Avon Protection bounces back after announced closure of armour business

London - Like the material that was until recently at the centre of its name, Avon Protection PLC has seen a rubber-style rebound in the value of its shares over the past few days.

Immediately after the Melksham, UK-based company announced the wind-down of its body armour business on 15 Dec, shares in the UK protective equipment group fell by around 15% to 916p.

Confidence, though, seemed to be quickly restored with Avon's share price recovering sharply to trade in London at 1,184p on 21 Dec, 23% above the prior-week low.

The bounce-back perhaps reflected the financial details and mid-term prospects presented in Avon's annual report issued 17 Dec and reassuring comments from Paul McDonald, CEO of the company, formerly called Avon Rubber.

McDonald was generally upbeat about the strength of the order-pipeline for Avon's respiratory and head protection equipment for military and first-responder applications.

In particular, Avon sees the ramp-up of a NATO framework contract for its FM50 respiratory face mask as a key growth driver, as are further opportunities with the US Department of Defence (DOD), rest-of-world military and first responder customers.

"Everyone knows this has been a difficult moment for the business," McDonald told investment analysts on a call to discuss Avon's annual results, which had been delayed pending a strategic review of the armour business. 

"But we believe we've taken decisive action that allows the company to get back onto the front foot with strong margins, high cash flows, and still a positive growth outlook with the technologies and the products that we have."

For its 2021 fiscal year ended 30 Sept, which included the $130-million acquisition of Team Wendy in November 2020, Avon reported order intake up 34.9% to $282.7 million. The increase equated to 38.8% excluding Team Wendy and armour.

Revenues grew 16.2% to $248.3 million, including a first-time contribution of $41.0 million from Team Wendy. Respiratory and head protection sales grew by 21.0% to $241.8 million, though just by 0.8% excluding the acquired business. 

An adjusted earnings (EBITDA) margin of 15.1%, reflected lower than expected ballistic protection revenues, Avon noted. The EBITDA margin excluding armour was 19.0%

A reported operating loss of $29.0 million, meanwhile, included $14.2 million of amortisation of acquired intangibles and $46.8 million of asset impairments relating to the armour business,
 
Avon expects annual cost savings of $15 million from the wind-down compared to expected net cash costs of closure and right-sizing the continuing operations of $3-5 million across its next two fiscal years.