Avon Protection : Trading update

Avon Protection plc ('Avon') today provides the following trading update for its current financial year ending 30 September 2021 ('FY21').

Trading update
Avon has continued to see good commercial progress in the second half of FY21, with order intake in the ten months to 31 July 2021 of $221m. This represents order growth, excluding Team Wendy, of 13% over the equivalent period last year, giving a strong order book of $146m (including Team Wendy), up 21% year-on-year. This progress has been driven by good results from the Team Wendy, First Responder and Military Respiratory lines of business.

Notwithstanding the positive demand backdrop, the impact of delays in the receipt of orders, supply chain disruption and a tight U.S. labour market has increased significantly through the second half of the financial year. Whilst this COVID-19 related disruption is expected to be temporary in nature, the impact has resulted in a reduction in our revenue guidance for FY21 to between $245m - $260m, due to:

• Delayed receipt of c.$16m of expected orders under existing contracts, including a significant M50 order, as a result of procurement bottlenecks;
• Extended lead times for predominantly electronic and textile components delaying the shipment of c.$6m of deliveries under existing orders; and
• Remaining uncertainties as to the timing of receipt of other orders that we expect to receive and ship before the end of the financial year.

The result of the lower revenue expectations, combined with an adverse mix effect and an overhead base that is fixed in the short term, means that adjusted EBITDA margin guidance is expected to reduce to between 17% - 18% for FY21, before recovering thereafter.
The Board is confident that the delayed orders will be received over the coming months, but expects supply chain disruption and a tight U.S. labour market to persist into next year. As a result, the Board believes it is prudent to take this into account and reduce FY22 revenue expectations to $320m - $340m, whilst maintaining current guidance for FY23.

The delays to product shipments have also resulted in a build-up of inventory and delayed receipts from customers which is likely to persist through the year end, with FY21 cash conversion now expected to be c.50%, based on the above revenue assumptions. Longer term cash flow dynamics continue to be strong, and the inventory position is expected to largely unwind through FY22.

Contract update
Considerable further progress has been made in respect of the delayed product approvals in the Military Ballistic business, in line with the Board's previous guidance. First Article Testing for the DLA ESAPI contract is well advanced, with initial shipments expected in the first half of FY22. Sample plates for the VTP ESAPI contract are on track to be delivered in September for testing, with initial shipments expected in the second half of FY22.

Avon has received a further $9m delivery order under the sole source first generation IHPS helmet contract, in addition to the $19m order already received in March. The procurement process to put in place a revised, multi-source next generation IHPS contract is well advanced and is expected to conclude before the end of September.

Commenting, Paul McDonald, Chief Executive Officer, said:
'We have made considerable commercial progress over the last 18 months in building a broad portfolio of significant, multi-year contracts across the business, with the underlying demand momentum continuing, so the short-term disruption that we are seeing is unwelcome. These issues will be resolved over the coming months, but as they are affecting both our customers and suppliers simultaneously the situation has significantly limited our operating agility in the short term.

We remain as confident as ever about the medium-term prospects of Avon Protection, underpinned by a record order book, a growing and visible contract pipeline and world leading businesses and technologies. We will carry significant momentum into next year, which will also benefit from a strong ramp-up in the Ballistics business, and remain well set for growth in FY22 and beyond.'