Avon Protection pleased with second half despite armour headwinds

Avon Protection reported a “strong” second half recovery in its preliminary results on Tuesday, as its order intake slipped to $280.1m from $282.7m year-on-year.

The London-listed firm said that performance reflected the first order of $42.1m from the US Army for the ‘Next-Generation Integrated Head Protection System’ (NG IHPS) helmet, as well as a “strong underlying demand environment” with the NSPA contract, facilitating delivery of personal protection to NATO countries.

Revenue rose 9.1% on the year for the 52 weeks ended 1 October, to $271.9m, while adjusted EBITDA slid 38.5% to $25.5m.

Adjusted basic earnings per share were 72.9% lower at 20.4 cents.

Avon reported “notable growth” in UK and international market revenue of 84.2%, or 88.9% on an organic constant currency basis, and of 4.6% in commercial Americas, offsetting a 21.2% decline in US Department of Defence revenue.

The company’s adjusted EBITDA margin narrowed to 9.4% from 15.1%, which the company said reflected a combination of product mix shift and operational challenges, including supply chain issues, with a second half margin of 12.9% following an improvement in product mix and manufacturing efficiencies.

Its adjusted EBITDA margin, excluding armour, fell to 14.7% from 19%.

Cash conversion in the year came in at 142.7%, which the board said reflected “tight control” over working capital, while net debt excluding lease liabilities was $44.2m, with leverage 1.99x bank-adjusted EBITDA.

The board recommended a final dividend of 30.6 cents per share, unchanged year-on-year which together with the 14.3 cent interim dividend made for an unchanged total dividend of 44.9 cents.

Looking at the new financial year, Avon reported an opening order book of $151.3m, providing “good visibility” going into the new financial year.

It said its first quarter performance to-date was in line with expectations, with mid-single-digit revenue growth excluding armour driven by the start of NG IHPS deliveries and growth in global head protection, offsetting “modest declines” in European respiratory following a “very strong” 2022.

Revenue from armour was expected to total between $28m and $30m, while its adjusted EBITDA margin on an excluding-armour basis was set to be consistent with 2022, with new product introduction costs and inflationary pressures “largely offsetting” efficiency improvements and overhead savings.

Armour would continue to be a headwind for reported results, although Avon said it expected to have fully withdrawn from the armour market by the end of the 2023 financial year, with an EBITDA margin including armour above 2022.

Revenue and earnings were set to reflect a “normal weighting” towards the second half, with a further improvement in the leverage position expected.

“We are pleased to be announcing results this morning which reflect solid order intake and a much-improved operational performance in the second half,” said executive chair Bruce Thompson.

“We have made good progress in 2022 preparing for a new chapter of growth and future value generation, including restructuring some areas of the business and resolving legacy execution issues.”

Thompson said importantly, earlier in the year Avon recruited Rich Cashin as chief financial officer and, more recently, Jos Sclater as its new chief executive.

“There is a significant long-term growth opportunity for Avon.

“The demand for our world-leading respiratory and head protection systems is as strong as ever, and we remain focused on protecting those who protect us with our innovative solutions.”

At 0958 GMT, shares in Avon Protection were down 2.26% at 1,169.02p.

Reporting by Josh White for Sharecast.com.