-Baker's appointment will be notified in due course.

 

General Meeting

Notice of the General Meeting is set out at the end of the Admission Document. The General Meeting will be held at the offices of Shakespeare Martineau, No 1 Colmore Square, Birmingham, B4 6AA at 11:00 a.m. on 17 August 2017.

 

The Acquisition constitutes a 'reverse takeover' under the AIM Rules for Companies by virtue of the size of HTG relative to the Company and it is therefore subject to the approval of Avingtrans Shareholders. Such approval is being sought by way of an ordinary resolution to be proposed at the General Meeting.

 

A second ordinary resolution seeks approval to authorise the Directors to allot the New Ordinary Shares to be issued pursuant to the Acquisition.

 

Avingtrans Shareholders have the right to attend, speak and vote at the General Meeting (or, if they are not attending the meeting, to appoint someone else as their proxy to vote on their behalf). If the General Meeting is adjourned, only those Avingtrans Shareholders on the register 48 hours before the time of the adjourned General Meeting (excluding any part of a day that is not a Business Day) will be entitled to attend, speak and vote or to appoint a proxy.

 

Admission and Settlement

If the Resolutions are duly passed at the General Meeting, the admission of the Existing Ordinary Shares to trading on AIM will be cancelled (immediately prior to Admission) and application will be made to the London Stock Exchange for the Enlarged Share Capital to be admitted to trading on AIM. Admission is expected to take place at 8.00 a.m. on 1 September 2017.

 

Dilution

If the Offer becomes Effective and the Acquisition is completed, it is expected that up to 11,535,000 New Ordinary Shares (subject to the rounding of fractional entitlements) will be issued. This will result in the issued ordinary share capital increasing by approximately 60.2 per cent. Avingtrans Shareholders will suffer an immediate dilution as a result of the Acquisition, following which they will hold approximately 62.4 per cent. of the Enlarged Share Capital.

 

 DEFINITIONS

The following definitions apply throughout this announcement, unless the context otherwise requires:

"£" and "pence"	the legal currency for the time being of the United Kingdom;
"Act"	the Companies Act 2006;
"Acquisition"	the proposed acquisition by Avingtrans of the entire issued and to be issued ordinary share capital of HTG (not already held by or on behalf of Avingtrans) pursuant to the Scheme;
"Admission"	the admission of the Enlarged Share Capital to trading on AIM becoming effective in accordance with the AIM Rules for Companies;
"Admission Document"	this Admission Document, published in connection with the Acquisition, the issue of the New Ordinary Shares and Admission;
"AIM"	the market of that name operated and regulated by the London Stock Exchange;
"AIM Rules for Companies"	the AIM Rules for Companies published by the London Stock Exchange, as amended from time to time, which set out the rules, responsibilities and guidance notes in relation to companies whose shares are admitted to trading on AIM;
"Announcement"	the  announcement made by Avingtrans  and  HTG on 30 June 2017 regarding the Offer and the Scheme made pursuant to Rule 2.7 of the Code;
"Avingtrans" or the "Company"	Avingtrans plc (incorporated in England and Wales under the Act with registered number 01968354);
"Avingtrans Shareholders"	the Shareholders of the Existing Group
"Directors" or "Board"	the directors of the Company (and the Proposed Director, as the context requires), whose names appear on page [●] of this Admission Document;
"Effective"	in the context of the Acquisition: (i)         if the Acquisition is implemented by way of the Scheme, the Scheme having become effective pursuant to its terms; or (ii)        if the Acquisition is implemented by way of a contractual takeover offer, the offer having been declared or become unconditional in all respects in accordance with the requirements of the Code;
"Enlarged Group"	the enlarged group immediately following the Acquisition, comprising the Existing Group and HTG Group;
"Enlarged Share Capital"	the issued Ordinary Shares following Admission comprising the Existing Ordinary Shares and the New Ordinary Shares;
"Existing Group"	the Company and its subsidiaries at the date of this Admission Document;
"Existing Ordinary Shares" or "Existing Share Capital"	the Ordinary Shares in issue as at the date of this Admission Document;
"Hayward Tyler Group" or "HTG"	Hayward Tyler Group plc (incorporated in the Isle of Man under the IoM Act with registered number 010648V)
"HTG Group"	the HTG and its subsidiaries at the date of this Admission Document;
"HTG Shareholders"	holders of HTG Shares
"IoM Act"	the Companies Act 2006 of the Isle of Man;
"London Stock Exchange"	London Stock Exchange plc;
"N+1 Singer"	Nplus1 Singer Advisory LLP (incorporated and registered in England and Wales with registered number OC364131), the Company's nominated adviser and broker;
"New Ordinary Shares"	the new Ordinary Shares to be issued pursuant to the Scheme
"Offer"	the general offer made by Avingtrans for the entire issued and to be issued share capital of HTG and, where the context so requires, any revision, extension or variation thereof
"Ordinary Shares"	ordinary shares of £0.01 each in the capital of the Company;
"Proposed Director"	Ewan Lloyd-Baker, whose appointment as non-executive director of the Company is due to take effect from, and is conditional upon, Admission;
"Scheme" or "Scheme of Arrangement"	the scheme of arrangement proposed to be made under Part X of the IoM Act between HTG and the Scheme Shareholders to implement the Acquisition, with or subject to any modification, addition or condition approved or imposed by the Court and agreed by HTG and Avingtrans;
"Scheme Shareholders"	the holders of the Scheme Shares
"Shareholder"	a holder of an Ordinary Share;
"Takeover Code" or the "Code"	the City Code on Takeovers and Mergers (as amended);
"UK" or "United Kingdom"	the United Kingdom of Great Britain and Northern Ireland;
"US" or "United States"	the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia;

References to the singular shall include references to the plural, where applicable, and vice versa.  Any reference to any provision of any legislation includes any amendment, modification, re-enactment or extension of it.