“Full year performance in line with expectations, with a stronger H2 reflecting good strategic progress”
Avon Protection announces a trading update for the financial year ended 30 September 2023 (“FY 2023”) ahead of the publication of its Year End Results on 21 November 2023.
Full year trading in line with the Board’s expectations
As expected, trading in the second half of 2023 was stronger than in the first half, with order book growth and higher underlying earnings.
The order book as at 30 September 2023 showed growth of over 10% compared to the prior year, with strong demand for helmets offsetting expected softness in Respiratory demand. We now have $59m of outstanding orders for Next Generation Integrated Head Protection System (“NG IHPS”) helmets and have recently received a further delivery order valued at over $7m for the Advanced Combat Helmet GEN II (“ACH GEN II”), bringing total outstanding orders for this helmet to over $20m.
As expected, revenue excluding armour in the second half was significantly above the first half, driven by the successful ramp up of the NG IHPS programme, encouraging sales of the new EPIC range of helmets and shipment of a previously announced large mask order.
H2 adjusted operating profit margin is broadly flat versus H1, with some early benefits from the strengthen and transform initiatives within our STAR strategy offsetting the mix effect of strong growth in the lower margin Head Protection business.
Net debt:EBITDA on a covenant basis at the end of FY 2023 is expected to have reduced to around 2.0 times, compared to 2.6 times at the end of H1 2023. This improvement is the result of our successful exit from the Armour business and the improved profitability in the second half of the year.
The year end net debt position on a covenant basis is now expected to be approximately $65m, as a result of the timing of cash receipts from the shipment of several large orders in the last month of the financial year. We expect the receivables associated with these orders to be paid during the first quarter of the 2024 financial year, which will further reduce net debt by up to $20m.
Good strategic and operational progress with our STAR strategy
The Group has continued to make good progress with the STAR strategy set out at the time of the Half Year Results. In particular, significant progress has been made in the detailed planning of the STAR strategic initiatives, which has confirmed that there is an excellent opportunity to grow the top line, improve margins and deliver strong cash generation and attractive returns on capital.
More broadly, there are several key proof points that have been achieved during the second half which speak to the Group’s strategic progress and operational improvement.
- All outstanding armour products have now been delivered to our customers, and we therefore expect the Armour business to be classified as discontinued for FY 2023. This means that we now have a more profitable and focused business and a stronger platform for future growth.
- We have delivered over 10,000 NG IHPS helmets to the customer in line with our plan for H2 2023, with our initiatives to strengthen the Irvine and Salem plants resulting in significantly more reliable operational performance.
- We have received a further delivery order for the ACH GEN II helmet valued at over $7m, illustrating the DOD’s confidence in our ability to deliver that programme.
- Following the launch of the EPIC helmet for the commercial market in H2 2023, we have received orders for over 5,500 helmets and have shipped 3,200 with good levels of productivity.
Jos Sclater, CEO of Avon Protection, commented:
“We are now seeing more reliable financial performance as a result of our actions to strengthen the business by increasing accountability and improving operations and programme management. In particular, we have demonstrated our ability to deliver helmets to the DOD, which is reflected by a stronger order book. Our focus is now turning to our multi-year plan to improve margins through the transform pillar of our STAR strategy. I am delighted to see the Avon team rising to the challenge of realising our full potential and remain excited by the significant opportunity to expand cash-backed margins, accelerate growth and improve return on capital.”