Preliminary Results for the year ended 31 May 2020

Strategy and business review 

Group Strategy

 

Our core strategy is to buy and build engineering companies in niche markets, particularly where we see turnaround and consolidation prospects; a strategy we call Pinpoint-Invest-Exit ("PIE"). We have had a strong track record in returning significant shareholder value over the past decade and FY20 was another successful year, with the June 2019 acquisitions of Booth Industries (UK) and Energy Steel (USA) being successfully integrated into the group.

 

With an increased presence in our target markets, a focus on the aftermarket, strength in depth of the management teams and a lean central structure, the Group continues to grow profitably - notwithstanding the recent buffeting by Covid-19 - and the Board has renewed its focus on seeking additions to the Avingtrans value-add proposition.

 

The majority of the Group's adjusted key financial metrics trended positively in the period, allowing for Covid-19 and the effects of acquiring two underperforming businesses during the year.

 

The business is focused on the global Energy and Medical markets, both of which play into some of the world's mega-trends, such as: continued urbanisation; an ageing population; and an accelerating transition towards a cleaner and healthier planet.

 

Divisional Strategies

 

Engineered Pumps and Motors (Energy - EPM): EPM continues to develop its nuclear installed base (civil, defence and national security) - notably for life extension applications - and its offering to the hydrocarbon market sectors. This strategy was bolstered by the acquisition of Energy Steel in North America, which specialises in nuclear life extension. In addition, the EPM business continues to develop solutions for new nuclear technologies and other low carbon energy sources, such as concentrated solar, to capitalise on the global energy supply transition. During FY20 EPM secured a number of key contracts, including the provision of pumps for the global fusion reactor project ("ITER") in France and pumps for a major new concentrated solar power plant in Dubai.

 

Process Solutions and Rotating Equipment (Energy - PSRE): Here, the primary strategy is to develop a comprehensive offering to the nuclear decommissioning and reprocessing markets, building on the long-term contracts to build nuclear waste storage containers and the installed base of equipment across the vast Sellafield site. In parallel, to continue to support the nuclear submarine fleet and facilities for the UK MOD and targeted opportunities in the equally highly regulated offshore Oil & Gas markets. During the year, the division's nuclear credentials were boosted by the acquisition of the assets of Booth Industries, which also broadened our market reach into Critical National Infrastructure (CNI) and national security in general. The division completed the exit from the Crown site near Bristol and integrated the residual assets into Metalcraft, following continued order delays in its historic products.

 

Medical and Industrial Imaging (Medical - MII): The focus for the medical division is to become a niche market leader in the production of high integrity components and systems for medical and scientific equipment manufacturers including MRI medical imaging, proton therapy and Nuclear Magnetic Resonance (NMR).

 

The common theme which we are seeking to exploit across the energy and medical divisions, is the continued pressure on aftermarket expenditure, where operational efficiency, reliability and safety are paramount and operators are looking to their supply chain partners to provide long term support of infrastructure and legacy installations.

Pinpoint-Invest-Exit

 

Continuing our Pinpoint-Invest-Exit strategy, Avingtrans added two bolt-on acquisitions in the year, being Booth and Energy Steel.

In June 2019, the Company announced the acquisition of certain of the assets of Bolton-based Booth Industries Limited, a leading UK engineering company, for a consideration of £1.8m, from the administrators of AIM-quoted Redhall Group plc ("Redhall"). The acquisition included a freehold site valued at £1.25m.

Additionally the Group also acquired the brand name and selected assets of Jordan Manufacturing for £40k, a provider of specialist manufacturing and fabrication services and another division of Redhall, in August 2019, which strengthened Metalcraft's position as a key player in the nuclear supply chain.

 

Pinpoint-Invest-Exit (continued)

 

Also in June 2019, the Company acquired US-based Energy Steel & Supply Co. (Energy Steel), an established manufacturer of machined products and components to the civil nuclear power industry. US-based Energy Steel was acquired by Avingtrans for a consideration of $0.6m. Hayward Tyler has over 600 pumps in active service in nuclear applications across the world and this acquisition expands the Company's nuclear capabilities and product lines for new and existing customers.

The integrations of Booth and Energy Steel both went well during FY20 and they were each able to deliver modest maiden profits for the group, despite both being in distressed positions when they were acquired. This is all the more pleasing, given the headwinds generated by the global pandemic.

Post period end, we obtained Outline Planning Permission (OPP) for the redevelopment of our HT Luton site, comprising up to 1,000 residential units. Whilst it is too early to say what the value of the site may become, we believe that there should be ample headroom to relocate HT to a new site and deal with any exit costs, whilst still leaving a material net surplus.

Although M&A activity in energy capital goods markets has been somewhat inhibited by Covid-19, businesses like ours continue to command high valuations. Avingtrans remains confident about the current strategic direction and potential future opportunities across its chosen markets.

Markets - Energy

The global demand for energy has temporarily stopped growing, due to Covid-19, but we believe that we will see a return to growth from next year and the effect of the pandemic may be to drive faster towards increased efficiency and decarbonisation. This trend may benefit our businesses in the nuclear and renewables sectors.

End User/Aftermarket

Operators and end-users are demanding a blend of quick response through local support with a requirement to drive improvements through equipment upgrades and modernisation. In the West, where facilities are being operated for longer than their intended design lives - and often in a drive for increased capacity alongside tougher regulations - there is a strong demand for solution providers in the supply chain to partner with end-users for the longer term. The Avingtrans energy divisions are well positioned to grow in this end-user market space.

Nuclear

Nuclear energy as a low carbon, baseload power source remains an asymmetric market with respect to future growth. Almost all of the 1GW+ new build opportunities are currently in Asia, with the exception of the limited UK programme. However, we are still enjoying buoyant market segments, including supporting the operational fleet, continued safe operation and life extensions, decommissioning and reprocessing. We are also working on the long-term development of the next generation of technologies - i.e. Small Modular (SMR), or Advanced Generation IV Reactors. In addition, these segments all have the backdrop of a consolidating supply chain and paucity of expert knowledge.

The USA still operates the biggest civil nuclear fleet in the world, with 95 reactors generating more than 30 percent of the world's nuclear electricity. When coupled with the heritage Westinghouse technology operating in Europe and Asia, the EPM division's long-standing position in this market provides fertile ground for further growth.  Obsolescence and life extension are key issues for nuclear operators worldwide and the Avingtrans Energy Divisions are well positioned to support operators in addressing this critical risk. The acquisition of Energy Steel in the USA has bolstered the Group's capabilities in this regard.

The UK remains pre-eminent when it comes to decommissioning and reprocessing, in terms of innovative technology and overall spend. The Group is embedded in the future manufacture of waste containers for Sellafield and will continue to expand its presence in the UK and globally in the longer term. The development of new nuclear technologies is ongoing, with pockets of activity in the UK, South Korea, the USA and China dominating development activity. The Group views these new technologies as an attractive route forwards for nuclear and is well positioned to develop as a global industry partner.

 

Power Generation

The world continues to electrify, with an increasing amount of primary energy going to the power sector, which remains a key focus across the Group's energy divisions. Aside from nuclear, as discussed in the previous section, the main sub-sectors are as follows:

·    Coal - the Group continues to see good aftermarket activity from coal fired power stations even though the demand for new power stations is in decline.  Opportunities still exist in India, China, South East Asia, Eastern Europe and the Middle East. EPM is optimising its product line, to take market share and to create tomorrow's aftermarket.

·    Gas - natural gas, primarily in the form of combined cycle gas turbine power plants is a growing market space, primarily in the West.  The Group is moving into this market with both existing and new product lines.

·    Renewables - renewable technologies and their supporting infrastructure are a growing market globally. The Group has a broad range of products that can be applied directly to this market segment and also has expertise that can be used to develop new products for niche parts of this market, such as molten salt for concentrated solar applications. 

 

Hydrocarbons

At the start of FY20, we had begun to see relatively more orders in this sector, although our forecasts were deliberately cautious, given the recent years of weak prices, low capital expenditure, portfolio realignments and productivity efficiencies. However, Covid-19 has had a dramatic effect on oil and gas supply and demand, with Brent crude now trading in the range of $40 to $45 per barrel, with most informed forecasts suggesting a slow and modest recovery over time. The result is that new capital expenditure in this sector has been materially reduced, meaning that our forecasts must continue to err on the side of caution, with some limited restructuring activity in EPM being necessary, due to the time lag we can expect before any sector recovery. However, aftermarket orders continue to be won, so there is some positive news in this area.

Digitalisation & Condition Monitoring

Companies across the energy market continue to invest in digital technologies to improve productivity, efficiency and predictability in the field.  At the equipment level this translates to a series of devices, sensors and algorithms which can predict breakdowns before they occur and ensuring equipment is running at its optimum performance. The Group launched its first monitoring product, DataHawkTM, for Boiler Circulating Pumps two years ago and is building on this success by adding this capability to both a wider set of original equipment and its aftermarket service offering.

Markets - Medical

The Diagnostic (medical) and molecular imaging markets are large global sectors, dominated by a few large systems manufacturers. The total Diagnostic Imaging Market will be worth $33.5bn by 2024, according to Markets and Markets and is expected to continue to grow at over 5% per annum over that period. The largest market is the USA, followed by Europe and Japan. The fastest growing markets are China and India.

The Avingtrans Medical division is primarily targeting the Magnetic Resonance Imaging (MRI) and Nuclear Magnetic Resonance (NMR) segments of these markets, due to the common thread requirements for superconducting magnets and cryogenics. These two segments account for approximately 85% of our business in the medical division. Market drivers for these segments include an ageing global population and the global pharmaceutical industry's research needs. MRI itself is approximately 18% by value of the total diagnostic Imaging market and is projected to grow at 6% p.a. (Grand View Research). NMR is a smaller market, currently estimated at $861m p.a. by Marketwatch and is projected to grow at over 3% p.a. until 2026, with Bruker enjoying a dominant market share.

End User/Aftermarket

The MRI market segment is dominated by a handful of manufacturers, including GE, Siemens and Philips, who account for circa 80% of revenue globally. These players also dominate the aftermarket, though there are a few independent MRI service businesses in existence. Avingtrans is not present in the MRI aftermarket at this time.

The NMR market is similar, currently dominated by Bruker and Jeol. Avingtrans is aligned with MR Resources Inc, a well-established US business, which services the NMR aftermarket. The Avingtrans Medical division is well positioned in this end-user market space and is winning service contracts with European NMR users, following our partnership agreement with MR Resources.

MRI

As noted above, the MRI market segment is dominated by a handful of global manufacturers. For component and sub-system supply, Avingtrans is most aligned to the market leader, Siemens and also to Canon, which acquired the Toshiba MRI business in recent years. As far as full system supply is concerned, we are currently investigating a number of niche MRI applications (e.g. veterinary imaging) and their associated routes to market, with the intention of pinpointing the most promising of these for future investment, to bring novel products to market.

NMR

We are aligned with recent market entrant Q One Instruments, China and also with MR Resources of the USA, as noted above. Together, we form an alliance to challenge the dominance of the existing players and to provide customers with an additional source for NMR products, service and support. Former NMR customers of Agilent (formerly Varian) are also being given much needed support. Although hampered towards the end of the period by Covid-19, we have been successfully winning support contracts for end users and the prospect list for Q One Instruments is growing slowly. After acquiring Tecmag Inc in Houston in October 2018, to add software and electronics capabilities to our NMR/MRI systems, we then acquired some assets from Acorn NMR in California, to transfer to Tecmag and to broaden our NMR service offering into end-user sample analysis and characterisation. This initiative has had some modest success in its first year of activity.

Operations

 

Operational Key Performance Indicators (KPI's)

 

KPI	2020	2019
Percentage of total continuing revenue deriving from aftermarket (AM) sales (%)	44.7	46.2
Customer quality - defect free deliveries (%)	98.2	98.0
Customer on-time in-full deliveries (%)	80.1	87.2
Annualised staff turnover including restructuring (%)	13.7	13.0
Health, Safety and Environment incidents per head per annum	0.08	0.10

 

The AM sales % figure was slightly down year-on-year, as CV19 delays affected AM order timings - especially at EPM, in the nuclear aftermarket. For customer quality, we sustained our usual high level of defect free deliveries, though on time deliveries fell back in the year. This was partly due to the initially poor delivery performances at Booth and ES after acquisition, but also latterly affected by CV19 supply chain delays. Annualised staff turnover was also relatively static, with more stable staff positions in EPM and PSRE overall being challenged by CV19 restructuring - eg the closure of the Crown site. The long-term positive reduction of HSE incidents is welcome, albeit that each new acquisition (Booth & ES) presents us with new HSE challenges.

EPM Division - Energy

For the EPM division, which represents the bulk of the former Hayward Tyler companies, the main priorities remain to strengthen the aftermarket capabilities and to maximise opportunities in the nuclear life extension market.

The division's results were disrupted by CV19 in H2, first in China, then in the UK and the USA and finally in India. Underlying revenues were down year on year, but boosted by ES, although the corresponding ES effect on profit was not material.

At HT Luton, aftermarket activities continue to build, including the servicing of third party equipment, albeit disrupted by the oil and gas market reversal. The £10m contract in Sweden with Vattenfall for the Forsmark plant (for nuclear life extension) is proceeding to plan, whilst further defence orders have been received and are being executed on target. Following the receipt of planning permission to develop the HT Luton site into up to 1,000 dwellings, plans are underway to move the business to a new, optimised location.

HT Inc in Vermont (USA) continues to see solid order intake in the nuclear life extension market in the USA - and again with KHNP, South Korea, post-period end, although delays in order intake due to CV19 did impact the US results. HT Inc's new R&D opportunities - in next generation nuclear power and concentrated solar power - are also making good progress. The business won its first order for the experimental nuclear fusion reactor "ITER" currently under construction in France.

HT Kunshan (China) is fully operational following CV19 disruption and won their biggest ever contract in China (worth £2.2m) in the period for specialist pumps to be installed in a major new concentrated solar power plant in Dubai. This marks an important diversification into the renewables market and we expect more to follow in the coming years.

HT India suffered order and delivery delays and disruptions in H2 of the period, but is now coming back to "normal".

Energy Steel ('ES') in Michigan (USA), is integrating and recovering well, with the HT team focusing on customer service excellence under a new general manager and expanding the sales footprint in nuclear aftermarket opportunities in north America and beyond. Cross-fertilisation projects are being successfully won between HT and ES.

 

PSRE Division - Energy

PSRE steamed ahead in FY20, thanks in large part to a mature performance by Peter Brotherhood. The focus on aftermarket underpinned the PB result for the period, improving the overall PSRE margin mix, as well as successful shipments of floating production platform steam turbines.

Elsewhere, the division had a generally positive year, allowing for CV19 disruptions to supply chains and deliveries, except at Crown, where the weight of the disruption proved to be too much for this small business unit. Therefore, we took the decision to close the separate Crown site near Bristol and relocate the residual assets to Metalcraft.

Metalcraft's progress with the Sellafield 3M3 boxes has been steady, despite customer design changes, and we are producing boxes consistently. The next 3M3 box contract tender was expected in this calendar year, but has now been even further delayed due to Covid-19 disruptions to Sellafield's plans. Whilst this is disappointing, we are well organised to pursue this contract later and it does not impact on our forecasts, which allow for unexpected customer delays.

Ormandy's performance was promising in the first half, but it was derailed by CV19 construction market disruptions in H2. However, recent indications are that orders are rebuilding, giving us renewed hope for the HVAC sector in FY21.

Since its acquisition in June 2019, Booth Industries has been on an express recovery curve and has responded well to the proven Avingtrans PIE methods. A record order book underpins operations for FY21 and beyond. We rationalised the operations to remove unneeded space, as well as planning a new extension to the Nelson Street facility in Bolton, albeit that CV19 has delayed this expenditure for a time. The blast and security high integrity doors niche which Booth occupies is one which we can defend vigorously, to rebuild Booth into a leader in its chosen markets.

The Fluid Handling business in Scotland is a consistently good performer and has fitted well into our ambitions to build a wider nuclear capability. Post-period end, this unit won its biggest ever order (£2.5m) for Sellafield, to repair and upgrade remotely monitored valves. Further life extension and decommissioning opportunities are being pursued.

MII - Medical Division

MII is a division in pro-active transition. We have been pivoting away from the custom business previously targeted by Scientific Magnetics (SM) and working towards new products in Magnetic Resonance Imaging (MRI) and Nuclear Magnetic Resonance (NMR), including service and support offerings with our third party partners. The division was less disrupted in the year than other divisions, apart from the Metalcraft China factory, which was forced to shut for several weeks in February and March 2020.

Our potentially exciting new product developments are taking time to bear fruit, but we are slowly making progress. The prior year acquisition of Tecmag in the USA was strategically important. Tecmag produces electronics and software for MRI and NMR systems. It is an important piece in the jigsaw, facilitating our ability to produce complete MRI and NMR systems. Tecmag is operating at close to break-even with legacy product sales, whilst working with Scientific Magnetics on the products of the future. The strategy for SM and Tecmag requires further investment and patience before we see the results (notably in the MRI market) but the potential rewards are great enough for us to embark on this journey with enthusiasm.

Metalcraft's UK business with Siemens for MRI components was positive, but progress in China with other customers such as Alltech and QOne, was quite disrupted by Covid-19 induced delays, so we produced less revenue than anticipated at this unit for the year and made a loss for the year in consequence.

Composite Products was also disrupted by Covid-19 in H2, though here, the effects were not material and the unit is operating normally again, with our key customer Rapiscan increasing deliveries to the package scanning market. Other smaller accounts also supported revenues, with good prospects in the pipeline.

Financial Performance

Adoption of IFRS 16

The Group has adopted IFRS 16 at 1 June 2019. Adoption of IFRS 16 has led to a number of changes in the way the Group recognises right-of-use assets and a related lease liability in connection with all former operating leases except for those identified as low-value or having a remaining lease term of less than 12 months from the date of initial application.

 The Group has applied IFRS 16 using the modified retrospective method, as a result there is no adjustment to the opening retained earnings at 1 June 2019. The comparative information has not been restated and continues to be reported under IAS17. A right-of-use asset of £9.7m mainly for operational premises has been recognised with a matching lease liability increasing net debt in the year.

 

Key Performance Indicators

The Group uses a number of financial key performance indicators to monitor the business, as set out below.

 

Revenue: 9.5% increase driven by acquisitions

Overall Group continuing revenue increased to £113.9m (2019: £104.0m), driven by the effect of the additional revenues at Booth and Energy Steel offsetting some delayed contracts due to wider CV19 effects. Underlying revenue excluding acquisitions reduced to £96.4m with CV19 delays impacting most significantly in EPM.

Profit margin: further significant improvement in results, despite CV19

Adjusted EBITDA (note 2) increased by 25.7% to £11.8m (2019: £9.4m) with further progression from the underlying businesses and with the recent acquisitions adding a modest contribution. Adjusted EBITDA benefited from IFRS16 by £1.5m, excluding this Adjusted EBITDA would have increased to £10.3m, a 9.9% increase.

Operating profit was £4.1m (2019: profit £3.6m) with the underlying profit subdued by £1.2m of amortisation of acquired intangibles at Energy Steel principally the acquired Order Book.

Gross margin: solid progress continues

Group gross margin improved to 27.8% (2019: 26.6%) mainly due to the improving gross margin mix from the former HTG business units, as our transformation programme reaches maturity there.

Tax: future profits and cash protected by available losses

The effective rate of taxation at Group level was a 20.9% tax charge. A tax refund (note 4) due in the US kept the charge lower than expected. A charge arising from the reversal in the recognised rate on UK deferred tax from 17 to 19% increased the effective tax rate by 2.2%. The tax position will be aided in the coming years by utilisation of losses in the UK and China. We continue to be cautious, not recognising all of the potential trading tax losses in the UK.

Adjusted diluted Earnings per Share (EPS): a 15.3% improvement

Adjusted diluted earnings per share from continuing operations improved to 16.9p (2019: 14.6p) and Adjusted diluted earnings per share attributable to Shareholders improved to 16.2p (2019: 14.9p).

Basic and diluted earnings per share attributable to Shareholders reduced to 4.4p (2019: 8.0p) and to 4.3p (2019: 8.0p) respectively primarily due to the additional impact of the first year amortisation of ES business intangibles and costs of closing the Crown facility.

Funding and Liquidity: net debt remains well under control

Net debt (including IFRS16 debt) at 31 May 2020 was £16.3m (31 May 2019: net debt: £2.0m after £9.7m from the adoption of IFRS16 at 1 June 19, total £11.7m). Excluding IFRS16 debt at 31 May 2020 was £7.4m (31 May 2019: net debt: £2.0m). Cash generation was subdued by a £6.4m working capital outflow, partly due to the envisaged working capital outflow required for acquisitions £3.2m, the timing of contracts and an expected reversal of the skew from advance payments on accounts noted in the prior year (2019 inflow £9m). Additionally the Group invested an initial £1.5m net cash cost for the ES acquisition and the Booth trade and assets. The Directors consider that the Group has more than sufficient financial resources to deliver its short to medium term strategic objectives and is maintaining a strong relationship with its banking partners.

Dividend: suspended due to CV19

The Board considers that it is prudent to continue to preserve cash and not to propose a final dividend this year. In the context of the on-going global crisis, the resulting need for targeted restructuring in the Group and having made some use of government support schemes, we believe that shareholders will consider that this is the right thing to do. All being well, we intend to return to our commitment to long term shareholder returns via dividends in FY21.

People

 

At Board level, the only change in the period was that Graham Thornton retired from the Group in November 2019. Graham joined the group as a Non-Executive Director in September 2009. Within the Group structure, Colin Elcoate resigned from his position as the Chief Commercial Officer for Avingtrans, to take up a CEO role elsewhere. The Board wish Graham and Colin all the best in their future chosen careers. Top level divisional management teams were largely unchanged.

In a broader sense, the management teams in each of the three divisions continue to be strengthened, with a number of key appointments being made in the year - and with emphasis on the importance of the aftermarket opportunities. Skills availability is always a challenge, but we do not expect to be unduly constrained by shortages, given the current global economic situation. Avingtrans continues to invest significant effort in developing skills in-house, both through structured apprenticeship programmes and graduate development plans. The Group continues to be recognised nationally for the strength of its apprenticeship and graduate training schemes, including winning a Queen's Award for Enterprise at Metalcraft in the period.

Our global workforce is becoming more integrated and this provides additional capability, capacity and innovative thinking around the clock, to support our global blue-chip customer base.

Health, Safety and Environment (HSE)

 

The Group takes HSE matters and its related responsibilities very seriously.

As regular acquirers of businesses, we find different levels of capability and knowledge in different businesses. Often, a key investment need in smaller acquisitions is to spread HSE best practice from other Group businesses and bring local processes up to required standards. Larger acquisitions (eg like HTG previously) have well developed HSE practices and we seek to learn from these in other business units.

Health and Safety incident reporting has improved across the Group and incident trends have generally been improving over recent years. Near miss reporting and knowledge exchange is also positively encouraged, to facilitate learning and improvement. At Board level, Les Thomas has HSE oversight and he conducts inspections with local management as appropriate.

The Group's environmental policy is to ensure that we understand and effectively manage the actual and potential environmental impact of our activities. Our operations are conducted such that we comply with all legal requirements relating to the environment in all areas where we carry out our business.

During the period covered by this report, the Group has not incurred any significant fines or penalties, nor been investigated for any significant breach of HSE regulations.

Covid-19 has become the biggest health and safety issue for the Group, along with everyone else. Fortunately, the nature of our products and the topography of our factories have given us a good base to work from, to make our workplaces Covid-19 safe. We have an overall set of guidelines to work to, derived from government policies around the world and local teams in each business adapt these to the specifics of their individual site. These measures include:

·      Shielding of vulnerable employees

·      Working from home where feasible

·      Factory and office re-layouts to facilitate social distancing

·      Enhanced cleaning and site hygiene

·      Additional use of PPE equipment where necessary

·      Minimisation and careful management of third-party visitors to our sites

Where our employees have to visit other third party sites, they have protocols from their business unit to follow and must also adhere to the policies and procedures of the site which they are visiting.

Each business has a team responsible for ensuring that the Covid-19 plan is kept up to date and adapted, if required, as the circumstances of the pandemic evolve.

Taken as a whole, these measures have allowed us to operate at a high level of effectiveness throughout the pandemic and ensured that we have minimised any loss of output, whilst keeping employees safe.

Social Responsibility

It is paramount that the Group maintains the highest ethical and professional standards across all of its activities and that social responsibility should be embedded in operations and decision making. We understand the importance of managing the impact that the business can have on employees, customers, suppliers and other stakeholders. The impact is regularly reviewed to sustain improvements, which in turn support the long-term performance of the business. Our focus is to embed the management of these areas into our business operations, both managing risk and delivering opportunities that can have a positive influence on our business.

Employees

The Group places considerable value on the involvement of its employees and has continued to keep them informed on matters affecting them directly and on financial and broader economic factors affecting the Group. The Group regularly reviews its employment policies. The Group is committed to a global policy of equality, providing a working environment that maintains a culture of respect and reflects the diversity of our employees. We are committed to offering equal opportunities to all people regardless of their sex, nationality, ethnicity, language, age, status, sexual orientation, religion or disability. We believe that employees should be able to work safely in a healthy workplace, without fear of any form of discrimination, bullying or harassment. We have begun to roll-out a "dignity and respect" training program across the Group. We believe that the Group should demonstrate a fair gender mix across all levels of our business, whilst recognising that the demographics of precision engineering and manufacturing remain predominantly male, which is, to an extent, beyond our control.

Ethical policy

The Group complies with the Bribery Act 2010. We do not tolerate bribery, corruption or other unethical behaviour on the part of any of our businesses or business partners in any part of the world. Employee training has been completed in all areas of the business to ensure that the Act is complied with.

Outlook

Avingtrans is a niche engineering market leader in the Energy and Medical sectors, with a successful profitable growth record, underpinned by our 'PIE' strategy. Recent acquisitions will provide further opportunities for the Group to build enduring value for investors in resilient engineering market niches. We will continue to be frugal and seek to crystallise value and return capital when the timing is right, as part of the PIE strategy implementation. We believe that our PIE strategy has served us well in the current crisis and could result in further opportunities to grow shareholder value.

The Group continues to invest in its three divisions, with a focus on the global energy and medical markets, to position them for maximum shareholder value via eventual exits in the years to come. The integrations of Booth and Energy Steel are proceeding to plan, as demonstrated by the results in the period. Our value creation targets continue to be accomplished as planned and are underpinned by a conservative approach to debt, which is important during the crisis.

The energy divisions have a strong emphasis on the thermal power, nuclear and hydrocarbon markets and aftermarkets. The medical division continues to focus on high integrity components and systems for leading medical, industrial and scientific equipment manufacturers. To drive profitability and market engagement, each division has a clear strategy to support end-user aftermarket operations, servicing their own equipment and that of pertinent third parties, to capitalise on the continued market demand for efficient, reliable and safe facilities.

The on-going disruption caused by the pandemic is now our biggest uncertainty. However, we have taken rapid and effective cost mitigation actions so far, in order to limit any downside and we will continue to be on our guard. We are also vigilant concerning Brexit, but here we are not overly concerned, since our direct EU exposure is relatively limited and we have taken appropriate evasive actions in our supply chains, with likely further such actions to follow, depending on the exact nature of the eventual Brexit outcome.

Our markets continue to develop, despite Covid-19 and M&A opportunities remain a priority for us. Businesses like ours can command high valuations at the point of exit. The Board remains guarded, but confident about the current strategic direction and potential future opportunities across our markets. We will continue to refine our business by pinpointing specific additional acquisitions as the opportunities arise, to build businesses which can create superior shareholder value, whilst maintaining a prudent level of financial headroom, to enable us to endure any subsequent headwinds, whether deriving from Covid-19, or otherwise.

The Strategic Report was approved by the Board on 29 September 2020 and signed on its behalf by:

Roger McDowell                                 Steve McQuillan                                  Stephen King

Chairman                                              Chief Executive Officer                          Chief Financial Officer

29 September 2020                                    29 September 2020                                    29 September 2020

 

 

 

 

Consolidated Income Statement for the year ended 31 May 2020	Note	2020	2019
		£'000	£'000
Revenue	1	113,913	104,044
Cost of sales		(82,284)	(76,349)
Gross profit		31,629	27,695
Distribution costs		(4,931)	(4,599)
Other administrative expenses		(22,557)	(19,477)
Operating profit before amortisation of acquired intangibles, other non-underlying items and exceptional items		7,051	5,796
Amortisation of acquired intangibles	2	(2,223)	(1,595)
Share based payment	2	(112)	(98)
Acquisition costs	2	(294)	(86)
Restructuring costs		(281)	(398)
Operating profit	1	4,141	3,619
Finance income		38	132
Finance costs		(1,141)	(602)
Profit before taxation		3,038	3,149
Taxation	3	(634)	(714)
Profit after taxation from continuing operations		2,404	2,435
(Loss)/profit after taxation from discontinuing operations	8	(1,018)	76
Profit for the financial year attributable to equity shareholders		1,386	2,511
Earnings per share:
From continuing operations
- Basic	4	7.6p	7.8p
-Diluted	4	7.5p	7.7p
From continuing and discontinuing operations
-Basic	4	4.4p	8.0p
-Diluted	4	4.3p	8.0p

 

Consolidated statement of Comprehensive income
		2020	2019
		£'000	£'000
Profit for the year		1,386	2,511
Items that will not be subsequently be reclassified to profit or loss
Remeasurement of defined benefit liability		58	(581)
Income tax relating to items not reclassified		(43)	99
Items that may/will subsequently be reclassified to profit or loss
Exchange differences on translation of foreign operations		120	445
Total comprehensive income for the year attributable to equity shareholders		1,521	2,474

 

 

 

Consolidated Balance Sheet at 31 May 2020	Note	2020	2019
		£'000	£'000
Non current assets
Goodwill		23,459	23,369
Other intangible assets		13,834	14,483
Property, plant and equipment		34,445	26,576
Deferred tax		1,241	1,423
Pension and other employee obligations		1,646	1,299
		74,625	67,150
Current assets
Inventories		13,390	14,441
Trade and other receivables: amounts falling due within one year		36,910	31,549
Current tax asset		1,221	234
Cash and cash equivalents		5,088	8,909
		56,609	55,133
Total assets		131,234	122,283
Current liabilities
Trade and other payables		(30,308)	(31,405)
Lease liabilities		(2,125)	(750)
Borrowings		(6,005)	(4,945)
Current tax liabilities		(70)	(69)
Provisions		(5,514)	(5,340)
Derivatives		(36)	(44)
Total current liabilities		(44,058)	(42,553)
Non-current liabilities
Borrowings		(3,965)	(3,817)
Lease liabilities		(9,340)	(1,420)
Deferred tax		(2,460)	(2,073)
Contingent consideration		(256)	(256)
Other creditors		(1,247)	(2,870)
Total non-current liabilities		(17,268)	(10,436)
Total liabilities		(61,326)	(52,989)
Net assets		69,908	69,294
Equity
Share capital		1,588	1,568
Share premium account		14,970	14,018
Capital redemption reserve		1,299	1,299
Translation reserve		430	310
Merger reserve		28,949	28,949
Other reserves		180	180
Investment in own shares		(4,235)	(3,435)
Retained earnings		26,727	26,405
Total equity attributable to equity holders of the parent		69,908	69,294