Avingtrans plc (LON:AVG) Chief Executive Officer Steve McQuillan caught up with DirectorsTalk to discuss interim results, the performance of the main divisions, their medical division, stronger than average order book and what investors can expect in the coming year from the company.
Q1: First off, congratulations on a strong set of interim results. Steve, can you take us through the financial highlights please?
A1: There’s a few key things to pick up on there. There’s the fact that the overall revenue for Avingtrans went up to £50 million in the first half of this year, which is up over 10% in comparison to the previous half year last year. Similarly, the adjusted profit, adjusted EBITDA went up £6.4 million, which is again more than 10% above where we were last year so that’s a good strong performance.
The EBITDA margin stayed pretty flat, nearly 30% for both halves, that’s good news because if we think about all the inflationary pressures we’ve been seeing and wages, energy, manufacturing costs, that’s really good we’ve managed to stay stable there. So, we’re pretty pleased with that.
We’ve also seen a good retention on cash so we’ve come out of the half year with still over £17 million in net cash positions so we’re happy with that, and we’ve continued with our progressive policy around dividends so up 6% to £1.7 million.
So, overall, as you say, a good solid half, we’re quite happy with it against quite a challenging backdrop, particularly with supply issues that are ongoing but we’re managing to work our way through those and keep it going.
Q2: Could you give us brief a breakdown of the main divisions and how they are performing?
A2: So, to remind everybody, we’ve got three divisions. We’ve got the EPM division, which is mainly Hayward Tyler and Energy Steel, we’ve got the PRSE division which is Booth, Ormandy, Metalcraft and Composites Products and then we’ve got the smaller medical division which is our three businesses under Magnetica branding. The two big divisions are EPM and PRSE, they’ve been roughly similar in size and they’re both concerned with energy.
EPM had a really good first half, they’ve seen increasing orders coming in across the piece, in fact, interestingly the OEM orders outpaced aftermarket increases first half, which is unusual but welcome, both went up but OEM orders went up more than aftermarket. So, good performance from them.
A strong performance from PRSE as well, half on half it was relatively flat in terms of turnover and profit but in fact, that follows a strong jump in profits last year by PRSE. Again, with the inflationary pressures we’re seeing, it’s good to see them able to hang on to the margins, that we’ve managed to increase on the previous year so quite happy with the performances of both of those.
Medical Magnetica is a different ballgame, we’ll come back to that I think, but that’s a effectively a start-up so the sales are relatively small and its currently making some losses because we’re developing some new products. That is as expected and, from the point of view of the performance for the half, we’re happy with it but it’s all about the future with Magnetica, and an associated business called Adaptix which I’m sure we’ll come back to.
Q3: Let’s look at the medical division, you’ve been quite active there and you say it has ‘exciting potential’. Can you tell us more about that?
A3: Magnetica is a business which is working on novel disruptive MRI technology, we’re working to produce a new type of MRI product which is a much smaller format, compact, and with no liquid helium. That means you’re reducing infrastructure costs dramatically and you reduce the cost of the product.
You can only then use it for certain applications and the big target for us is orthopaedics so you can stick your leg down it or your arm, about 20% of MRI procedures are orthopaedics so they can work with that very small system. You can put those smaller systems into orthopaedics clinics which you would never find a full scale MRI system, hardly ever, anywhere in an orthopaedic clinic. These smaller format systems are ideally suited to that.
Magnetica is about a year away from launching that product, they should launch it at the end of this calendar year, and then we’re hoping to get their approval to sell the product from the FDA in America in the next few months after that so sometime during the course of next year, FY24, we expect to be selling our Magnetica products in America which is our big target.
Similarly, we have a key investment in a disruptive 3D Xray technology called Adaptix, based in Oxford, we invested another £2 million in that business by way of a loan note just after the end of the half, taking our total investment there to £6 million.
Adaptix are working on exactly the same pathway as Magnetica, as I say they’re on X-ray rather than MRI so the two systems are very complimentary. Very much like Magnetica, they have a much smaller format system which can be put into locations that you wouldn’t normally put a full scale system into, that means they can disrupt that market. They’re following the same target as Magnetica, orthopaedics, they launched that product late last year and they now have their FDA approval to sell that product in America so they are gearing up to commences those sales in America as we speak.
They’ve also started selling a veterinary product in the US and the UK and they’re starting to see some good responses from vets for that product so both businesses making really good progress, only the start of the journey but already making good progress towards the goal of launching these disruptive products into the marketplace.
Q4: You stated that the order book is stronger than average across the Group, why do you think that is?
A4: There’s some big contracts that are already in the bag that have been there for a while like the Booth £36 million contract for blast doors for HS2 rail project, and like the Sellafield three-metre-cube boxes so they’re big multi-year contracts, already there.
What we’ve seen in addition are two things, one is that following the Russia/Ukraine conflict, governments around the world, people around the world are much more interested in keeping nuclear assets going so we’re seeing a lot of activity, particularly in the EPM division around life extension of nuclear assets. So, more aftermarkets, spaces, repairs for nuclear power stations.
The other key thing we’re seeing is more activity in oil and gas, following the UK government’s windfall tax on oil and gas operators in the North Sea. Those guys are motivated and incentivised to upgrade to refurbished or even to make new investments in the North Sea and we’ve certainly seen activity go up a far bit from that activity. I think that’ll continue, certainly for the next couple of years.
Those are two of the bigger drivers, in addition to the existing big long term contracts that we’ve already got in the bag.
Q5: You’ve touched on the medical division, but just looking forward, what can investors expect from Avingtrans this year?
A5: Well, apart from hopefully more news as we progress during the year for medical, I think hopefully more of the same is what I’d like to see in that we deliver for the full year numbers as expected, that we see increasing new orders coming into the business across the piece and maybe like to see some acquisitions. We made a small one into Ormandy just after the half , just under £1 million in total, and we may well be seeing some more acquisitions as we go forward.
The market conditions for us for acquisitions, you’d think are pretty good for a business like us, that looks for businesses in trouble and tries to improve them, but we’re only going to buy things if it makes sense strategically, we’re not just picking up things for the sake of it.
So, the money we’ve got isn’t burning a hole in our pocket, if we don’t find anything good to use it on, we’ll keep it for a better target later but it could well be the case that we find good targets over the course of this year and we look to strengthen the portfolio further.