Post Close Half Year Trading Update

Avon Protection plc ("Avon Protection" or "the Group") today provides the following trading update for the six months ended 31 March 2022 ("HY22" or the "Period"). Unless otherwise stated, figures and commentary exclude the armor business.

Trading update

Trading in the first half reflects a continuation of some of the challenges seen in FY21, but with performance accelerating through the second quarter.  Order intake was, as expected, lower than the comparable period last year reflecting a very strong first half in 2021, but, following the events in Ukraine, enquiries remain robust giving us confidence in order intake for the second half and beyond.  Revenue for the Period was in line with expectations and ahead overall by c. 4%, with organic year-on-year performance broadly flat.

Profitability has however been impacted, in broadly even proportions, by a weaker than expected sales mix in the first half and additional manufacturing costs, notably in the helmets business, due to supply chain and process inefficiencies.  As a result, the adjusted EBITDA margin for the period is expected to be approximately 10%.

Operationally, we have made good progress on the implementation of the $15m overhead cost saving programme announced in December 2021 (of which approximately half relates to overheads in the armor business and the remainder relates to the rest of the Group), including the closure of one of our U.S. offices and a change in management structure which streamlines the organisation into one focussed business.

Strategically, we are pleased with our continued progress, which includes the award of the U.S. DLA contract for the second-generation Advanced Combat Helmet in February and delivery of the next-generation Integrated Head Protection System for first article test scheduled for Q3. This momentum further reinforces our position as a leading provider of head protection to the U.S. military and provides a strong platform for future growth.

Outlook

The recent events in Ukraine have highlighted the criticality of our products and capabilities, and we have seen a notable increase in customer enquiry activity.

We have a number of active discussions ongoing with customers regarding potential incremental orders across both respiratory and helmet products. While these discussions remain ongoing and the quantum and timing of resultant orders are still to be determined, the impact of this growth in demand is most likely to be seen in FY23 and beyond, and as such the Board continues to have a range of expected full year revenue outcomes for FY22 consistent with market expectations.  

Profitability in H2 is expected to improve versus H1 but will not offset the weakness experienced in the Period. Full year underlying earnings will therefore be lower than previously expected.

The second half margin will benefit from the adverse mix impact substantially unwinding along with the operational gearing effect of higher revenues and the initial contribution from the cost saving initiatives. The manufacturing inefficiencies described above are expected to improve as higher volumes are achieved. As a result, the Board expects EBITDA margins to recover progressively through the second half of the financial year and beyond, with the extent of this improvement in part dependent on the quantum and timing of incremental orders. Looking forward into FY23, the Group's profitability will benefit from the improved FY22 exit run-rate and the full year effect of the cost savings.

Armor business

In the period, as expected, armor revenues were in the low single digit $m pending final sign-off of first article testing of the DLA ESAPI body armor product. Combined with overheads, this business therefore operated at an EBITDA loss in the first half. We have continued with our steps for an orderly exit of this business once existing contracts are satisfied.

Commenting, Paul McDonald, Chief Executive Officer, said:

"At Avon Protection, our purpose is to protect people and save lives.  As a global leader in military-grade respiratory and head protection, we are seeing an increased demand for our products for both the short and longer term. We are working proactively with our key customers to confirm their requirements and maximise our available capacity in the short term. Longer term, this will create further opportunities and will likely result in mid-term capacity expansion to meet expected demand."