25th Feb 2015 09:25
LONDON (Alliance News) - Avingtrans PLC saw its shares drop Wednesday after it reported a sharp drop in pretax profit and revenue for the first half of its financial year as its aerospace unit was hit by customer programme reductions and its energy and medical division was hit by the sliding oil price.
Still, a large proportion on the pretax profit drop came after last year's result was bolstered by a GBP2.9 million gain, and its adjusted earnings before interest and tax rose thanks to lower costs.
The company reiterated that it would respond to the oil price fall by cutting headcount and shutting down one of its energy and medical manufacturing units.
The AIM-listed maker of components and modules for the aerospace, energy and medical sectors has been going through a transformation since it sold its industrial business in 2012, building up its remaining units through acquisitions. Some of the recent acquisitions have been of distressed companies that Avingtrans decided were a good fit with its existing niches, and it is in the process of turning them around.
The company said the short-term challenges to its business wouldn't sway it from its new long-term strategy.
Avingtrans reported a pretax profit of GBP259,000 for the six months to November 30, down from GBP2.9 million a year earlier when it had been boosted by the GBP2.9 million gain. Revenue declined to GBP27.5 million, from GBP32.2 million, although its adjusted earnings before interest and tax rose to GBP0.8 million, from GBP0.6 million thanks to a drop in distribution costs and administrative expenses.
The company had revised down its expectations for the year as a whole last November, warning of a downturn in demand in its aerospace arm and contract delays for its energy and medical business.
On Wednesday, it said the customer programme reductions in the aerospace arm were largely confined to the first half of the financial year, and it's now seeing stability returning in its mature business while new programmes were growing.
Its diversification of the aerospace unit had in November led to it winning a 10-year deal worth about GBP25 million to provide selected fabricated assemblies for the Airbus a350 widebody jet programme.
In its energy and medical division, Avingtrans said the oil price decline - Brent oil is currently trading at about USD58 a barrel compared with over USD115 a barrel last June - had hit prospects for its Maloney business with projects being delayed or cancelled.
It is now restructuring the division and will close its Aldridge manufacturing plant, relocating the operations to its Chatteris plant. It will sell the Aldridge site, which should help improve its cash position.
It generated GBP0.4 million of cash from operations in the first half, up from GBP0.1 million a year earlier, although net debt stood at GBP5.7 million at the end of the half, up from GBP3.6 million at the end of May.
"As part of the restructuring programme, we will see some one-off costs this year, including site closures, mergers and sales, to make us fitter for the future. Our faith in the Aerospace, Energy and Medical markets is undiminished and we are forging ahead with our strategy, despite short-term set-backs," Chairman Roger McDowell said in a statement.
Avingtrans said the ramp-up of its Metalcraft China operations is still proceeding slowly due to lower-than-expected demand from customer Siemens AG, but Crown's markets had continued to improve with over GBP2 million of new orders booked in the half.
The company raised its interim dividend to 1.0 pence a share, up from 0.9p last year, a move said reflected its confidence in its full-year expectations.
Back in November the company had predicted that profit and revenue for the year to the end of May 2015 would be flat year-on-year, excluding revenue and losses from the acquisition of RMDG Aerospace from Tricorn Group PLC in August. At that time, it had expected to take a GBP0.6 million hit from planned cost reductions it intended to carry out.
"Aerospace volumes have now stabilised and the oil sector forecast can't get materially any worse for us, so we anticipate an improved result in the second half," the company said on Wednesday.
"The end result of the restructuring activity will be a headcount reduction of over 10% across the group, with fewer sites and an improved cost base," it added.
Avingtrans shares were down 11.7% at 102.00 pence Wednesday morning, representing its lowest level since the company's profit warning in late November. It is also one of the worst-performing stocks in the AIM All-Share index on the day.
This came despite Numis raising its recommendation on the stock to Add, from Hold. FinnCap said it was keeping a Buy rating on the stock because the interim results were "satisfactory" and places the group on track to meet its full-year forecasts.
FinnCap has a 135 pence price target on the stock and Numis a 138 pence target.
By Steve McGrath; [email protected]; @stevemcgrath1
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