Avingtrans Regulatory News (AVG)

09 April 2020

Avingtrans plc

("Avingtrans" or the "Group")

Covid-19 Update

Avingtrans PLC (AIM: AVG), the international engineering group which designs, manufactures and supplies original equipment, systems and associated aftermarket services to the energy, nuclear, defence and medical sectors, today announces an update on its current trading, in response to the impact of Covid-19.

Avingtrans is an international, diversified engineering group, with a strong balance sheet. Our presence in multiple market sectors and the resilience and strength of covenant of many of our customers - including various national governments or their agents - means that many parts of the Group are able to continue to operate at close to normal levels.

As reported in its trading update on 23 January 2020, the Group's order book and prospect pipeline remains robust. However, we are prudently taking immediate measures, in response to the unprecedented conditions affecting its markets, clients and businesses, to reduce its costs and protect its longer-term position, in order to mitigate the effects of near-term disruption.

We have acted decisively to:

· Protect the health and wellbeing of our employees and other stakeholders

· Reduce near-term business costs by making appropriate use of UK and US government stimulus programmes, to maintain employment and capability.

· Conserve cash and liquidity, including the deferral of expected non-critical capex spend.

· Reconfigure our activities to support specific customers, at their request, in the critical national, or international interest

Protecting our employees

We are taking all necessary steps to ensure the health and well-being of our employees, clients and suppliers. Appropriate health protocols are in place across all our operations and we have transitioned swiftly to remote working where practical, to minimise business disruption. Approximately 30% of our staff are now working from home.

Business activity continues at most of our sites, with some 45% of our people still able to work safely in our factories. Specifically, we have been requested by certain UK, European and US customers to maintain production, which we are doing, although this leads to some short-term inefficiencies.

Therefore, 75% of our employees are able to perform their duties "normally". However, business progress is being hampered by supply chain disruptions, travel restrictions and government enforced lockdowns in the UK, USA and India. As a result, 20% of our employees (mainly in the UK) have been furloughed at present and operations at the Group's Crown and Composite Products business units have been temporarily suspended. In addition, our aftermarket business is being disrupted by the inability of our service engineers and contractors to travel to customer sites.

Conversely, some market sectors are relatively unaffected - eg Power and Defence. Our Chinese units, in the first region to be severely impacted by the pandemic, are now back to normal levels of operation, with the majority of lost output expected to be recovered by year end.

The remaining 5% of our people are self-isolating at present, either due to experiencing virus symptoms themselves, or having family members who are affected. 

Reducing Costs

Actions taken to reduce costs include:

· Cancelling all upcoming executive annual bonuses and pay increases.

· Reducing the salaries of the Board by 20% from 1 May 2020.

· Salaries of senior management and other employees are being kept under review, as the situation evolves.

· Furloughing 20% of staff, due to reduced activity levels in certain markets and aftermarket field service - notably oil and gas and construction.

Conserving Cash

Avingtrans has a modest level of debt and secured facilities with our banks. The Group's net debt position has not moved materially since our interim results were announced in February. However, we must maintain our strong balance sheet and liquidity, position. As at 31 March 2020, the Group had headroom in its facilities of over £8m. The Group has strong, long-term relationships with its banks, who have indicated their on-going support.

Nevertheless, due to the current economic uncertainty, the Board believes it is prudent to take steps to conserve cash, including:

· Utilising government stimulus programmes where available, to support ongoing employment costs in the short term and so to avoid redundancies and maintain capability

· Deferring non-critical capital expenditure for six months, including the Booth building extension

· With the agreement of our Banking partners, taking a capital repayment holiday for three months

· Continuing to seek on time stage payments from key customers to support working capital

Current Trading and Outlook

Despite the widespread disruption caused by the pandemic, due to our mitigation actions above, we believe that the year ending 31 May 2020 ("FY20") will be broadly in line with previous management expectations for revenue and profit and our net debt is expected to be no greater than previous guidance.

Given the unprecedented uncertainly around the impact of COVID-19 however, it is not yet possible to assess with certainty the impact this will have on the Group's financial performance for the next financial year. As such, the Group is withdrawing its previous guidance for the year ending 30 May 2021 (FY21).

Due to its diversity and well-proven "PIE" model, the Group is resilient - and in a better position than most to weather the current storm. We may well find ourselves in a strong position to capitalise on the new world order which emerges, as the crisis passes.

Dividend

Notwithstanding the generally robust trading position and the Group's strong balance sheet, the macro economic environment is one of heightened uncertainty. After due consideration, the Board has decided to cancel the interim dividend for the 6 months ended 30 November 2019. The Board recognises the importance of dividends to shareholders and, as such, it intends to consider the appropriateness, quantum and timing of a dividend payment relating to the financial year ended 30 May 2020 when it has a clearer view of the effects of COVID-19 on the Group's business.

Commenting on today's announcement, Steve McQuillan, Chief Executive Officer, said:

"We are all experiencing an unprecedented situation. Our top priority is the health and well-being of our people, clients and suppliers, and ensuring that we take the decisive actions necessary to protect the Group long-term. Both myself and the Board wish to express our thanks to all our employees for their flexibility and resilience during this crisis, which has allowed Avingtrans to continue operating effectively and provide essential support to our clients during this extraordinary period.

Our business model is robust, with strong competitive positions in our markets and differentiated value propositions, which are appreciated by our customers. Indeed, the Group has been designated a critical supplier by government departments in the UK and USA, meaning that Avingtrans is playing an important role in responding to the COVID-19 crisis. However, very few businesses are immune to the current turmoil, so we have taken decisive action in response to the pandemic to reduce costs, bolster our competitiveness and preserve our strong balance sheet". 

This announcement contains inside information.

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About Avingtrans plc:

Avingtrans designs, manufactures and supplies original equipment, systems and associated aftermarket services to the energy, medical and industrial markets worldwide.

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