Avingtrans Regulatory News (AVG)

4 May 2016

Avingtrans Plc

("Avingtrans" or the "Company" or the "Group")

Proposed Disposal of Aerospace Division and Notice of General Meeting

Avingtrans (AIM:AVG) announces that it has entered into an agreement to sell (the "Transaction") its Aerospace Division (Sigma Components) to Anthony Bidco Limited (the "Purchaser") a company controlled by funds managed by Silverfleet Capital Partners LLP ("Silverfleet Capital") for an enterprise value of £65 million which, after adjustment for debt and working capital and associated transaction costs, will result in the Company receiving proceeds of approximately £52 million (before escrow arrangements).

Silverfleet Capital is a leading, independent, European private equity firm, specialising in mid-market buyouts.

Following the proposed Transaction, Avingtrans will continue to develop the Energy and Medical markets served by its Metalcraft and Maloney Metalcraft businesses. It is intended that Avingtrans will return a substantial portion of the proceeds of sale to shareholders.

As well as partly repaying the Group's existing debts, the retained portion of the sale proceeds will be used to continue to build Metalcraft's leadership in Energy related markets (notably in the nuclear sector) and potentially in other high value engineering niches, where the Board believes that it can use its turnaround expertise to add substantial shareholder value.

Steve McQuillan, Chief Executive Officer of Avingtrans plc, commented "I am delighted to announce the agreement to sell the Aerospace Division. Following a strategic review the Board concluded that it was the right time to consider the disposal of the Aerospace business which had achieved the majority of its targets. This transaction further demonstrates Avingtrans' track record in growing successful businesses and realising value for shareholders. The proceeds of this transaction will enable the return of substantial value to shareholders while also providing additional investment for the Energy and Medical businesses where the Board believes there are exciting prospects which have the potential to deliver significant further value for shareholders."

Background to and reasons for the Disposal

A strategic review of the Avingtrans group and its prospects was carried out during 2015. This review involved the Board and the Divisional Managing Directors, as well as external advisors. There were four key outcomes of this review:

1. Avingtrans has a successful track record of growing businesses from start-up, developing them internationally, and crystallising value through their sale at an appropriate stage in their development, as demonstrated by the successful sale of JenaTec in 2012.

2. Following the successful conclusion of the acquisition of the Rolls-Royce pipe business (completed in March 2016), the Board felt that it had achieved the majority of the targets which it had set for the Aerospace Division and it was the right stage in its development to consider a disposal of the business.

3. Subject to achieving an attractive valuation for the Aerospace Business, the Board believed that shareholder value would be maximised over the mid to long term by disposing of the Aerospace Division and returning part of the proceeds from the Disposal to shareholders, with the Company also reinvesting part of the proceeds into strengthening the Group's position in the Energy sector and potentially other high value engineering sectors.

4. The Board believes that the successful contract win by the Energy and Medical business with Sellafield in May 2015 (of the initial tranche of 3M3 nuclear waste disposal containers) demonstrated the significant business opportunities available in this market, if the Group were able to put more focus and resource into this sector.

Over the last few years, the Company has successfully grown the Aerospace Division, to become an international leader in its chosen niche markets of aerospace pipe and duct manufacture and precision surface finishing. This development has been underpinned by a number of modestly priced acquisitions, which have enabled the Aerospace Division to build a strong market position and to produce improved performance. The Board believes that this has enabled the Company to be able to realise significant value for shareholders through the Disposal, at a significant premium to the cost of the original component parts.

This outcome follows a concentrated sale process, which included a selected group of relevant industry and financial suitors from the UK, Europe, the USA and Asia.

Financial effects of the Disposal and Profits attributable to the Sale Companies

During the financial year ended 31 May 2015, the Aerospace Division reported revenue of £35.3 million and operating profit of £3.3 million (adjusted for the Composites business which is not being sold as part of this Transaction). In March 2016, the Company acquired Rolls-Royce's internal pipe manufacturing businesses in Nuneaton, UK and Xi'an, China for £3.5 million, which is expected to be at least break even in the current financial year.

The net assets of the Aerospace Division as at 29 February 2016 were approximately £26 million.

As at 30 November 2015, the Company had net debt of £6.1 million. Following the completion of the Disposal, the Board expects to have net cash in excess of £47 million.

Current trading and future prospects

The Group has been trading in line with management expectations during the current financial year.

Trading in the Aerospace Division has been marginally ahead of management expectations in terms of profit, driven by the Rolls-Royce pipe business acquisition being ahead of schedule on integration. The Company acquired the Rolls-Royce pipe business in March this year, and whilst this has only been under our ownership for two months, the initial signs are encouraging and the business has been trading in line with our expectations, whilst integration costs are lower than expectations.

The Energy and Medical Division continues to recover steadily and is expected to meet management expectations, in terms of profit for the year. However, sales are expected to be somewhat lower than our expectations, principally due to the Sellafield production start-up taking longer than previously expected; and due to some delays in major gas contracts and prospects, which have reduced the long term accounting revenues that can be recognised in the current financial year. However, the Board expects these revenues to be recovered in the Group's 2017 financial year.

As noted in the Company's Interim statement, the restructuring of the Energy and Medical Division is now very well advanced. As a result, the business is now on a firm footing to take advantage of recent contract wins with Bruker and Rapiscan, as well as building a strong future in the nuclear sector with Sellafield, EDF and other prospective customers.

The £47 million, 10 year contract that the Group won with Sellafield last year represents less than 10 per cent. of the potential business that could be won with that customer. Sellafield represents approximately half of the nuclear decommissioning opportunity in the UK for businesses like Metalcraft and similar opportunities exist in other countries. There are also longer term opportunities in nuclear fleet refurbishment and new build with EDF and others.

Therefore, the Board believes that a focus on the exciting prospects in the Energy sector, as well as a secure existing platform in the Medical and Biomedical equipment markets, will provide Shareholders with the potential to achieve further value growth, in addition to the proceeds to be returned to Shareholders from the Disposal.

The proposed Disposal of the Aerospace Division represents the second major shareholder value enhancing transaction by the Group, following the disposal of JenaTec in 2012. The Board believes that further consolidation strategies are foreseeable, both in markets where the Group has an existing footprint, and in other compatible high value engineering niches. This is a familiar blueprint, but it is capable of delivering significant returns, if well executed.

Use of Sale Proceeds

The Board will consider the application of the proceeds from the Disposal following Completion, but it is anticipated that they will be used as follows:

1. to return a substantial portion of the proceeds to Shareholders. A further announcement will be made in due course on the amount, method and timing of this return of cash;

2. to retain a portion of the proceeds to invest in the Energy equipment market, specifically to strengthen Metalcraft's position in the nuclear sector and to pursue other related engineering sector opportunities; and

3. to partially repay the Group's existing debt, whilst retaining appropriate banking facilities for the future effective operation of the Group.

Summary of the terms of the Disposal

Pursuant to the Sale and Purchase Agreement between the Company and the Purchaser, the Purchaser has, conditionally, agreed to acquire 100 per cent of the issued share capital of the Sale Companies.

The proposed Transaction is conditional upon, inter alia, the approval of the proposed Disposal by Shareholders and regulatory approvals from the relevant competition authorities in Germany and Austria being received. Completion of the Disposal is expected by the end of May 2016.

The enterprise value for the disposal of the Aerospace Division is £65 million, on a locked box basis. After adjustment for debt and working capital, this will result in the Company receiving an equity value of approximately £58 million. The net cash proceeds arising from the Disposal are expected to be approximately £52 million, after transaction costs of approximately £4.5 million and approximately £1.5 million to be held in escrow until 30 September 2017. The retained funds will be paid to Avingtrans by 30 September 2017, subject to there being no claims under the Sale Agreement.

In the event of the Resolution not being passed the Company has undertaken to pay the Purchaser £0.5 million in relation to fees incurred by it with respect to the proposed Transaction.

Notice of General Meeting

Due to its size, the Disposal constitutes a fundamental change of business under Rule 15 of the AIM Rules for Avingtrans and therefore requires the approval of Shareholders. The Disposal is also conditional on, inter alia, competition authorities in Germany and Austria providing clearance for the Transaction.

Accordingly, the Company announces that it will tomorrow post, to those Shareholders requesting a hard copy, the circular providing details of the resolution to approve the proposed Transaction and with a notice of a General Meeting of the Company, which will be convened at 11:30 a.m. on 25 May 2016 at the offices of Shakespeare Martineau LLP, No1 Colmore Square, Birmingham, B4 6AA.

The circular and Notice of General Meeting will also be available on the Company's website at www.avingtrans.plc.uk

Irrevocable Undertakings

The Company has received irrevocable undertakings to vote in favour of the Resolutions from shareholders holding 11,552,838 Ordinary Shares which represent 41.6 per cent of the issued share capital.

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About Avingtrans

Avingtrans plc is engaged in the provision of highly engineered components, modules and services to the Aerospace, Energy and Medical markets worldwide.

The business is made up of two divisions

Aerospace, engaged in the manufacture of rigid pipe assemblies, fabrications and prismatic components - both metallic and composite - for the global aerospace market and precision polishing of aircraft components and;

Energy and Medical, engaged in the design and manufacture of machined and fabricated pressure and vacuum vessels and process plant and equipment for the power, oil & gas and medical markets. Plus, design and manufacture of fabricated poles and cabinets for roadside safety cameras and rail track signalling.