Avingtrans Regulatory News (AVG)

Avingtrans plc

("Avingtrans" or the "Group")

Final Results for the Year Ended 31 May 2013

Avingtrans plc, which designs, manufactures and supplies critical components, modules and associated services to the aerospace, energy and medical sectors, announces its results for the twelve months ended 31 May 2013.

Financial Highlights (Continuing operations, except where stated)

· Revenue increased by over 40% to a record £45.3m (2012: £32.2m)

· Order book remains at record levels, driven mainly by Aerospace

· Gross profit margin increased to 26% (2012: 24%)

· Adjusted1 EBITDA increased by 50% to £3.6m (2012: £2.4m)

· Adjusted1 PBT was up nearly 90%, to £1.9m (2012: £1.0m)

· The disposal of Jena Tec, for £12.4m, net of cash, debt and costs, produced an exceptional profit of £6.0m

· Adjusted1 diluted EPS (attributable to shareholders) of 29.8 pence per share (2012: 7.5 pence per share)

· Cash generated from operations decreased to £0.4m (2012: £2.2m) after £1.3m outflow from acquisitions

· Net debt of £2.9m (2012: £8.4m)

· Final dividend increased by 50% to 1.5 pence per share (2012: 1.0p)

Adjusted1 -adjusted to add back amortisation of intangibles from business combinations, acquisition costs and exceptional items

Operating highlights (vs FY2012, except where stated)

· Aerospace: Revenue up by over 70%, driven by strong organic growth and the contribution from acquisitions in H2

o Acquisitionsof PFW and Aerotech Tubes for a total consideration of £3.75m

o Record Orders - three agreements signed worth £125m in total over 10 years

o Composites made a loss, but EU "Clean Sky" project is progressing well

o Pipe production and assembly in China is now fully approved - Chengdu grew by 22%

o New Product Introduction facility opened at Hinckley

o C&H had another excellent year and invested in new services

· Energy & Medical: modest recovery - revenue up by 7%

o Acquisition of Exterran UK for £1 post year end - now Maloney Metalcraft

o First new orders secured - eg Porvair - £3.5m in two contracts

o Medical: Siemens new product ramp-up successful - now transferring to China

o Chinese operations progressing to plan - break-even in year

o Capital expenditure in China of over £1m committed post year end

o Crown's markets were still tough, but losses were materially reduced

· Industrial Products: Disposal of Jena Tec for consideration of £12.4m, net of cash, debt and costs

Commenting on the results, Roger McDowell, Chairman, said:

"For the third year in a row, I'm delighted to report significant Group revenue and EBITDA growth. Revenue of continuing operations grew by over 40% and EBITDA by 50%. Overall EPS at 29.8 pence per share is flattered by the Jena Tec disposal, but underlying EPS was still up by 80% to 7.0 pence. Net debt is lower than market expectations and gearing is a modest 10%. With results generally ahead of expectations this year, driven mainly by Aerospace, one could become complacent. However, we remain suitably vigilant, knowing that there is still much work to do, particularly in our Energy and Medical division, where recovery has been insipid. In response, the recent acquisition of Maloney Metalcraft has rebalanced the Group and puts both divisions into market-leading positions in attractive markets. Coupled with the strategic disposal of Jena Tec and the Aerospace acquisitions, this latest acquisition cements the Group strategy and provides the platform for future profitable growth.

Therefore, we are optimistic about the prospects for the Group and the Board proposes a final dividend of 1.5 pence per share, in line with our progressive dividend policy."

Enquiries:

Avingtrans plc 01159 499 020

Roger McDowell, Chairman

Steve McQuillan, Chief Executive Officer

Stephen King, Chief Financial Officer

Numis 0207 260 1000

David Poutney (Corporate Broking)

Richard Thomas (Corporate Finance and Nominated Adviser)

Newgate Threadneedle 020 7653 9850

Josh Royston / Heather Armstrong (Financial PR)

About Avingtrans plc:

Avingtrans has become a significant organisation in the design, manufacture and supply of critical components, systems and associated services to global industrial markets from two divisions: Aerospace and Energy and Medical.

Aerospace

Sigma Components Ltd - UK and China

Energy and Medical

2013 Preliminary statement

Chairman's statement

Taken as a whole, this was a noteworthy year for Avingtrans. We transformed ourselves into a niche engineering market leader, focused on the Aerospace, Energy and Medical markets through just two businesses - Sigma and Metalcraft. This was facilitated by the sale of Jena Tec and the subsequent acquisitions of Aerotech in Derby, PFW in Farnborough and (post year-end) Exterran UK in Aldridge.

The markets we concentrate on have appealing long term growth characteristics - doubly so, when one considers that the fastest-growing geographical market for these three sectors over the next decade will be China, where the Group is well placed in both divisions. Our niche leadership, focus and international strength give us a meaningful advantage over our largely domestic and national competition. As for the market sectors themselves: civil aerospace is in a well-publicised purple patch; Oil and Gas is in good health with shale gas developing as a prospect; nuclear decommissioning seems to be moving inexorably forward; and medical imaging (MRI) continues along a stable growth path, driven by an ageing population and emerging market needs - especially in China. The quality of our customer base gives us confidence that we are well-placed to benefit from market growth.

As well as making strategic acquisitions for Sigma and Metalcraft, we have continued to invest in new capabilities, new plant and equipment and to strengthen our quality and delivery credentials with our major customers. In a number of cases, we are already class-leading in that sense and pursuing world-class status - eg participating in the "Sharing in Growth" programme supported by Rolls Royce. We are excited about the prospects for the niches we are shaping and see further potential opportunities for consolidation on the horizon.

Last year, therefore, saw the further development of the strategy that we planned, but had been delayed by global economic events and the effects of this difficult environment on the business. With the global economy improving and our uncluttered focus on attractive structural growth markets, our thoughts and energies now turn to improving the results of the business we have bought, as we seek to move from effectiveness, to efficiency.

The actual results for the year were pleasing overall and ahead of expectations, though we clearly still have work to do in a number of areas. Orders are at record levels, with Aerospace signing £125m of long term agreements in the year. The continuing businesses grew by over 40% and adjusted EBITDA grew by 50%. Even after stripping out the exceptional profit of £6.0m from the sale of Jena Tec, earnings per share grew by 80% to 7.0p. Net debt is down below £3m and gearing is 10%, so the balance sheet is in rude health. However, we clearly still need to improve our performance in a number of areas. Our Composites business made a loss and is not yet performing smoothly, though investment in the EU Clean Sky programme on composite pipes is progressing well. We are yet to fully complete the Metalcraft China set-up, so that we can start production for Siemens and thus balance and improve the performance of the business overall. Finally, we must work hard to develop the pipeline of prospects at Maloney Metalcraft (formerly Exterran UK) and restructure this business to restore its profitability as soon as practicable.

Our critical mass in the two main businesses and our emerging intellectual property developments provide the platform for future margin enhancements. New product and service offerings are enhancing shareholder value and underpinning our strategic supply chain relationships. Targeted acquisitions will bolster our market positions and reinforce our customer propositions to win new business. We believe we are aiming at the right growth markets and that we are developing deeper partnerships with the market leaders in those sectors.

Our people are passionately pursuing engineering excellence and I thank them once again on your behalf for their professional, dedicated efforts and commitment to the Group. We are energised by the excellent opportunities for our business.

R S McDowell

Chairman

24 September 2013

Business Review

Group Performance

Financial Performance

Revenue: record sales

Full year Group revenue was up by more than 40%, to a record £45.3m (2012: £32.2m). Aerospace saw over 70% growth, lifted significantly in the second half by the Aerotech and PFW acquisitions and the on-going positive trends in civil aerospace. Energy & Medical saw more measured organic growth of 7%, with the initial ramp up of the new Siemens product generating some of this increase. Crown also returned to growth, albeit restrained by the transport infrastructure market weakness.

Profit: underlying margins improving

The exceptional profit on the Jena Tec disposal of £6.0m aside, Adjusted EBITDA on continuing operations was up by 50% to £3.6m (2012: £2.4m). Aerospace profits were suppressed both by on-going losses at Composites (as anticipated) and by low initial profits at the new Farnborough operation. Profit improvement at Energy and Medical was anaemic - again held back by Crown, though much less than previously and the trend is positive.

Gross margins improved in the second half, being up to 26% in the year (2012: 24%). Adjusted PBT also increased markedly, up by nearly 90% to over £1.9m (2012: £1.0m).

Tax

The effective rate of taxation on continuing operations was 2.8%, due to losses utilised in China and Research and Development tax credits in the UK.

Earnings per Share (EPS): up by 80%

Adjusted diluted earnings per share from continuing operations was 7.0 pence per share (2012: 3.9 pence per share), based on 27.2 million shares (diluted weighted average). Adjusted diluted earnings per share attributable to shareholders (including discontinued operations) was 29.8 pence per share (2012: 7.5 pence per share).

Funding and Liquidity: Balance sheet substantially improved

The net cash inflow from operations decreased to £0.4m (2012: £2.2m), after £1.3m outflow in respect of acquisitions.

Net indebtedness at year end stood at £2.9m, driven by the Jena Tec disposal and the Aerotech Tubes and PFW assets acquisitions for a combined consideration of £3.75m (2012 Net Debt: £8.4m). The Net Debt position is better than market expectation, but note that a circa £1m capital expenditure requirement for Metalcraft in China was delayed until the new financial year. Balance sheet gearing was below 10% (2012: 34%). Proceeds from the sale of Jena Tec supported on-going investment in the businesses of £2.8m in the year (2012: £3.5m). With our growth path continuing unabated, it is important to keep investing in new opportunities as they arise.

Dividend: progression confirmed

The Board again voted to underline our progressive dividend policy and we are pleased to be able to recommend at the AGM an improved final dividend of 1.5 pence per share (2012: 1.0 pence per share). This will be paid on 12 December 2013 to shareholders on the register at 1 November 2013. The Board will continue to review the dividend position, taking account of the on-going changes in our markets.

The Group is now focused on various exciting trading opportunities - particularly in the Aerospace and Energy sectors - and we see further prospects to develop our offering and global appeal, which should deliver long term growth and shareholder value. The continued backing of our investors, coupled with a positive relationship with the Group's principal bankers, means we expect to have more than adequate financial resources to continue to invest in the business. We also continue to develop relationships with an array of new and potential stakeholders, assisted by our dividend policy.

Strategy

We are a precision engineering group, operating in differentiated, specialist niches in the supply chains of many of the world's best known engineering OEMs, for example: Rolls Royce, Siemens and GE. Our core strategy is to build market-leading niche positions in our chosen sectors. We have intensified our focus on our Aerospace, Energy and Medical market niches, facilitated by the disposal of Jena Tec during the year. Three subsequent acquisitions have provided Sigma and Metalcraft with the critical mass to achieve leadership in their respective sectors. 

Our core businesses have the capability to engineer products in Europe and produce those products partly or wholly in Asia, allowing us and our customers to access low cost sourcing at minimum risk, as well as positioning us neatly in the development of the Chinese and Asian markets for our products. Sigma and Metalcraft are well established in China and Sigma already forms an integrated supply chain in the UK and in China, within one business.

Niche Market Positioning

Aerospace: Our strength lies in civil aerospace, where we produce pipes for the majority of aero-engine suppliers into the large civil airliner market and where we enjoy market leadership in Europe, as well as a leading position as an independent supplier globally. In addition, we are building a position in assemblies and fabrications beyond pipes - eg in ducts, nacelles, etc - that will allow us to access an even larger market niche. We also have UK market leadership in the domain of blade polishing and finishing through Sigma's C&H subsidiary.

Energy & Medical: With the Maloney Metalcraft acquisition, we have cemented our position as a leading European supplier of oil and gas processing modules, vertically integrating this capability with the vessel manufacturing capability at Metalcraft. This same vertical integration capability lends itself to the "new nuclear" and nuclear reprocessing markets, as well as a variety of other niches in the renewable energy sector and emerging markets like shale gas.

Metalcraft's low temperature vessel manufacturing pedigree - spanning some 40 years - makes us a supplier of choice to OEMs in markets where this capability is critical - notably in MRI, or related sectors. We enjoy a global market leading position in this particular supply niche.

We have strengthened our capability to manage sophisticated outsourced manufacturing programmes for OEMs, thus accessing business of enduring value, with the prospect of further sales growth. We remain focused on markets where we can sustain significant competitive long term advantage.

Operations

Aerospace Division (Sigma)

This has been an exciting year for Sigma. Our recent acquisitions - Aerotech Tubes, Derby and PFW, Farnborough - have integrated well into the Group thus far. The division is using this springboard with key customers to enter higher level discussions about long term future supply arrangements. We are now clearly in a market leading position in aerospace pipes and working to develop the new capabilities and products (eg ducts, nacelles), to broaden our appeal. The rebranding exercise has gone smoothly and customers can now recognize Sigma as a unified business under that banner.

The civil aerospace market is still robust and our leading position is driving revenues up fast. Civil aerospace OEM customers remain in growth mode in most world regions. Airbus and Boeing continue to report very strong 20-year projections in their latest outlooks. The Paris airshow in June gave further encouragement to our developing plans in this market.

Capital expenditure at Sigma continued apace, as demand is still outstripping our capacity. We will ensure that organisational control keeps pace with output, through management and capability strengthening, as required. Capital expenditure will continue into the new financial year in China and the UK, to keep up with customer demand.

Sigma is on a world-class supplier journey and our OEM partners recognise this. Lean manufacturing deployment in line with forecasts and delivery and quality are consistently class leading where the sites are mature (We are not yet in this position at Farnborough or Buckingham). Plans to establish Sigma in the USA are progressing, albeit unhurriedly.

Aerospace division sales were up by 71% (to £29.1m) when compared to the prior year. Organic sales growth (excluding the two recent acquisitions) was 25%. Our order book remains at record levels, enhanced by the £125m of long term agreements signed during the year.

Overall Aerospace margins were suppressed at 7%, primarily by losses at Composites and by initial lower profits from the PFW Farnborough acquisition (both as anticipated). Underlying divisional EBIT is 12% when results from these two units and Derby are excluded (though note that Derby is already consistently profitable). We expect margins at Composites and Farnborough to improve significantly in the current financial year, though on-going investments in Composites mean that some losses may still be expected.

Briefly summarising the main developments at the Aerospace sites:

· Hinckley saw strong growth and we opened up a new facility at our previously sub-let second building, to concentrate on new product introduction for various customers, including Rolls Royce. Hinckley is participating in the "Sharing in Growth" programme, as a key partner supplier.

· Derby (Aerotech Tubes) is completely integrated with our Hinckley site and developing in line with expectations, consistently profitable and having significantly improved delivery performance to key customers.

· Farnborough (PFW) is integrating into the Group well, allowing for its initial distressed state. Delivery and quality improvements are encouraging and our customers have therefore given us time to drive the necessary changes. The £25m contract win with Safran Aircelle was a good sign of the improving outlook for the site. This business also gives us new product types to develop with customers beyond pipes.

· Chengdu's total sales grew by 22% in the year, with the majority of sales being to sister companies in the division. Our investment in pipe assembly was recognised by achieving "NADCAP" approval in the year for this part of the facility and pipe production has started.

· Buckingham (Composites) developed more slowly than we expected, as noted in the first half, with F1 business more difficult to re-establish than we previously presumed, resulting in a full year loss. However, other customers are developing and we are making headway with investment in composite aerospace components, in line with the EU "Clean Sky" contract.

· Sandiacre (C&H) had another strong year. Although growth was somewhat slower, margins held up well and a notable investment in "barrelling" has initiated new services for our customers, which will provide growth impetus from Q2 in the current year.

Energy and Medical Division (Metalcraft, Maloney Metalcraft and Crown)

Whilst headline revenue growth of 7% was reasonable for the year, the profit performance was weak. Results were constrained by start-up costs in China and Crown's on-going losses, albeit that Crown's performance trended positively in the second half, as expected. At 2%, EBIT for the division was at least positive and an improvement on last year. However, it is clear we must do better and the strategically important addition of Maloney Metalcraft gives us the critical mass and market position to build a sound business. Investors will have noted that the acquisition price of Exterran UK of £1 indicates a business in some distress and, thus, we do expect losses at Maloney in the first year, both operationally and as a result of restructuring of the division. Therefore, the benefits to investors of this reshaped business will probably not be realised until 2015 and beyond.

Summarising the situation at the Energy and Medical sites:

· Metalcraft, Chatteris: Markets were positive overall, though business with Cummins was much lower this year, due to changes in their market conditions. The ramp-up of the new Siemens product offset this decline and we are now making preparations to supply this product from China also. Other customers in the UK showed some promising signs of growth - eg Heatric (Meggitt) where volumes are increasing from a low initial base. Nuclear decommissioning in the UK still looks hopeful, though the sales to this market in the year were relatively modest.

· Metalcraft, Chengdu: The initial fit-out of the recently leased building is complete and we are now entering the second phase. In H1 of 2014, we are committing over £1m of capital expenditure (in cash) for this new facility. This will house our MRI activities with Siemens and will ramp up local production this financial year (all of the new products supplied thus far to Siemens being produced in the UK). Other Far East Medical customers continue to develop their activities with us and we anticipate further capex investment to meet their needs. Despite the increased investment, China was break-even and we do not expect to suffer significant ramp-up losses in the current year either.

· Maloney Metalcraft, Aldridge: This business currently specialises in modular build of oil and gas process plant used in upstream and downstream operations. It was acquired from Exterran in July for £1 and we are currently working on restoring its profitability. Operational losses are expected this year, as well as restructuring costs to integrate the business into the division fully. We are encouraged that two recent contracts have been signed with Porvair, worth a combined £3.5m of revenue, demonstrating that the business has a pipeline of viable opportunities and exciting new customers to partner with.

· Crown grew in the year, with sales up significantly from a very low base. The result, albeit still a loss, was much improved and the business has been trending into profit over the last few months. Prospects continue to improve slowly and we expect the recovery to continue in the current financial year.

Industrial Products Division (Jena Tec)

The sale of Jena Tec in November 2012 to Kuroda of Japan swamps some of the figures in this report and makes meaningful comparison with the previous divisional performance difficult. The business was sold for a consideration of £12.4m, net of cash, debt and costs, with the resulting exceptional profit being £6.0m. The disposal has allowed Avingtrans to focus fully on its two remaining core businesses - Sigma and Metalcraft. Without this sale, we could not have achieved critical mass in the remaining divisions, let alone sustain the proactive investment requirements to maximise shareholder returns over the longer term.

People

There have been no changes in top level management in the period, except that the MD of Jena Tec departed with the business sale. In the other two divisions, we continued to strengthen our management teams, including integration of the senior managers in the recently acquired businesses. In Aerospace, a senior management reorganisation is underway following the recent acquisitions and we have internally promoted a new GM in China.

Each of the businesses augmented its base of skilled engineering and technical personnel, with intellectual property development - eg through "Clean Sky" - becoming ever more important and further enhanced by the Maloney Metalcraft acquisition. Skills availability is challenging, but we do not expect to be constrained by any shortages and we continue to invest in skills - eg new apprenticeships - at many locations. Both divisions increased headcount in the last year, but the output per employee also continued to improve.

Outlook

The transformation of the Group into a niche engineering market leader is progressing to plan. With attractive structural growth markets and durable customer relationships, we are confident about the future of Avingtrans. The improving world economic outlook can only help our development and we are optimistic about our prospects in this financial year and beyond. Prospects for Civil Aerospace and Energy in particular, are exciting.

Our increasingly focused strategy is producing significant new business wins that support our results and provide good visibility of longer term earnings. We have an excellent customer base to work from and various differentiated product niches to develop that offer a degree of protection to cyclical markets. We are increasingly well placed to benefit from any further consolidation in our markets.

With the three recent acquisitions, we again signalled our intention to build shareholder value through targeted M&A activity. Whilst we cannot state that this will result in any further transactions during the current financial period, we will forcefully pursue any opportunity to enhance long-term value.

Sigma and Metalcraft are developing into clear market leaders in their chosen niche markets, providing customers with consistent quality as part of a world class supplier journey, with our growing Chinese presence providing crucial competitive advantage. Investors are invited to endorse our strategy and join us in developing a great British engineering story. Thank you for your support.

Roger McDowell Steve McQuillan Stephen King

Chairman Chief Executive Officer Chief Financial Officer

24 September 2013 24 September 2013 24 September 2013

Consolidated Income Statement

for the year ended 31 May 2013

Consolidated statement of comprehensive income

Consolidated Cash Flow Statement

for the year ended 31 May 2013

Cash flows from operating activities:

for the year ended 31 May 2013

Consolidated Balance Sheet

at 31 May 2013

Consolidated statement of changes in equity

at 31 May 2013

Notes to the preliminary statement

31 May 2013

1. Segmental analysis

Aerospace results include a business combination acquiring certain of the trade and assets of PFW Aerospace UK Limited (Note 5) which contributed £6,236,000 and a loss of £24,000 to Group revenue and profit after tax respectively and the acquisition of the Aerotech Tubes limited which contributed £1,560,000 and a profit of £137,000 to Group revenue and profit after tax respectively.

On 8 November 2012 the Group disposed of the Industrial Products Division, previously disclosed as a separate segment. The results of the segment up to the date of disposal for the discontinued activities are shown in Note 5.

 * - after £850,000 impairment of goodwill

Geographical

The Group has Aerospace revenue of £10,612,000 (2012: £6,381,000) and Energy & Medical revenue of £9,661,000 (2012: £5,538,000) with single external customers under common control, which each represent more than 10% of the Group's revenue.

2. Adjusted Earnings before interest, tax, depreciation and amortisation

3. Taxation

4. Earnings per share

5. Acquisitions and disposals

Business combinations - AeroTech Tubes Limited

On 23 November 2012 the Group acquired 100 percent of the issued share capital of AeroTech Tubes Limited. The acquisition was made to enhance the Group's position in the aerospace market. The provisional net assets at the date of acquisition were as follows:

Management identified intangible assets of £145,000 relating to customer orders on acquisition. These have been amortised in the statement of comprehensive income in full in the period from acquisition to 31 May 2013.

The acquired entity incurred a profit after tax of £137,000 for the 6 months from 23 November 2012 to the reporting date. If it had been acquired on 1 June 2012, revenue for the Group would have been £2,855,000 and profit after tax for the year would have increased by £295,000.

The goodwill recognised relates to expected synergies to be achieved as a result of combining the operations of the business.

Acquisition costs arising from this transaction of £52,000 have been included in overheads before operating profit.

5. Acquisitions and disposals (continued)

Business combinations - Sigma Farnborough

On 3 December 2012 the Group acquired certain of the trade, assets and liabilities of PFW Aerospace UK Limited. The acquisition was made to enhance the Group's position in the aerospace market. The provisional net assets at the date of acquisition were as follows:

Management did not identify any intangible assets on acquisition of this business which was in a distressed state.

Acquisition costs arising from this transaction of £236,000 have been included in overheads before operating profit.

Since acquisition Sigma Farnborough contributed the following to the Group's cashflows:

Disposals - Industrial Products division

On 8 November 2012 the Group disposed of its Industrial Products Division (comprising Avingtrans Industrial Products Limited, Jena Rotary Technology Limited, Jena-Tec Inc and Jenaer Gewindetechnik GmbH) the net assets and liabilities at the date of disposal were as follows:

Included in the above profit on disposal is £585,000 of foreign exchange translation reserves recycled on disposal of the Industrial Products division (and £186,000 of foreign exchange translation reserves on the intergroup Euro loan)

Discontinued Operations

The results prior to the disposal on 8 November 2012 for the discontinued operations included in the consolidated income statement were:

5. Acquisitions and disposals (continued)

Ring fenced cash1 relates to a grant received from the EU, repayable if not utilised.

7. Preliminary statement

This preliminary statement, which has been agreed with the auditors, was approved by the Board on 24 September 2013. It is not the Group's statutory accounts within the meaning of Section 434 of the Companies Act 2006.

The statutory accounts for the two years ended 31 May 2013 and 2012 received audit reports which were unqualified and did not contain statements under s498(2) or (3) of the Companies Act 2006. The statutory accounts for the year ended 31 May 2012 have been delivered to the Registrar of Companies but the 31 May 2013 accounts have not yet been filed.

8. Annual report and Accounts

The Report and Accounts for the year ended 31 May 2013 will be available on the Group's website www.avingtrans.plc.uk on or around 30 September 2013. Further copies will be available from the Avingtrans' registered office:

Precision House, Derby Road, Sandiacre, Nottingham, NG10 5HU

9. Annual General Meeting

The Annual General Meeting of the Group will be held at The Holiday Inn, Bostocks Lane, Sandiacre, Nottingham NG10 5NL at 11.00 a.m. on 6 November 2013.