• defensive market leadership with high barriers to entry;
• strong and relevant technology;
• a supply chain that supports long-term, partnership-type relationships;
• customers in dynamic end-markets, with opportunities to promote superior organic growth and/or sector consolidation; and
• profitable, sustainable growth with an appropriate return on capital.

When evaluating potential transactions, Cinven takes a highly selective approach and focuses mainly on businesses with strong recovery potential.

Most industrial companies in Europe are facing major challenges due to current macroeconomic conditions. During the downturn, industrial growth rates and levels of confidence reached historic lows. Growth and confidence now look set to recover, if slowly, but the outlook varies greatly according to the end-markets and regions served.

What most European industrial businesses have in common is the continuing need to control costs in order to compete with lower-cost economies, such as those in Central and Eastern Europe and Asia. Our Industrials sector team works closely with Cinven's Hong Kong office, which enables our portfolio companies to benefit from its expertise and contacts in Asia, usually through initiatives to reduce costs, penetrate new markets and improve operations.

We expect investment opportunities to emerge within the sub-sectors that are usually the first beneficiaries of an upturn in the economic cycle. Looking further ahead, our Industrials sector team maps long-term growth trends – such as demographic change, resource scarcity, climate change and investment in infrastructure – to help us identify the industrial businesses that will rise to prominence in future.

Avio continued to perform well in 2009, despite difficult market conditions in its core civil aerospace market. To the end of December 2009, sales were 2.7% higher than in 2008 at €1.7 billion while profits (EBITDA*) were up 4.5% at €311 million. Avio's civil aerospace business was sustained by its substantial backlog of orders, while the military, space and energy and industrials divisions did well as a result of higher volumes and prices, as well as favourable exchange rate movements.

Avio is one of the world's leading designers and manufacturers of components and systems for commercial, military and space launch engines. Its activities include jet derivative engines and automation systems for naval and industrial applications, power generation, and a maintenance, repair and overhaul operation for civil and military clients. The company has a strong, defensible market position due to its technological lead in key areas, long-term contracts and a balanced business, which is spread across five main areas of operations.

Cinven acquired the company in December 2006. Since the acquisition, we have worked with the management team to promote Avio's growth and profit margins through a programme of investment and operational improvements. Although market conditions are challenging, backlogs for both civil and military aircraft remain high, and the outlook for the space and energy and industrials divisions is positive.

Cinven and the management team, led by a new CEO, are closely monitoring the potential impact of reduced civil air traffic, a tighter market for aircraft financing and pressure on defence and space budgets. Among Cinven's initiatives to mitigate the effects of any further downturn, Avio's core market is the 'Profit and Cash Protection Plan', which is already producing results. Avio achieved cost savings of €25 million in 2009.

^* EBITDA: earnings before interest, taxes, depreciation and amortisation