Preliminary Results for the year ended 31 May 2020

RNS Number : 5085A

Avingtrans PLC

30 September 2020

 

30 September 2020

Avingtrans plc

("Avingtrans" or the "Group")

Preliminary Results for the year ended 31 May 2020 

Avingtrans plc, which designs, manufactures and supplies critical components, modules, systems and associated services to the energy, medical and industrial sectors, is pleased to announce its preliminary results for the twelve months ended 31 May 2020. 

Financial Highlights

· Revenue increased by 9.5% to £113.9m (2019: £104.0m)

o  Underlying revenue excluding acquisitions £96.4m, subdued due to Covid-19

· Gross Margin improved to 27.8% (2019: 26.6%)

· Adjusted ²   EBITDA from continuing operations increased by 25.7% to £11.8m (2019¹: £9.4m)

· Adjusted ²   PBT increased to £6m (2019: £5.3m)

· Adjusted ²   Diluted earnings per share were boosted to 16.9p (2019: 14.6p)

· Net Debt excluding IFRS16 £7.4m (31 May 2019: £2.0m)

· Dividend suspended due to Covid-19, intention to re-instate in FY21

· Guidance reinstated for FY21 and FY22

¹ 2019 not restated for IFRS16

² Adjusted to add back amortisation of intangibles from business combinations, acquisition costs and exceptional items

Operational Highlights

Energy

· Revenue up 11% to £102.0m (2019: £91.9m), boosted by acquisitions in the period

· Aftermarket performance continuing to improve across most business units, despite Covid-19

· Bolt-on acquisitions of Booth Industries and Energy Steel completed during the period

o  integrations of both went well during FY20, with each delivering modest maiden profits for the group (net of costs) despite both being distressed on acquisition.

· Expanding orders in nuclear sector in the UK, USA and Asia

· Booth has a record order book, including the £36m HS2 doors order just received

· HT China won a £2.2m pump order for a concentrated solar power plant in Dubai

· Post period end, obtained Outline Planning Permission (OPP) for the redevelopment of Hayward Tyler Luton site, comprising 1,000 residential units

· All factories have adapted to new operating conditions and contained the CV19 disruption

Medical

· Revenue flat at £11.9m (2019: £12.1m), transition to new markets continues

· Scientific Magnetics and Tecmag working with their partners to produce new product and service offerings for the MRI and NMR markets

· Focus on new markets and products, esp. compact MRI, with a "sustain" strategy elsewhere

· Composite Products performance was again stable in the period, with good prospects.

C ommenting on the results, Roger McDowell, Chairman, said:

"Despite the headwinds produced by the Covid-19 pandemic, it has been a solid year for the Group, with record numbers in terms of orders, revenue and profit, supported by the recently acquired businesses, Booth Industries (UK) and Energy Steel (USA). Both of these acquisitions performed acceptably in their first year with the Group and recent order wins  have reinforced our view that both will create significant shareholder value in due course, as they respond to our now well-proven Pinpoint-Invest-Exit strategy (PIE). The former Hayward Tyler Group (HTG) businesses performed well in the year, despite Covid-19 issues, including: temporary factory closures, delayed orders and supplier parts delays. Ormandy and Crown had challenging times due to the crisis. Oil and gas capex spending was much reduced, but we were able to absorb this and the Covid-19 effects within the overall results.

The Energy divisions and their management teams have managed the crisis well and we continue to focus on profitable growth, to build valuable businesses. Nuclear life extension and decommissioning arenas remain good hunting grounds for us and overall order intake has been pleasing so far in the new financial year. Our nascent medical division continues to make steady progress, as it develops new products, notably for MRI applications. We will continue to concentrate on high margin aftermarket opportunities in all our businesses. Brexit, tariff wars and Covid-19 are all unwelcome disruptions, but we will maintain our well-planned course. We remain positive about our prospects in both Energy and Medical and, with our strong Balance Sheet, we have the resources to support our agility, enabling us to seize any opportunity'.

Enquiries:

Avingtrans plc	01354 692391
Roger McDowell, Chairman Steve McQuillan, Chief Executive Officer Stephen King, Chief Financial Officer
N+1 Singer (Nominated Adviser)	02074 963000
Shaun Dobson/Alex Bond (Corporate Finance) Rachel Hayes (Corporate Broking)
Newgate (Financial PR)	02076 539850
Adam Lloyd/ Tom Carnegie

About Avingtrans plc:

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

Business units

Hayward Tyler - Luton & East Kilbride, UK and USA, China and India Specialises in the design, manufacture and servicing of performance-critical motors and pumps for challenging environments. Energy Steel, Inc - Lapeer, Michigan, USA Provider of custom fabrications for the nuclear industry, specialising in: OEM parts obsolescence; custom fabrications; engineering design solutions; product refurbishment; on-site technical support. 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. Booth Industries - Bolton, UK Designs, manufactures, installs and services doors and walls which can be tailored to be: blast &explosion proof; fireproof; acoustically shielded; high security/safety; or combinations of the above Ormandy Group, Bradford, UK Design, manufacturers and servicing of off-site plant, heat exchangers and other HVAC (heating, ventilation and air conditioning) products Peter Brotherhood - Peterborough, UK Specialises in the design, manufacture and servicing of performance-critical steam turbines, turbo gen-sets, compressors, gear boxes and combined heat and power systems. 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 cryogenics for a variety of markets including MRI and provides services for Nuclear Magnetic Resonance instruments. Tecmag Inc, Houston, USA Designs, manufactures and installs instrumentation, including consoles, system upgrades, and probes, mainly for Magnetic Resonance Imaging (MRI) and Nuclear Magnetic Resonance (NMR) systems.

 

Chairman's Statement

Notwithstanding the effects of Covid-19, it has been a year of solid progress at Avingtrans in FY20, with record adjusted EBITDA and revenue boosted by acquisitions. Although the pandemic had some adverse impacts on most of our businesses in the year (notably on order timing - starting in our China units in February 2020), we have been able to make headway, nonetheless. It is also pleasing to note a number of important new order wins, post-period end, which have provided a degree of catch-up for FY21, following delays through the lockdown period.

Under the Pinpoint-Invest-Exit ("PIE") strategy the assets of Booth Industries in Bolton, UK and Energy Steel in Michigan, USA were acquired in June 2019. Both of these turnaround opportunities were purchased following agile due diligence processes. The two businesses augment our capabilities in the nuclear sector and Booth brings Avingtrans into the wider Critical National Infrastructure (CNI) market. The acquisition of Energy Steel broadened Hayward Tyler's product offering - particularly in solutions for "orphan" OEM components for the nuclear aftermarket - and provides cross-selling opportunities. Acquiring Booth Industries has enabled the Process Solutions and Rotating Equipment ("PSRE") division to expand its product and service offering and deepen its relationships with its existing customers. Both businesses have integrated well, delivering modest profits (before transaction costs) in their maiden year with the Group.

The divisional management teams have shown themselves to be adaptable and resilient in the period, continuing to build upon solid business platforms, despite the disruptions due to Covid-19 ('CV19)'. These effects have caused us to make certain targeted changes, such as closing the Crown site and relocating the residual assets into Metalcraft. However, our focus remains on growing formidable and valuable businesses.

Aftermarket growth in EPM and PSRE remains central to developing robust value propositions, in order to support OEM and end-user customers. This improved end-user access model not only provides a more predictable and repeatable pipeline, which in turn drives improved profitability, but also boosts product and service development. We are particularly keen to maximise the revenue opportunities arising from the aftermarket access afforded by recent acquisitions (eg Energy Steel) and though recent partnership deals (eg with Shinhoo Pumps, China).

The Engineered Pumps and Motors (EPM) division delivered an acceptable result for the year given the backdrop, as it suffered a series of CV19 disruptions, first in China, then in the UK and USA and finally in India. The impacts included delayed orders, supply chain delays and customer delivery issues, so a broadly flat result was no mean feat. Energy Steel helped to boost the revenue for the division and made an underlying modest contribution to profit, which is promising for the future, considering the backdrop of its first year with the Group. The post-period end award of outline planning permission for the HT Luton site was welcome news, providing us with the opportunity to optimise HT's UK operations, whilst potentially producing a net surplus for the Group when the site is exited in due course.

The PSRE division pushed through CV19 effects, in part thanks to a gratifying performance by Peter Brotherhood, although we have seen order delays in this division also. The division is now refining its offering to the UK nuclear market - especially to Sellafield for nuclear decommissioning - whilst also using this capability to position for longer term new nuclear technologies. Ormandy had a trickier year, due to Covid-19 induced construction market delays, but is now getting back on track. The integration of Booth has gone well so far, with a record order book and a modest initial profit being satisfactory first steps on the journey to recovery.

Meanwhile, the Medical and Industrial Imaging (MII) division continues to progress steadily, with both the UK and Chinese businesses performing acceptably. This is a division in transition, where Scientific Magnetics and Tecmag are working with their partners to produce new product offerings for the MRI and NMR markets. While these developments are still at a relatively early stage, the Board is excited about the long-term potential of the division which is expected to yield longer term positive returns for the Group, albeit perhaps using a different vehicle to maximise returns than our usual "PIE" process for mature businesses.

Whilst the results for the Group were solid as a whole, the Board considers that it is prudent to continue to preserve cash and will not propose a final dividend this year. In the context of the global pandemic, the resulting need for targeted restructuring 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 in FY21. Our resilient view of the prospects for the Group, underpinned by our prudent approach to debt and financial headroom, further support this decision. Given the strength of the order book, we are reinstating guidance.

Finally, since the last annual report, Graham Thornton retired from the Board, having served with distinction for 10 years with the Group. The Board and I wish Graham every success with his future endeavours and thank him for his hard work and dedication whilst he was with us. I warmly welcome all of the staff in recent acquisitions to Avingtrans and congratulate them and all Avingtrans employees for the spirit and hardiness they have displayed in recent, challenging months. On behalf of the shareholders, I thank all Avingtrans employees for their dedication to the Group during the past year, as we look forward with watchful enthusiasm to FY21.

Roger McDowell

Chairman

29 September 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

Consolidated statement of changes in equity at 31 May 2020
	Share  capital	Share  premium account	Capital redemp- tion  reserve	Merger  reserve	Trans- lation  reserve	Other  reserves	Invest-ment in own shares	Retained  earnings	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 June 2018	1,553	13,385	1,299	28,949	(135)	180	(2,835)	25,396	67,792
Ordinary shares issued	15	633	-	-	-	-	-	-	648
Dividends paid	-	-	-	-	-	-	-	(1,118)	(1,118)
Investment in own shares	-	-	-	-	-	-	(600)	-	(600)
Share-based payments	-	-	-	-	-	-	-	98	98
Total transactions with owners	15	633	-	-	-	-	(600)	(1,020)	(972)
Profit for the year	-	-	-	-	-	-	-	2,511	2,511
Other comprehensive income
Actuarial loss for the year on pension scheme	-	-	-	-	-	-	-	(581)	(581)
Deferred tax on actuarial movement on pension scheme	-	-	-	-	-	-	-	99	99
Exchange gain	-	-	-	-	445	-	-	-	445
Total comprehensive income for the year	-	-	-	-	445	-	-	2,029	2,474
Balance at 31 May 2019	1,568	14,018	1,299	28,949	310	180	(3,435)	26,405	69,294

At 1 June 2019	1,568	14,018	1,299	28,949	310	180	(3,435)	26,405	69,294
Ordinary shares issued	20	952	-	-	-	-	-	-	972
Dividends paid	-	-	-	-	-	-	-	(1,192)	(1,192)
Investment in own shares	-	-	-	-	-	-	(800)	-	(800)
Share-based payments	-	-	-	-	-	-	-	112	112
Total transactions with owners	20	952	-	-	-	-	(800)	(1,080)	(908)
Profit for the year	-	-	-	-	-	-	-	1,386	1,386

 

Consolidated statement of changes in equity (continued) at 31 May 2020
	Share  capital	Share  premium account	Capital redemp- tion  reserve	Merger  reserve	Trans- lation  reserve	Other  reserves	Invest-ment in own shares	Retained  earnings	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Other comprehensive income
Actuarial gain for the year on pension scheme	-	-	-	-	-	-	-	58	58
Deferred tax on actuarial movement on pension scheme	-	-	-	-	-	-	-	(43)	(43)
Exchange gain	-	-	-	-	120	-	-	-	120
Total comprehensive income for the year	-	-	-	-	120	-	-	1,401	1,521
Balance at 31 May 2020	1,588	14,970	1,299	28,949	430	180	(4,235)	26,726	69,907

Consolidated Cash Flow Statement for the year ended 31 May 2020	Note
		2020	2019
		£'000	£'000
Operating activities
Cash flows from operating activities	5	2,919	10,468
Finance costs paid		(1,189)	(608)
Income tax paid		(1,527)	(589)
Contributions to defined benefit plan		(254)	(243)
Net cash (outflow)/ inflow from operating activities		(51)	9,028
Investing activities
Acquisition of subsidiary undertakings, net of cash acquired	7	720	(132)
Finance income		38	131
Purchase of intangible assets		(760)	(848)
Purchase of property, plant and equipment		(3,984)	(2,344)
Proceeds from sale of property, plant and equipment		-	248
Net cash used in investing activities		(3,986)	(2,945)
Financing activities
Equity dividends paid		(1,192)	(1,118)
Repayments of bank loans		(675)	(3,278)
Repayment of leases		(2,200)	(1,033)
Proceeds from issue of ordinary shares		972	48
Proceeds from borrowings		3,808	597
Net cash inflow/(outflow) from financing activities		713	(4,784)
Net (decrease)/increase in cash and cash equivalents		(3,324)	1,299
Cash and cash equivalents at beginning of year		8,053	6,565
Effect of foreign exchange rate changes on cash		(36)	189
Cash and cash equivalents at end of year		4,693	8,053

1  Segmental analysis

Year ended 31 May 2020	Energy EPM	Energy PSRE	Medical  MII	Unallocated  central items	Total
		£'000	£'000	'000	£'000
Original Equipment	12,780	38,366	11,879	-	63,025
After Market	36,530	14,358	-	-	50,888
Revenue	49,310	52,724	11,879	-	113,913
Operating profit/(loss)	1,261	3,903	(326)	(697)	4,141
Net finance costs					(1,103)
Taxation					(634)
Profit after tax from continuing operations					2,404
Segment non-current assets	46,933	22,978	4,714	-	74,625
Segment current assets	25,072	23,613	3,169	4,755	56,609
	72,005	46,591	7,883	4,755	131,234
Segment liabilities	(3,845)	(29,875)	(9,627)	(17,979)	(61,326)
Net assets	68,160	16,716	(1,744)	(13,224)	69,908
Non-current asset additions
Intangible assets	1,697	336	118	-	2,151
Tangible assets	1,574	2,292	118	-	3,984
	3,271	2,628	236		6,135

Energy EPM results include the acquisition of Energy Steel which contributed £7.9m Group revenue and £0.9m loss after tax respectively (note 7). Energy PSRE results include the acquisition of the trade and assets of Booth Industries which contributed £9.6m Group revenue and £63,000 loss after tax (note 7).

Year ended 31 May 2019	Energy EPM	Energy PSRE	Medical  MII	Unallocated  central items	Total
		£'000	£'000	'000	£'000
Original Equipment	13,888	30,055	12,048	-	55,991
After Market	35,069	12,884	100	-	48,053
Revenue	48,957	42,939	12,148	-	104,044
Operating profit/(loss)	2,874	1,930	(204)	(981)	3,619
Net finance costs					(470)
Taxation					(714)
Profit after tax from continuing operations					2,435
Segment non-current assets	44,285	17,903	4,962	-	67,150
Segment current assets	20,756	28,051	5,036	1,290	55,133
Segment liabilities	(27,563)	(21,040)	(1,417)	(2,969)	(52,989)
Net assets	37,478	24,914	8,581	(1,679)	69,294
Non-current asset additions
Intangible assets	171	378	299	-	848
Tangible assets	1,258	826	261	-	2,344
	1,428	1,204	560	-	3,192

Geographical

The following tables provides an analysis of the Group's revenue by destination and the location of non-current assets by geographical market:

	2020	2019	2020	2019
	Revenue	Revenue	Non-current Assets	Non-current Assets
	£'000	£'000	£'000	£'000
United Kingdom	44,556	37,441	42,592	50,660
Europe (excl. UK)	14,022	10,736	-	-
United States of America	21,009	14,045	29,587	14,455
Africa & Middle East	3,965	3,867	-	-
Americas & Caribbean (excl. USA)	5,002	3,228	-	-
China	8,325	10,240	2,396	2,018
Asia Pacific (excl. China)	17,034	24,486	51	17
	113,913	104,044	74,626	67,150

The Group had no single external customer which represented more than 10% (2019: EPM Revenue £12,336,000 11.9%) of the Group's revenue.

Prior year figures have been restated throughout the notes due to Crown moving to discontinued operations.

2  Adjusted Earnings before interest, tax, depreciation and amortisation

	2020	2019
	£'000	£'000
Profit before tax from continuing operations	3,038	3,149
Share based payment expense	112	98
Acquisition costs	294	89
Restructuring costs	281	395
Loss/(gain) on derivatives	8	(83)
Unwinding of discounting on dilapidation provision	88	85
Amortisation of intangibles from business combinations	2,223	1,595
Adjusted profit before tax from continuing operations	6,044	5,328
Finance income	(38)	(132)
Finance cost	1,141	602
Loss on derivatives/unwinding of discounting on dilapidation provision	(96)	(2)
Adjusted profit before interest, tax and amortisation from business combinations ('EBITA')	7,051	5,796
Depreciation	4,321	3,219
Amortisation of other intangible assets	403	356
Adjusted Earnings before interest, tax, depreciation and amortisation ('EBITDA') from continuing operations	11,775	9,371

The Directors believe that the above adjusted earnings are a more appropriate reflection of the Group performance.

3  Taxation

	2020	2019
	£'000	£'000
Continuing operations
Current tax
Corporation tax - current year	440	-
Corporation tax - prior year	192	444
Overseas tax	(170)	975
Total current tax	462	1,419
Deferred tax
Deferred tax - current year	138	(624)
Deferred tax - prior year	(32)	(81)
Deferred tax - rate	66	-
Total deferred tax	172	(705)
Tax charge on continuing operations	634	714
Tax credit on discontinued operations	(200)	(81)
Total tax charge in the year	434	633

UK corporation tax is calculated at 19 % (2019: 19%) of the estimated assessable profit/loss for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

4  Earnings per ordinary share
 

Basic and diluted earnings per share have been calculated in accordance with IAS 33 which requires that earnings should be based on the net profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares in issue during the year.

For diluted earnings per share the weighted average number of ordinary shares is adjusted to assume conversion of all dilutive potential ordinary shares, being the CSOP and ExSOP share options.

	2020	2019
	Number	Number
Weighted average number of shares - basic	31,531,278	31,225,440
Share option adjustment	569,687	340,920
Weighted average number of shares - diluted	32,100,965	31,566,360
	2020	2019
	£'000	£'000
Profit from continuing operations	2,404	2,435
Share based payment expense	112	98
Acquisition costs	294	89
Restructuring costs	281	395
Loss/(gain) on derivatives	8	(83)
Unwinding of discounting on dilapidation provision	88	85
Amortisation of intangibles from business combinations	2,223	1,595
Adjusted earnings from continuing operations	5,410	4,614
From continuing operations:
Basic earnings per share	7.6p	7.8p
Adjusted basic earnings per share	17.2p	14.8p
Diluted earnings per share	7.5p	7.7p
Adjusted diluted earnings per share	16.9p	14.6p
(Loss)/earnings from discontinuing operations:	(1,018)	76
From discontinuing operations
Basic (loss)/earnings per share	(3.2)p	0.2p
Adjusted basic (loss)/earnings per share	(0.7)p	0.2p
Diluted (loss)/earnings per share	(3.2)p	0.2p
Adjusted diluted (loss)/earnings per share	(0.7)p	0.2p
Earnings attributable to shareholders	5,199	4,690
Basic earnings per share	4.4p	8.0p
Adjusted basic earnings per share	16.5p	15.0p
Diluted earnings per share	4.3p	8.0p
Adjusted diluted earnings per share	16.2p	14.9p

The Directors believe that the above adjusted earnings per share calculation for continuing operations is a more appropriate reflection of the Group's underlying performance.

There are 585,000 share options at 31 May 2020 (2019: 490,000) that are not included within diluted earnings per share because they are anti-dilutive.

5  Notes to the consolidated cash flow statement

  Cash flows from operating activities:
 

	2020	2019
	£'000	£'000
Continuing operations
Profit before income tax from continuing operations	3,038	3,149
Loss before income tax from discontinuing operations	(1,218)	(5)
Adjustments for:
Depreciation	4,343	3,240
Amortisation of intangible assets	466	393
Amortisation of intangibles from business combinations	2,222	1,595
Loss/(gain) on disposal of property, plant and equipment	119	(13)
Finance income	(38)	(132)
Finance expenses	1,141	616
Share based payment charge	112	98
Changes in working capital
Decrease/(increase) in inventories	2,157	(2,213)
(Increase)/decrease in trade and other receivables	(5,010)	1,158
(Decrease)/increase in trade and other payables	(3,565)	4,150
Decrease in provisions	(824)	(1,458)
Other non cash changes	(24)	(110)
Cashflows from operating activities	2,919	10,468

	2020	2019
	£'000	£'000
Cash and cash equivalents
Cash	5,088	8,909
Overdrafts	(395)	(856)
	4,693	8,053

6  Impact of adoption of IFRS 16 Leases

IFRS 16 Leases replaces IAS 17 Leases along with three Interpretations (IFRIC 4 Determining whether an Arrangement contains a Lease, SIC 15 Operating Leases-Incentives and SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease).

The adoption of this new Standard has resulted in the Group recognising a right-of-use asset and 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 new Standard has been applied using the modified retrospective approach, with no impact upon the opening balance of retained earnings for the current period. Prior periods have not been restated.

For those leases previously classified as finance leases, the right-of-use asset and lease liability are measured at the date of initial application at the same amounts as under IAS 17 immediately before the date of initial application.

Impact on the Statement of financial position:

· £9.7m of additional lease liabilities were recognised of which £1.2m was classified as short-term and £8.5m as long-term.

· In respect of additional leases recognised, the Group has capitalised £8.0m of right-of-use assets. The majority of this figure relates to land & building leases across the Group.

· £1.7m of accrued rent and lease incentives were de-recognised.

· There has been no impact on retained earnings as all leases have been valued at 1 June 2019.

Impact on the Income statement:

· The impact on the Income Statement for the year to 31 May 2020 is an increase in operating profit of £0.2m compared to the operating profit had IAS 17 continued to apply. This is made up of a reduction in operating lease rentals of £1.5m offset by a depreciation charge of £1.3m.

· Additional lease liabilities brought onto the balance sheet have increased interest payable in the period by £0.4m, and the overall impact on profit before/after tax is a reduction of £0.2m.

Impact on the Statement of cash flows:

· There is no impact on cash and cash equivalents as a result of the implementation of IFRS 16

· Net cash inflow from operating activities for the year to 31 May 2020 increased by £1.1m as a result of the principle payments made on lease liabilities being reclassified from cash generated from operations to financing activities. 

· Net cash flow from investing activities has decreased by £0.1m as a result of the recognition of new leases or amendments to existing leases which were historically classified as operating leases.

· Net cash outflow from financing activities increased by £1.0m as a result of the points raised above.

Impact of IFRS 16 upon net debt:

	31 May 2020	1 June 2019	31 May 2019
	£'000	£'000	£'000
Cash	5,088	8,909	8,909
Loans	(9,575)	(7,905)	(7,905)
Lease liability - finance leases under IAS17	(2,503)	(2,170)	(2,170)
Lease liability - additional liability under IFRS 16	(8,962)	(9,731)	-
Overdrafts	(395)	(856)	(856)
Net (debt) / cash	(16,347)	(11,754)	(2,023)
Equity	69,907	69,294	69,294
Net (debt) / cash to equity ratio	(23.4)%	(17.0)%	(2.9)%

7  Acquisitions

Business combination - Energy Steel & Supply Co

On 24 June 2019 the Group acquired 100 percent of the issued share capital of Energy Steel & Supply Co. based in the USA for $0.6m. This acquisition expands the Company's nuclear capabilities and product lines for new and existing customers. Energy Steel forms part of the Group's Energy-EPM division. The fair value of net assets acquired at the date of acquisition were as follows:

Fair value of assets and liabilities acquired:
	£'000
Property, plant and equipment	121
Deferred tax assets	16
Inventories	1,308
Trade and other receivables	1,265
Current tax assets	8
Cash	1,186
Finance lease liabilities	(391)
Trade and other payables	(3,268)
Provisions	(1,029)
Net liabilities	(784)
Intangible assets identified - order book	1,387
Deferred tax liability on intangible assets identified	(375)
Goodwill	238
	466
Fair value of consideration transferred:
Cash paid	(466)
Consideration	(466)
Cash acquired	1,186
Cash received relating to the acquisition	(720)
Acquisition costs charged to Administrative Expenses	(144)
Net cash received relating to the acquisition	576

Management did not identify any further intangible assets on acquisition of this business due to its distressed state.

Trade and other receivables are shown above after a fair value adjustment of $11,000 from their original book value.

7  Acquisitions (continued)

Business combination - Energy Steel & Supply Co (continued)

The impact of the Energy Steel acquisition on the Consolidated income statement is as follows:

	£'000
Revenue	7,936
Cost of sales	(5,880)
Gross profit	2,056
Distribution costs	(582)
Other administrative expenses	(1,320)
Operating profit before amortisation of acquired intangibles, other non-underlying items and other exceptional items   other non-underlying items and exceptional items	154
Redundancy expenses	(51)
Acquisition related expenses	(168)
Amortisation of acquired intangibles	(1,194)
Operating loss	(1,259)
Finance expenses	(12)
Loss before tax	(1,271)
Tax income	328
Overall effect on the Consolidated Income Statement	(943)

Since acquisition Energy Steel contributed the following to the Group's cashflows:

	£'000
Net cash outflow from operating activities	(2,314)
Net cash used by investing activities	(242)
Net cash inflow from financing activities	7

 

Asset purchase - Booth Industries

On 11 June 2019 the Group acquired the trade and certain of the assets of Booth Industries ('Booth') from Administration. Booth design and manufacture bespoke high-integrity doors. Booth has been purchased by the Group's subsidiary, Stainless Metalcraft (Chatteris) Limited and its results will be included within the results of the Energy-PSRE division.

The Group has judged this transaction should be treated as an asset purchase rather than a business combination. This is primarily based on the value of the land & buildings representing the majority of the total consideration paid for the business. A valuation exercise has been performed on the land & buildings by third party experts. 

Assets purchased comprise of:

	£'000
Property, plant and equipment	1,602
Inventories	280
Total consideration paid	1,882

The impact of the Booth acquisition on the Consolidated income statement since acquisition is as follows:

	£'000
Revenue	9,575
Cost of sales	(6,105)
Gross profit	3,470
Distribution costs	(153)
Administrative expenses	(3,228)
Operating profit before amortisation of acquired intangibles, other non-underlying items and other exceptional items   other non-underlying items and exceptional items	89
Acquisition related expenses	(128)
Operating loss	(39)
Finance expenses	(24)
Loss before tax	(63)
Tax expense	-
Overall effect on the Consolidated Income Statement	(63)

Since acquisition Booth contributed the following to the Group's cashflows:

	£'000
Net cash outflow from operating activities	(1,419)
Net cash used by investing activities	(254)
Net cash inflow from financing activities	819

8  Loss after taxation from discontinuing operations

Due to the weight of the disruption from Covid 19, management took the decision to close the Crown site near Bristol and relocate the residual road and rail infrastructure assets to Stainless Metalcraft. The assets of the business that remain on the balance sheet as at 31 May 2020 will be moved during FY21 to the Chatteris site. The lease on the Bristol site ends in November 2020 when we will have fully exited the site.

Discontinued activities relate to the discontinuation of the Crown facility and associated trade and costs.

The impact of the discontinued activities on the Consolidated income statement is as follows:	2020 £'000	2019 £'000
Revenue	745	1,472
Gross profit	102	507
Distribution costs	(102)	(123)
Other administrative expenses	(401)	(375)
Restructuring costs	(149)	-
Other exceptional costs	(503)	-
Goodwill impairment	(155)	-
Operating (loss)/profit	(1,208)	9
Finance expenses	(10)	(14)
Loss before taxation	(1,219)	(5)
Taxation	200	81
Loss after taxation from discontinuing operations	(1,018)	(76)

9  Preliminary statement and basis of preparation

This preliminary statement, which has been agreed with the auditors, was approved by the Board on 29 September 2020.  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 2020 and 2019 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 2019 have been delivered to the Registrarof Companies but the 31 May 2020 accounts have not yet been filed.

The Company's financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and those parts of the Companies Act 2006 that apply to companies reporting under IFRS. The principal accounting policies adopted by the company, which remain unchanged, except for adoption of IFRS 16, are set out in the statutory financial statements for the year ended 31 May 2020.

10  Annual report and Accounts

The Report and Accounts for the year ended 31 May 2020 will be available on the Group's website www.avingtrans.plc.uk on or around 16 October 2020.  Further copies will be available from the Avingtrans' registered office:

Chatteris Business Park, Chatteris, Cambridgeshire PE16 6SA.

11  Annual General Meeting

The Annual General Meeting of the Group will be either held at Shakespeare Martineau LLP, No1 Colmore Square, Birmingham, B4 6AA or virtually depending on circumstances on 18 November 2020 at 11:00am. Final details will be notified by RNS/ on the Group's website www.avingtrans.plc.uk on or around 16 October 2020.

 

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END

 

 

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