TIDMAVG

RNS Number : 6280A

Avingtrans PLC

30 September 2015

Avingtrans plc

("Avingtrans" or the "Group")

Preliminary Results for the year ended 31 May 2015

Avingtrans plc, which designs, manufactures and supplies critical components, modules and associated services to the aerospace, energy and medical sectors, today announces its preliminary results for the twelve months ended 31 May 2015.

Financial Highlights

   --     Revenue decreased by 4% to GBP57.8m (2014: GBP60.3m) 
   --     Adjusted EBITDA decreased by 6%, to GBP5.3m (2014: GBP5.6m) 
   --     Adjusted Profit Before Tax decreased by 16%, to GBP2.9m (2014: GBP3.5m) 
   --     Adjusted Diluted earnings per share decreased to 10.1 pence (2014: 13.7 pence per share) 
   --     Cash generated from operating activities GBP1.6m (2014: GBP1.6m) 
   --     Continued investment in capability and capacity: GBP2.4m (2014: GBP4.3m) 
   --     Net debt increased to GBP5.9m (31 May 2014: GBP3.6m). Gearing was 17% (2016: 11%) 

-- Increased final dividend of 2.0 pence per share, Full year total 3.0 pence (2014: Final 1.8 pence per share, Total 2.7 pence), an increase of 11%

Operational Highlights

Aerospace revenues restricted, with a decrease of 7% versus 2014

   --     Results hampered by first half customer destocking, second half stabilised 
   --     Restructuring of operations and closure of the Derby site 
   --     New contract wins with Airbus/PFW (GBP25m/10yr) and Sonaca (GBP5m/5yr) 
   --     Acquisition of RMDG assets for GBP1.2m from Tricorn plc boosted market share 
   --     C&H maintained strong performance 

Energy and Medical division revenues flat, constrained by low oil price, EBIT recovered in H2

   --     Divisional restructuring implemented 
   --     Exciting GBP47m, 10-year contract win with Sellafield Ltd 
   --     EBIT losses significantly reduced, with a second half profit demonstrating progress 
   --     Crown's markets continued to improve and the business remains profitable 

-- Quality & Delivery performance maintained across the Group, despite new IT system implementation programme

Post Year End

   --     Aldridge building sold for GBP1.1m net proceeds 

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

"As previously communicated, the oil price collapse took its toll on Group results and we were further buffeted by aerospace customer destocking in our first half. We reacted quickly to mitigate the effects of these challenges, limiting the revenue decline to 4% and the decline in EBITDA to 6%. Adjusted diluted earnings per share correspondingly decreased to 10.1 pence. Despite continuing investment of GBP2.4m and the GBP1.2m acquisition of the assets of RMDG from Tricorn plc, group net debt only increased to GBP5.9m - lower than market expectations - with gearing at a modest 17%. Our aerospace orders have since stabilised, but the oil sector remains depressed. Therefore, we have turned our attentions elsewhere, with an impressive sign of the future coming from our GBP47m, 10 year contract win with Sellafield Ltd. Our robust position has enabled the Board to propose a 2.0 pence per share final dividend, making 3.0 pence for the year, an increase of 11%."

Enquiries:

 
 Avingtrans plc                                               01159 499020 
 Roger McDowell, Chairman 
  Steve McQuillan, Chief Executive Officer 
  Stephen King, Chief Financial Officer 
 
 Numis                                                        0207 260 1000 
 David Poutney (Corporate Broking) 
  Richard Thomas (Corporate Finance and Nominated Adviser) 
 
 Newgate (Financial PR)                                       0207 553 9850 
 Adam Lloyd 
  Lois Engstrand 
  Ed Treadwell 
 

About Avingtrans plc:

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

Aerospace

Sigma Components Ltd - UK and China

 
Sigma is a market leader in rigid and flexible pipe assemblies 
 and components for prestigious aerospace customers such as Rolls 
 Royce, Bombardier, Airbus, Safran and Meggitt. Sigma also manufactures 
 precision prismatic components and composite components for the 
 aerospace industry from its purpose-built facilities in the UK 
 and Chengdu, China. Sigma Components operates from a number of 
 sites, as follows: 
 Hinckley, UK: centre for rigid pipe assemblies and components 
 and new product introduction. 
 Swadlincote, UK: (formerly RMDG): satellite facility to Hinckley, 
 producing pipe assemblies. 
 Farnborough, UK: centre for fabrications, ducts and other complex 
 assemblies 
 Chengdu, China: centre for precision prismatic components, now 
 also producing pipe assemblies 
 Buckingham, UK: centre for composite technology, parts and machining 
 services to customers in Aerospace, F1/Motorsport and industrial 
 markets. 
 Sandiacre, UK (C&H): centre for precision polishing and specialist 
 finishing of aero-engine turbine blades, compressor blades and 
 vanes for the power generation industries. 
 
 

Energy and Medical

 
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. 
 Maloney Metalcraft Ltd - Aldridge, UK 
Designs, manufactures and services oil and gas extraction and 
 processing equipment, including process plant for dehydration, 
 sweetening, drying and compression. 
 Crown International Ltd - Portishead, UK 
Designs and manufactures market-leading pole and support systems 
 for roadside signage and safety cameras, rail track signalling 
 and gantries. 
 

Chairman's Statement

This has been a challenging year for the group and we have coped with some strong headwinds in the period and have responded quickly to changing market conditions. As previously reported, we were impacted during the year by the oil price decline. This is an on-going issue and we have taken strong remedial action to contain this problem. We are also very grateful to our newest non-executive director, Les Thomas, the CEO of Ithaca Energy Inc, who arrived during the year in the teeth of the storm and helped us to successfully navigate choppy waters.

Simultaneously, in our financial first half, we suffered from a material decline in aerospace output, due to customer programme volume changes and destocking. Whilst this challenge has not fully abated, it has reduced markedly and we have had success in restructuring our aerospace division and in winning new business, to mitigate the effect on profit. Notably, we won a GBP25m, ten year contract with PFW (part of Airbus) to produce parts and assemblies for the A350, from our Farnborough facility. As expected, the RMDG business (Swadlincote) whose assets were acquired from Tricorn plc for GBP1.2m in the period - made a GBP0.3m loss, which also affected the outcome for the year.

The run rate revenues in our financial second half returned to the level of the previous period. However, we were unable to make up for the first half shortfall, so that the overall result was a decline in both revenue and profit over the full twelve months, albeit broadly in line with revised market expectations. This is frustrating, but the actions we took steadied the ship and prepared us for a growth path once again in the FY16 year. Whilst we made good progress with our restructuring programme in both divisions (Aerospace and Energy and Medical), it was not possible to complete this activity and some residual restructuring will spill over into the current financial year (FY16).

Post year end, we sold the freehold of the Maloney Metalcraft building at Aldridge for GBP1.1m, net of costs, which further reduced the run rate cost of that operation, in a continuingly depressed oil and gas market. On the other hand, the Energy and Medical division was boosted by the win of a GBP47m, ten year contract with Sellafield, for the provision of 3M3 (three-metre-cubed) boxes, for the storage of intermediate level nuclear waste. This contract, together with a parallel contract awarded to another vendor, is the first step in a commercially significant programme by the UK government, under the auspices of the Nuclear Decommissioning Authority (NDA), to repackage the legacy nuclear waste for long term storage. Metalcraft is well-placed to be a key partner for Sellafield in this programme, over the next 30 years.

Therefore, despite some setbacks, our passion for the Aerospace, Energy and Medical markets is undimmed and these markets still provide strong medium-term prospects for growth.

We continued to invest in new skills in both divisions, driven by the government sponsored "Sharing in Growth" (SiG) programmes, where we are an active participant. It wasn't the best year to make big investments, but we continued to invest in new technology - particularly in composites - assisted by some grant funding. We also invested GBP1.0m in new capex, production IT systems, etc, as part of an on-going journey towards world-class manufacturing capability.

(MORE TO FOLLOW) Dow Jones Newswires

September 30, 2015 02:01 ET (06:01 GMT)

Given the challenges faced in the year, we were satisfied with the Aerospace recovery in the second half and with the year on year progress in Energy and Medical, oil price notwithstanding. Both divisions have to do better, but we have solid foundations to build on. The second half improvement allowed us to deliver a result close to revised expectations, with revenue down 4% versus the previous period and adjusted EBITDA also down by 6%, bearing in mind that EBITDA was negatively affected by RMDG. Orders and prospects remain at a high level, except for oil and gas, where the prospect bank is depressed. With a less favourable tax position this year, adjusted diluted earnings per share declined by 26%, to 10.1 pence. Gearing rose to 17% on Net debt increasing by GBP2.3m, to GBP5.9m, though half of the increase was attributable to the RMDG asset purchase. Therefore, the balance sheet remains in good shape, despite the investment in the year, of GBP2.4m.

Please rest assured we do not intend to hide behind external market change factors, however convenient that may be. We know our performance must improve and we believe it can do so - significantly. Accordingly, the Board has declared an increased final dividend, of 2.0 pence per share, rendering a full year total of 3.0 pence, once again underlining our commitment to consistently improve returns to our shareholders.

Finally, I would like to take this opportunity to thank our employees for their hard work and dedication to deliver excellent quality engineering products and services, especially in the difficult circumstances of the last 12 months.

Roger McDowell

Chairman

29 September 2015

Strategic Review

Group Performance

Strategy

We are a precision engineering group, operating in differentiated, specialist niches in the supply chains of many of the world's best known engineering original equipment manufacturers, for example: Rolls Royce, Siemens and Safran. Our core strategy is to build market-leading niche positions in our chosen sectors of Aerospace, Energy and Medical and our acquisitions have enabled Sigma and Metalcraft to develop the critical mass necessary to achieve leadership in their respective sectors.

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

Niche Market Positioning

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

Energy and medical: We are developing our position as a leading European supplier of energy industry process modules, vertically integrating this capability with the vessel manufacturing capability at Metalcraft. This same vertical integration capability lends itself to the "new nuclear" and nuclear decommissioning markets, as well as a variety of other niches in the renewable energy sector and emerging markets like shale gas.

Metalcraft's cryogenic vessel manufacturing pedigree, spanning over 40 years, makes us a supplier of choice to OEMs in markets where this capability is critical; notably in magnetic resonance imaging, or related sectors. We enjoy a global market leading position in this particular supply niche.

We have strengthened our capability to manage sophisticated outsourced manufacturing programmes for our customers, thus accessing business of enduring value, with the prospect of further sales growth. We remain focused on markets where we can sustain a significant competitive, long term advantage and where the regulatory and technical requirements provide competitive barriers to entry.

Operations

Aerospace Division (Sigma)

Operational Key Performance Indicators (KPIs)

 
                                                                      2015    2014 
 
        *    Customer Quality - defects in parts per million (ppm)    5,209   3,732 
 
        *    Customer on time in-full deliveries (%)                  81      80 
 
        *    Annualised staff turnover (%)                            12.8    11.9 
 
        *    Health, Safety and Environment incidents per head per 
             annum                                                    0.06    0.1 
 

The divisional quality and delivery performance were sustained in the year, despite the implementation of new IT systems and the introduction of the RMDG performance into the statistics. Underlying staff turnover is higher than ideal, though turnover in China is partly responsible for this and our staff retention there is above average for the region. Health and safety incidents showed a welcome positive trend.

The civil aerospace market remains robust, as evidenced at the Paris air show in June 2015. Between them, Airbus and Boeing have a backlog of circa 12,000 commercial jet orders to deliver and their 20 year demand projections remain at record levels. So, overall market trends are still positive for Sigma, although, in contrast, we saw output reductions in the early part of the year.

The acquisition of RMDG was challenging, since this business was underperforming and loss-making on acquisition and its arrival into the group coincided with a critical destocking decision by key customers. This issue was acutely seen in our first financial quarter, after which volumes stabilised. However, the damage was done to the year's result, since it is not easy in aerospace to replace lost volume quickly. Therefore, divisional restructuring plans were accelerated to mitigate the damage and the benefits of this action are anticipated to be seen in the financial year ended 31 May 2016. The division sustained its leadership position in the aerospace pipes market niche.

Operations (continued)

Aerospace Division (continued)

Despite the first half setback, we continued to invest in our new composite pipe technology and the prototypes we produced created a buzz at the Paris air show amongst customers and competitors alike. We secured further grant funding for composites technology in the period and continued our internal investment programme.

Prudent capital expenditure at Sigma continued, as we rolled out our new Epicor manufacturing IT systems, to underpin our aspiring world-class supplier status. Our OEM partners appreciate the improvements in quality, delivery and capability that our focus is bringing.

The Q1 blip drove down annual sales by 7%, to GBP35.9m, or an underlying 13%, when first year sales from RMDG are excluded, as compared to the prior year. Our order book is still strong, with new long term agreements secured with PFW/Airbus for A350 parts (worth GBP25m over 10 years) and with Sonaca (worth GBP5m over 5 years). These contracts help further diversify our customer portfolio, whilst also better balancing airframe vs engine applications.

Overall EBIT Aerospace margins were down significantly to 8%, driven by the Q1 destocking issue, losses at RMDG and our decision to continue with the composites investment programme. We expect to eliminate two of these three drag factors in the current financial year, so margins should rebound to prior levels. However, on-going investment in new technology is expected, since we see this as an essential longer-term differentiator.

Briefly summarising the main developments at the Aerospace sites:

-- Hinckley's performance was severely impacted by Q1 destocking events, though matters improved in the second half. Hinckley is becoming the pipe production centre of excellence for the division.

-- We exited the Derby site during the year and transferred its production to Hinckley and Swadlincote (RMDG). We will conclude the lease arrangements for this site in the current financial year.

-- Swadlincote (RMDG) had a challenging first year in the group and we have worked hard to stabilize volumes and margins there. As expected, the acquired business made a loss in the year of GBP0.3m.

-- Farnborough's performance continued to improve in the period and the site is consistently profitable. Delivery and quality are close to normal levels of aerospace customer requirements. This site joined the Sharing in Growth (SiG) programme in the year.

-- Chengdu's sales growth was curtailed by the associated Hinckley Q1 sales reduction, though output had stabilised by year-end. The capacity of the site will be increased this year, in anticipation of further customer demand and the need to expand pipe production in China.

-- Buckingham (Composites) saw development expenditure and investment and, therefore, losses increase in the period, as we focused on new customer development and new technology composite pipes. This technology is exciting and has applications in a number of sectors.

-- Sandiacre (C&H) had another strong and consistent year, with the barrel-type polishing equipment investment paying dividends and we anticipate further capital expenditure of this sort in the FY16 year.

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

(MORE TO FOLLOW) Dow Jones Newswires

September 30, 2015 02:01 ET (06:01 GMT)

Operational Key Performance Indicators (KPIs)

 
                                                                      2015   2014 
 
        *    Customer Quality - defect free deliveries (%)            99.3   99.3 
 
        *    Customer on time in-full deliveries (%)                  97.0   92.5 
 
        *    Annualised staff turnover (%)                            5.7    8.6 
 
        *    Health, Safety and Environment incidents per head per 
             annum                                                    0.1    0.2 
 

The divisional quality and delivery performance were sustained in the year, despite disruption coming from the implementation of new IT systems. Staff turnover reduced and is at an acceptable level for this type of business. Health and safety incidents showed a welcome positive trend.

The abrupt reduction in the oil price shattered the nascent recovery at Maloney. The prospect bank that we had been carefully nurturing evaporated, as customers delayed, or cancelled their investment decisions, in response to the sharp drop in expected returns. This reaction was quite universal, with relatively few projects surviving once the smoke cleared. In consequence, we took swift action to downsize the Maloney business and exit the Aldridge manufacturing site. The sale of the building was completed just after our year-end and we achieved a sale price for the freehold of GBP1.1m, net of costs.

Operations (continued)

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

The oil price shock meant that our growth intentions gave way to control of costs and the division scarcely grew at all, with revenue up by only 1% over the prior year. Although we still recorded a small loss for the year, the division did make a modest profit in the second half and the -1% EBIT overall was much improved over the previous twelve months. This loss included the anticipated on-going start-up costs at our Metalcraft China facility, where the build-up of MRI business from Siemens and others has been slower than we would like. Crown continued to grow and made a profit again, as transport infrastructure business gradually returned and as we worked on an exciting new product for a new customer in the recycling arena.

World energy consumption drivers continue to be positive overall, given increasing globalisation and the demographics of an ageing world population are encouraging for the medical imaging and diagnostics market. However, the most significant development for Metalcraft recently has been the award of the GBP47m /10 year contract with Sellafield Ltd to produce 3M3 (three-metre-cubed) boxes, for the storage of intermediate level nuclear waste. This contract was awarded with a parallel contract to another vendor. This represents the first step in a commercially significant programme by the UK government, under the auspices of the Nuclear Decommissioning Authority (NDA), to repackage the legacy nuclear waste for long term storage. Metalcraft is well-placed to be a key partner for Sellafield in this programme, over the next 30 years, during which time the total value of similar equipment required is likely to exceed GBP1bn, according to Sellafield's own estimates.

Summarising developments over the year at the Energy and Medical sites:

-- Metalcraft, Chatteris: business with Siemens and Cummins in the UK was steady. Site delivery and quality consistency improved and we began to see the initial growth of other repeat customers. Key customer Heatric (Meggitt) saw the downside of the oil price and hence, there was less business from them in the year. The site rolled out the Epicor IT systems and this has been bedding-in reasonably well over the last few months. The exciting nuclear decommissioning contract win from Sellafield will result in site preparations in the current financial year, but very little volume of business, as the ramp up is quite slow. Further prospects in the sector are now in view.

-- Metalcraft, Chengdu: as previously reported, start-up losses have been higher than in our original plans for the facility, but they are predictable and containable, as we seek to win business from a broader customer set. In that respect, progress is heartening.

-- Maloney Metalcraft, Aldridge: as noted above, the oil price shock killed the prospects for the business and forced us into a rapid cost base rethink. Whilst some restructuring costs have spilled over into the new financial year, the project to reshape the business is proceeding well and the sale of the building just after year-end is an important piece of the plan to complete. A deal with the new owners of the building means that we are able to retain the engineering offices on a lease and thus avoid a disruptive relocation of the technical team. The win of the $3m Samsung Algerian gas field project in the second half proved that the sector is not dead - just hibernating.

-- Crown grew once more, with transport infrastructure sales increasing from a low base. There was also good progress with the first project for a new customer involved in the recycling market. Prospects for this technology seem very encouraging, thus broadening the strategic options for Crown.

Financial Performance

Key Performance Indicators

The Group uses a number of financial key performance indicators to monitor the business, as set out below.

Revenue: sales decline arrested in second half

Full year Group revenue was down by 4%, to GBP57.8m (2014: GBP60.3m). Aerospace saw a 7% decline, including the revenue from RMDG, driven by customer destocking in H1. Energy and Medical saw marginal 1% growth, with the oil price severely holding back the division's progress.

Profit: underlying margins stable on lower volumes

Adjusted EBITDA was down by 6% (note 2), to GBP5.3m (2014: GBP5.6m). Aerospace profits were held back by expected losses at RMDG and by the reduced first half revenue from customer destocking. Energy and Medical made a modest profit in H2, after making a small loss in the first half, thus recording a marginal loss for the year.

Gross margins were 25% (2014: 24%), holding up reasonably in adverse conditions.

Financial Performance (continued)

Tax: less favourable position this year

The effective rate of taxation was 5.3%, whereas 2014 was a 15.3% tax credit. During the year we benefited from the release of an IBA deferred tax liability on the Maloney site and have continued to benefit from Research and Development tax credits in the UK and losses utilised in China. The tax position will "normalise" in the coming years, though we anticipate some on-going benefits - e.g. R&D tax credits.

Earnings per Share (EPS): back to "normal"

With a less favourable tax position, adjusted diluted earnings per share declined by 26% to 10.1p pence per share (2014: 13.7 pence per share), based on 28.0 million shares (diluted weighted average).

Funding and Liquidity: Balance sheet still strong

The net cash inflow from operating activities was GBP1.6m (2014: GBP1.6m).

Net indebtedness (note 7) at year end stood at GBP5.9m (2014: Net indebtedness: GBP3.6m). Balance sheet gearing was 17% (2014: 11%). Although we should note that around half of the increase is attributable to the acquisition of RMDG assets from Tricorn plc in the period.

Dividend: steady progress

The Board again voted to underline our progressive dividend policy and we are pleased to be able to recommend at the AGM an improved final dividend of 2.0 pence per share (2014: 1.8 pence per share). This will be paid on 11 December 2015, to shareholders on the register at 6 November 2015.

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

People

During the year, we strengthened our leadership team, with the appointment of Les Thomas, the CEO of Ithaca Energy Inc, to the plc Board, underlining our commitment to the Energy market.

There were no other Board or top team management changes in the period, but we continued to reinforce our management teams in both divisions. Each of the businesses deepened its base of skilled engineering and technical personnel, with intellectual property development becoming more important to our future. Skills availability remains challenging, in a tightening labour market, but we do not expect to be unduly constrained by any shortages and we continue to invest in skills - e.g. through apprenticeships - at several locations. Both divisions significantly reduced headcount in the last year, following the oil price and aerospace destocking issues detailed elsewhere.

Outlook

The group is a niche engineering market leader in the Aerospace, Energy and Medical sectors. With attractive structural growth markets and durable customer relationships, we remain cautiously confident about the future of Avingtrans. The oil price shock has shown that we can cope well with downturns and we have the agility and credibility to switch to other pertinent markets to sustain our businesses. In particular, prospects for Civil Aerospace and Nuclear Decommissioning are highly attractive.

Our strategy continues to produce significant new business wins that support our results and provide good visibility of longer term earnings. We have an excellent customer base which we can build upon and differentiated product niches to exploit. We remain well placed to benefit from further market consolidation.

(MORE TO FOLLOW) Dow Jones Newswires

September 30, 2015 02:01 ET (06:01 GMT)

The RMDG acquisition again emphasised our intention to build shareholder value through targeted merger and acquisition activity. Although we cannot state that this will result in any further transactions during the current financial period, we will pursue further opportunities to enhance long-term value.

Sigma and Metalcraft are clear leaders in their chosen niche markets, providing customers with consistent quality as part of a world class supplier journey. Our growing Chinese presence is providing a crucial competitive advantage. Investors are asked to endorse our strategy and join us in developing a great British engineering story. As ever, we are grateful for your support.

 
 Roger McDowell      Steve McQuillan           Stephen King 
 Chairman            Chief Executive Officer   Chief Financial Officer 
 29 September 2015   29 September 2015         29 September 2015 
 
 
Consolidated Income Statement 
 for the year ended 31 May 2015                                     Note       2015       2014 
                                                                            GBP'000    GBP'000 
 
Revenue                                                                1     57,819     60,265 
 
Cost of sales                                                              (43,297)   (45,808) 
                                                                          ---------  --------- 
 
  Gross profit                                                               14,522     14,457 
 
Distribution costs                                                          (1,226)    (1,266) 
Share based payment expense                                                    (43)       (46) 
Acquisition costs                                                              (68)      (171) 
Restructuring costs                                                           (360)      (269) 
Start up costs - China                                                        (450)      (318) 
Amortisation of intangibles from business combinations                        (137)      (137) 
Other administrative expenses                                              (10,156)   (12,181) 
                                                                          ---------  --------- 
 
Total administrative expenses                                              (11,214)   (13,122) 
Bargain purchase on acquisition                                        5          -      2,615 
                                                                          ---------  --------- 
 
Operating profit                                                       1      2,082      2,684 
 
Finance income                                                                    1          8 
Finance costs                                                                 (212)      (166) 
                                                                          ---------  --------- 
 
  Profit before taxation                                                      1,871      2,526 
Taxation                                                               3      (100)        388 
Profit for the financial year attributable to equity shareholders             1,771      2,914 
                                                                          =========  ========= 
 
Earnings per share: 
From continuing operations 
- Basic                                                                4       6.4p      10.6p 
- Diluted                                                              4       6.3p      10.4p 
                                                                          =========  ========= 
 
 

Consolidated statement of Comprehensive income

 
                                                                                     2015      2014 
                                                                                  GBP'000   GBP'000 
 
Profit for the year                                                                 1,771     2,914 
Other comprehensive income for the year, net of tax: 
Items that may/will subsequently be reclassified to profit or loss 
Exchange differences on translation of foreign operations                             395     (357) 
 
  Total comprehensive income for the year attributable to equity shareholders       2,166     2,557 
                                                                                 ========  ======== 
 
 
Consolidated statement of changes in equity 
 at 31 May 2015 
                                         Capital 
                                 Share   redemp-              Trans- 
                       Share   premium      tion    Merger    lation      Other    Invest-ment in    Retained 
                     capital   account   reserve   reserve   reserve   reserves        own shares    earnings    Total 
                     GBP'000   GBP'000   GBP'000   GBP'000   GBP'000    GBP'000           GBP'000     GBP'000  GBP'000 
 
At 1 June 2013         1,353    10,305       814       402     (240)        180             (597)      18,298   30,515 
Ordinary shares 
 issued                   26       513         -         -         -          -                 -           -      539 
Dividends paid             -         -         -         -         -          -                 -       (599)    (599) 
Investment in own 
 shares                    -         -         -         -         -          -             (403)           -    (403) 
Share-based 
 payments                  -         -         -         -         -          -                 -          46       46 
                   ---------  --------  --------  --------  --------  ---------  ----------------  ----------  ------- 
Transactions with 
 owners                   26       513         -         -         -          -             (403)       (553)    (417) 
 
Profit for the 
 year                      -         -         -         -         -          -                 -       2,914    2,914 
 
Other 
comprehensive 
income 
Exchange loss              -         -         -         -     (357)          -                 -           -    (357) 
                   ---------  --------  --------  --------  --------  ---------  ----------------  ----------  ------- 
Total 
 comprehensive 
 income for the 
 year                      -         -         -         -     (357)          -                 -       2,914    2,557 
                   ---------  --------  --------  --------  --------  ---------  ----------------  ----------  ------- 
Balance at 31 May 
 2013                  1,379    10,818       814       402     (597)        180           (1,000)      20,659   32,655 
                   =========  ========  ========  ========  ========  =========  ================  ==========  ======= 
 
 
At 1 June 2014         1,379    10,818       814       402     (597)        180           (1,000)      20,659   32,655 
Ordinary shares 
 issued                    6        55         -         -         -          -                 -           -       61 
Dividends paid             -         -         -         -         -          -                 -       (740)    (740) 
Share-based 
 payments                  -         -         -         -         -          -                 -          43       43 
                   ---------  --------  --------  --------  --------  ---------  ----------------  ----------  ------- 
Transactions with 
 owners                    6        55         -         -         -          -                 -       (697)    (636) 
 
Profit for the 
 year                      -         -         -         -         -          -                 -       1,771    1,771 
 
Other 
comprehensive 
income 
Exchange gain              -         -         -         -       395          -                 -           -      395 
                   ---------  --------  --------  --------  --------  ---------  ----------------  ----------  ------- 
Total 
 comprehensive 
 income for the 
 year                      -         -         -         -       395          -                 -       1,771    2,166 
                   ---------  --------  --------  --------  --------  ---------  ----------------  ----------  ------- 
Balance at 31 May 
 2015                  1,385    10,873       814       402     (202)        180           (1,000)      21,733   34,185 
                   =========  ========  ========  ========  ========  =========  ================  ==========  ======= 
 
 
Consolidated Balance Sheet 
 at 31 May 2015                                                    2015        2014 
                                                                GBP'000     GBP'000 
Non current assets 
Goodwill                                                          9,557       9,557 
Other intangible assets                                           3,442       2,691 
Property, plant and equipment                                    11,861      12,607 
Deferred tax                                                         64          83 
Available for sale financial assets                                   -           - 
                                                             ----------  ---------- 
                                                                 24,924      24,938 
Current assets 
Inventories                                                      10,733      11,071 
Trade and other receivables                                      19,030      17,740 
Current tax asset                                                   277         104 
Cash and cash equivalents                                         6,337       7,204 
                                                             ----------  ---------- 
                                                                 36,377      36,119 
Assets held for sale                                                631           - 
                                                             ----------  ---------- 
Total assets                                                     61,932      61,057 

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                                                             ==========  ========== 
 
Current liabilities 
Trade and other payables                                       (14,338)    (15,811) 
Obligations under finance leases                                  (695)       (773) 
Borrowings                                                      (8,357)     (6,436) 
Current tax liabilities                                           (334)       (129) 
Provisions                                                            -       (689) 
Total current liabilities                                      (23,724)    (23,838) 
                                                             ==========  ========== 
 
Non current liabilities 
Borrowings                                                      (2,434)     (2,267) 
Obligations under finance leases                                  (765)     (1,314) 
Deferred tax                                                      (824)       (983) 
                                                             ----------  ---------- 
Total non-current liabilities                                   (4,023)     (4,564) 
                                                             ----------  ---------- 
 
Total liabilities                                              (27,747)    (28,402) 
                                                             ==========  ========== 
 
Net assets                                                       34,185      32,655 
                                                             ==========  ========== 
 
Equity 
Share capital                                                     1,385       1,379 
Share premium account                                            10,873      10,818 
Capital redemption reserve                                          814         814 
Merger reserve                                                      402         402 
Translation reserve                                               (202)       (597) 
Other reserves                                                      180         180 
Investment in own shares                                        (1,000)     (1,000) 
Retained earnings                                                21,733      20,659 
Total equity attributable to equity holders of the parent        34,185      32,655 
                                                             ==========  ========== 
 
 
 
Consolidated Cash Flow Statement 
 for the year ended 31 May 2015                                 Note       2015       2014 
                                                                        GBP'000    GBP'000 
Operating activities 
Cash flows from operating activities                                      1,832      1,787 
Finance costs paid                                                        (213)      (166) 
Income tax repaid/(paid)                                                     27       (71) 
                                                                      ---------  --------- 
Net cash inflow from operating activities                                 1,646      1,550 
                                                                      ---------  --------- 
 
Investing activities 
Acquisition of subsidiary undertakings , net of cash acquired    5      (1,137)      2,039 
Finance income                                                                1          8 
Purchase of intangible assets                                           (1,582)    (1,275) 
Purchase of property, plant and equipment                                 (832)    (2,992) 
Proceeds from sale of property, plant and equipment                         103        320 
                                                                      ---------  --------- 
Net cash used by in investing activities                                (3,447)    (1,900) 
 
Financing activities 
Equity dividends paid                                                     (740)      (599) 
Repayments of bank loans                                                  (440)      (680) 
Repayments of obligations under finance leases                            (901)      (786) 
Proceeds from issue of ordinary shares                                       61        137 
Borrowings raised                                                         1,875      1,188 
                                                                      ---------  --------- 
Net cash outflow from financing activities                                (145)      (740) 
 
Net decrease in cash and cash equivalents                               (1,946)    (1,090) 
Cash and cash equivalents at beginning of year                            1,428      2,681 
Effect of foreign exchange rate changes on cash                             157      (163) 
                                                                      ---------  --------- 
Cash and cash equivalents at end of year                                  (361)      1,428 
                                                                      ---------  --------- 
 

Cash flows from operating activities:

for the year ended 31 May 2015

 
                                                         2013     2014 
                                                      GBP'000  GBP'000 
Continuing operations 
Profit before income tax from continuing operations     1,871    2,526 
Adjustments for: 
Depreciation                                            1,438    1,229 
Amortisation of intangible assets                         831      891 
Profit on disposal of property, plant and equipment     (102)    (261) 
Finance income                                            (1)      (8) 
Finance expenses                                          212      166 
Research and Development Expenditure Credit             (235)        - 
Share based payment charge                                 43       46 
Bargain purchase on acquisition (note 5)                    -  (2,615) 
 
Changes in working capital 
Decrease/(increase) in inventories                      1,128    (146) 
(Increase)/decrease in trade and other receivables    (1,192)    1,564 
Decrease in trade and other payables                  (1,477)  (1,611) 
Decrease in provisions                                  (689) 
Other non cash changes                                      5        6 
Cashflows from operating activities                     1,832    1,787 
                                                      =======  ======= 
 

Notes to the Preliminary Statement

31 May 2015

   1             Segmental analysis 
 
                                            Energy  Unallocated 
                                               and      Central 
Year ended 31 May 2015         Aerospace   Medical        Items     Total 
                                 GBP'000   GBP'000      GBP'000   GBP'000 
 
Revenue                           35,858    21,961            -    57,819 
                               =========  ========  ===========  ======== 
 
Operating profit/(loss)            2,748     (177)        (489)     2,082 
Net finance costs                                                   (211) 
Taxation                                                            (100) 
                                                                 -------- 
 
  Profit after tax                                                  1,771 
                                                                 ======== 
 
Segment non-current assets        14,286    10,638            -    24,924 
Segment assets                    35,631    22,162        4,139    61,932 
                               ---------  --------  -----------  -------- 
 
Segment liabilities             (14,975)   (9,960)      (2,812)  (27,747) 
                               ---------  --------  -----------  -------- 
 
Net assets                        20,656    12,202        1,327    34,185 
                               =========  ========  ===========  ======== 
 
Non-current asset additions 
Intangible assets                  1,243       339            -     1,582 
Tangible assets                      796       390            -     1,186 
                               ---------  --------  -----------  -------- 
                                   2,039       729            -     2,768 
                               =========  ========  ===========  ======== 
 
 

Aerospace results include a business combination acquiring certain of the trade and assets of RMDG Limited (note 5) which contributed GBP2,314,000 and a loss of GBP275,000 to Group revenue and profit after tax respectively.

 
                                            Energy  Unallocated 
                                               and      Central 
Year ended 31 May 2014         Aerospace   Medical        items     Total 
                                 GBP'000   GBP'000      GBP'000   GBP'000 
 
Revenue                           38,528    21,737            -    60,265 
                               =========  ========  ===========  ======== 
 
Operating profit/(loss)            4,350   (1,243)        (423)     2,684 
Net finance costs                                                   (158) 
Taxation                                                              388 
                                                                 -------- 
 
  Profit after tax                                                  2,914 
                                                                 ======== 
 
Segment non-current assets        14,419    10,519            -    24,938 
Segment assets                    35,400    21,947        3,710    61,057 
                               ---------  --------  -----------  -------- 
 
Segment liabilities             (14,211)  (10,871)      (3,320)  (28,402) 
                               ---------  --------  -----------  -------- 
 
Net assets                        21,189    11,076          390    32,655 
                               =========  ========  ===========  ======== 
 
Non-current asset additions 

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Intangible assets                    881       394            -     1,275 
Tangible assets                    1,302     1,690            -     2,992 
                               ---------  --------  -----------  -------- 
                                   2,183     2,084            -     4,267 
                               =========  ========  ===========  ======== 
 

Energy and Medical results includes the acquisition of the Exterran UK limited (renamed Maloney Metalcraft) which contributed GBP6,686,000 and GBP2,195,000 to Group revenue and loss after tax respectively, which was offset above by the GBP2,615,000 bargain purchase on acquisition (note 5).

Notes to the Preliminary Statement (continued)

31 May 2015

Geographical

 
                       2015     2014         2015         2014 
                                      Non-current  Non-current 
                    Revenue  Revenue       assets       Assets 
                    GBP'000  GBP'000      GBP'000      GBP'000 
 
United Kingdom       52,998   54,416       21,388       21,737 
Europe                6,248    5,488            -            - 
North America           895      896            -            - 
Rest of World         3,987    3,614        3,536        3,201 
Eliminations        (6,309)  (4,149)            -            - 
                     57,819   60,265       24,924       24,938 
                  =========  =======  ===========  =========== 
 

The Group has Aerospace revenue of GBP12,744,000 (2014: GBP13,314,000) and Energy & Medical revenue of GBP7,228,000 (2014: GBP7,597,000) with single external customers under common control, which each represent more than 10% of the Group's revenue.

   2              Adjusted Earnings before interest, tax, depreciation and amortisation 
 
                                                                                                  2015     2014 
                                                                                               GBP'000  GBP'000 
 
Profit before tax                                                                                1,871    2,526 
Share based payment expense                                                                         43       46 
Acquisition costs                                                                                   68      171 
Restructuring costs                                                                                360      269 
Start up costs - China                                                                             450      318 
Amortisation of intangible assets from business combinations                                       137      137 
                                                                                               -------  ------- 
Adjusted profit before tax                                                                       2,929    3,467 
 
Finance income                                                                                     (1)      (8) 
Finance cost                                                                                       212      166 
                                                                                               -------  ------- 
Adjusted Earnings before interest, tax and amortisation from business combinations ('EBITA')     3,140    3,625 
 
Depreciation                                                                                     1,438    1,229 
Amortisation of other intangible assets                                                            694      754 
Adjusted Earnings before interest, tax, depreciation and amortisation ('EBITDA')                 5,272    5,608 
                                                                                               =======  ======= 
 

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

   3             Taxation 
 
                   2015      2014 
                GBP'000   GBP'000 
 
Current tax         240     (214) 
Deferred tax      (140)     (174) 
                    100     (388) 
               ========  ======== 
 

Notes to the Preliminary Statement (continued)

31 May 2015

   4             Earnings per ordinary share 
 
                                                                 2015        2014 
                                                               Number      Number 
 
Weighted average number of shares - basic                  27,643,480  27,363,979 
Share option adjustment                                       343,457     716,303 
Weighted average number of shares - diluted                27,986,937  28,080,282 
                                                          ===========  ========== 
                                                                 2015        2014 
                                                              GBP'000     GBP'000 
 
Earnings from continuing operations                             1,771       2,914 
Share-based payments                                               43          46 
Restructuring costs                                               360         269 
Start up costs - China                                            450         318 
Acquisition costs                                                  68         171 
Amortisation of acquisition related intangibles                   137         137 
Adjusted post tax earnings attributable to shareholders         2,829       3,855 
                                                          ===========  ========== 
 
Basic earnings per share                                         6.4p       10.6p 
Adjusted basic earnings per share                               10.2p       14.1p 
Diluted earnings per share                                       6.3p       10.4p 
Adjusted diluted earnings per share                             10.1p       13.7p 
 
 

Notes to the Preliminary Statement (continued)

31 May 2014

   5              Acquisitions 

Business combination - Sigma Swadlincote

On 11 August 2014 the group acquired the trade and certain business assets and liabilities relating to the manufacture of aerospace components of RMDG Aerospace Ltd. The acquisition was made to enhance the Group's position in the aerospace market. The provisional net assets at the date of acquisition were as follows:

 
Fair value of assets and liabilities acquired    GBP'000 
 
Property, plant and equipment                        354 
Inventories                                          770 
Trade and other receivables                           17 
Trade and other payables                             (4) 
                                                 ------- 
Net assets                                         1,137 
Intangibles assets identified                          - 
Goodwill                                               - 
                                                   1,137 
                                                 ======= 
 
Fair value of consideration transferred: 
Cash                                               1,137 
                                                 ------- 
Consideration                                      1,137 
 
Cash acquired                                          - 
Acquisition costs charged to expenses                 68 
                                                 ------- 
Net cash paid relating to the acquisition          1,205 
                                                 ======= 
 

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

Acquisition costs arising from this transaction of GBP68,000 have been included in administration expenses before operating profit.

 
Since acquisition the assets acquired contributed the following to the Group's cashflows: 
                                                                                             GBP'000 
 
Operating cashflows                                                                            (395) 
Investing activities                                                                               - 
Financing activities                                                                               - 
 

Business combination - Maloney Metalcraft

On 3 July 2013 the Group acquired 100 percent of the issued share capital of Maloney Metalcraft Limited (formerly Exterran (UK) Limited). The acquisition of this business resulted in a gain on acquisition of GBP2,615,000 as a consequence of buying the business in a distressed state. The gain on bargain purchase was separately presented in the income statement before operating profit.

   6             Events after the balance sheet date 

On 1 July 2015 Maloney sold its freehold site for GBP1.1m net of costs resulting in a profit of GBP0.5m.

Notes to the Preliminary Statement (continued)

31 May 2015

   7             Net Debt and gearing 
 
The gearing ratio at the year-end is as follows:         2015        2014 
                                                      GBP'000     GBP'000 
 
Debt                                                 (12,251)    (10,790) 
Cash and cash equivalents                               6,337       7,204 
                                                   ----------  ---------- 
Net debt                                              (5,914)     (3,586) 
 
Equity                                                 34,185      32,655 
                                                   ----------  ---------- 
Net debt to equity ratio                                17.3%       11.0% 
                                                   ==========  ========== 
 
   8             Preliminary statement 

This preliminary statement, which has been agreed with the auditors, was approved by the Board on 29 September 2015. It is not the Group's statutory accounts within the meaning of Section 434 of the Companies Act 2006.

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