Avingtrans has now released their interim results for the year ending 2018.
Revenue increased by £17.4M when compared to the first half of last year and after cost of sales also increased, the gross profit grew by £4.7M. Distribution expenses were up £1.2M, there were £1.5M of acquisition costs, a £1.2M increase in restructuring costs, £1.8M of acquired intangible amortisation and a £2.9M increase in other admin costs which meant that the operating loss widened by £3.9M. Finance costs were up somewhat but this was offset by a £345K increase in tax receipts to give a loss for the period of £4.3M, an increase of £3.8M year on year.
When compared to the end point of last year, total assets increased by £67.6M driven by a £22.9M increase in property, plant and equipment, a £20.4M growth in receivables, an £18.8M increase in other tangible assets, a £15.4M growth in goodwill and a £8.1M increase in inventories, partially offset by a £20.9M decline in cash. Total liabilities also increased during the period due to a £16.3M growth in payables, a £10.4M increase in borrowings and a £6.4M growth in provisions. The end results was a net tangible asset level of £28.8M, a decline of £9.5M over the past six months.
Before movements in working capital, cash losses widened to £2M. There was a large cash outflow from working capital with a particularly large decrease in payables and after interest payments increased modestly, the net cash outflow from operations was £10.5M, an increase of £7.1M year on year. The group then spent £1M on fixed assets and £205K on intangible assets to give a cash outflow of £10.9M before financing. They also paid back £9.1M in borrowings, £436K of finance leases and £230K in dividends to give a cash outflow of £20.7M and a cash level of £6.8M at the period-end.
The operating loss in the Energy business was £2.6M, an increase of £2.5M year on year. At Hayward Tylor UK the main restructuring activities are largely complete and the performance is already improving with new orders being secured such as for nuclear plant life extension in Sweden. Hayward Tylor in the US has seen solid order intake in the nuclear life extension market, both in the US and with KHNP in South Korea where they have booked over $10M of new orders since the acquisition. The business has also completed the development of a new pump condition monitoring system for aftermarket applications.
The Hayward Tylor team in China have been working hard to complete the factory there. This project is now expected to be complete by the end of the year. This expanded manufacturing and repair capability will also support their new product introduction plans. Meanwhile, in India, they are carefully expanding their operations to include a rewind centre with aftermarket potential in mind.
At Metalcraft the second phase of the factory redevelopment for Sellafield 3M3 box operations at Chatteris has gone smoothly and they have now delivered the first pre-production boxes. The programme is tracking broadly to plan but they expect some reshaping of the delivery schedule over the next few months. Whiteley Read is busy, with a variety of smaller contracts won such as with GDF Suez for gas storage, so that this subsidiary is now restored to health. Business with other existing key accounts such as Cummins, was steady, although timescales for some new opportunities have slipped by a few months.
Maloney Metalcraft has seen slow progress with oil and gas orders in the first half but there were some signs of life with a number of smaller contracts won. The EDF nuclear life extension contract is tracking to plan. After the period-end they acquired certain assets of the Ormandy Group for £100K and this activity will be merged into Maloney’s operations with a modest sales uplift expected next year.
Peter Brotherhood was the other Hayward Tyler unit that underwent significant restructuring, largely completed as planned in the period. The board anticipated that OEM sales recovery would be slow due to oil and gas market issues so they have been concentrating on aftermarket opportunities where a number of mid-sized contracts have been secured. The business is manufacturing a steam turbine to drive a boiler feed pump at the Tees Renewable Energy Plant which will be the largest dedicated biomass power plant in the world. Other opportunities are being pursued to broaden the footprint of the business in the medium term.
The fluid handling business in Scotland will be rebranded following its move away from the other HT businesses. They had a solid initial period and will seek to build on their existing relationship with Sellafield in particular. Crown has a solid first half. The contract with Fluor for flame detector masts was largely completed and the business continued to win contracts associated with the smart motorway developments.
The operating profit in the Medical business was £75K, an increase of £21K when compared to the first half of last year. Performance has been mixed within the year. Scientific Magnetics had somewhat disappointing results with orders being slower to materialise than expected which will mean the business will make a loss this year. In China Metalcraft has experienced delays from its MRI and NMR customers which has led to reduced forecasts in China. In contrast, in January, they launched a Europe-wide NMR service with their partners MR Resources in the US. Composite Products had a promising first half and the business with Rapiscan is expanding.
The development of Small Modular Reactor technology is a promising opportunity for the group. With a good product and capability fit, a footprint in the UK and US, and a partner in China, the group is fully engaged in positioning itself as a key player in this market. From reactor coolant pump sets through to steam turbines and high integrity fabrications, the group views this smaller, factory built technology both as an attractive route forwards for their nuclear technology and as a good fit to their capability and capacity.
The upstream oil and gas market is still difficult. Bidding activity is slowly increasing but with a clear message that the majors are targeting a 20% cost reduction across their supply chain for new projects.
In September the group acquired Hayward Tyler for a total consideration of £29.5M in shares and a further £13.2M in cash to pay off the business’ loans. The acquisition generated goodwill of £12.8M and included other intangible assets of £22.2M so it looks like its balance sheet was not in a great way! The restructuring is now mostly complete and they are now into the investment and development phase. Balance sheet strength has been restored, expensive debt cleared, costs reduced, creditor overhang resolved and strategies refreshed. Progress has been as expected at this early stage and it is expected that the group will be cash generative in the second half of the year.
Following the acquisition, the group are reorganising their energy assets into two divisions: Engineered pumps and motors consists of Hayward Tyler’s units in the UK, US, China and India whereas Process Solutions and Rotating Equipment consists of Metalcraft’s energy assets, including Maloney and Whiteley Read plus Peter Brotherhood, Crown and the fluid handling business in Scotland.
At the current share price the shares are trading on historic PE ratio of 192.2 but this is meaningless as the company has completely changed following the acquisition. They are trading on a forecasted forward PE of 21 for 2019. After an increase in the interim dividend, the shares are yielding 1.7% which is expected to remain the same next year. At the period-end the group had a net debt position of £8.2M compared to a net cash position of £26.4M at the same period of last year.
On the 30th April the group announced that non-executive director Graham Thornton sold 20,000 shares at a value of £43K. Following the sale he no longer holds shares in the company.
On the 25th June the group released a trading update covering the year as a whole where full year results will be in line with market forecasts. The group has a robust order book and order cover is at 72% of revenue expectation for 2019. Net debt is marginally higher than expected due to the investment of additional working capital following the acquisition of Ormandy. Following the integration of Hayward Tyler and Ormandy, the group is reporting an improved margin mix and therefore expects profits in 2019 to exceed previous expectations.
The have also announced that they have been awarded a contract with a UK government agency worth £6M which is scheduled for completion in 2020. This is a new customer for Peter Brotherhood and will allow the group to tender for further business.
Overall then it is quite hard to assess the group on the financial performance over the year. Losses increased, the net tangible assets fell and the operating cash outflow widened. All this can be attributed to the transformational deal for Hayward Tyler, however. Operationally things seem to be going well and the restructuring is mostly complete. The oil and gas market remains tight, however, and the medical business has mixed fortunes. I think there is a decent company here but the forward (2019) PE of 21 and yield of 1.7% looks a bit expensive to me.