Avon Protection : Year End Results

PRELIMINARY RESULTS FOR THE YEAR

ENDED 30 SEPTEMBER 2021

WELL INVESTED FOR GROWTH

Paul McDonald, Chief Executive Officer:

"2021 has regretfully been a challenging year for Avon Protection and our stakeholders, however we have taken decisive action to address the body armor issues and refocus the Group as a global leader in respiratory and head protection.

Having conducted an in-depth strategic review of our armor business, we have concluded that an orderly wind-down of the body and flat armor business over the next two years to fulfil our existing body and flat armor customer commitments is in the best interest of our stakeholders as a whole.

While naturally overshadowed by events in armor, we have made further progress during the year against our strategic objectives to deliver sustainable growth. We have made significant investment to further enhance the Group's commercial and operational capability, creating a scalable platform to support our medium-term ambitions. Alongside this, we have continued to increase our pipeline of opportunities, responded to tenders for long-term contracts worth over $300 million and broadened our portfolio of contracts, reinforcing Avon Protection's position as a leading global provider of respiratory and head protection.

Whilst we expect to see continued growth in FY22, the year ahead will also be one of transition, as we begin to wind-down the armor business and refocus the Group. Supply chain disruption and customer order pattern volatility due to the ongoing COVID pandemic remain part of the backdrop entering the new financial year and so we expect the operating environment to continue to be challenging. However, with an opening order book of $117 million excluding armor, we expect our respiratory and head protection businesses to deliver growth in FY22 and we remain confident in the medium-term prospects for a refocused Avon Protection."

	30 Sept 2021	30 Sept 2020	Change
		Restated2
Orders received	$282.7m	$209.6m	34.9%
Closing order book	$143.1m	$101.8m	40.6%
Revenue	$248.3m	$213.6m	16.2%
Adjusted1 operating profit	$22.0m	$38.5m	(42.9)%
Adjusted1 profit before tax	$18.9m	$36.1m	(47.6)%
Adjusted1 basic earnings per share	60.6c	98.6c	(38.5)%
Dividend per share	44.9c	34.5c	30.1%
Net debt/(cash) excluding lease liabilities	$26.8m	$(147.7)m
Statutory results
Operating (loss)/profit	$(29.0)m	$8.9m
(Loss)/profit before tax	$(35.6)m	$2.2m
Basic (loss)/earnings per share from continuing
operations	(79.9)c	12.5c
Net debt/(cash)	$55.9m	$(118.7)m
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Strategic review of armor

• The Board has considered the strategic options available for the armor business and concluded that the best outcome for our stakeholders as a whole is an orderly wind-down of the body and flat armor business over the next two years
• Impact on our stakeholders, in particular our key customers as well as our employees and shareholders, have been central to the Board's considerations
• We will honour existing body and flat armor contractual arrangements, including the Defence Logistics Agency Enhanced Small Arms Protective Inserts, (DLA ESAPI) contract, while seeking to accelerate delivery where possible and minimise associated costs
  o Annual overhead cost savings of $15 million targeted following closure
  o Expected net cash costs of closure and right sizing the continuing operations of between $3 and 5 million in total across FY22 and FY23
  o Net present value of onerous lease liabilities totalling $11.8 million payable through 2035
  o Net exceptional non-cash costs of $31.1 million in FY21, being asset impairments of $46.8 million, partially offset by a $15.7 million contingent consideration provision release

Avon Protection a global leader in respiratory and head protection

• Respiratory protection is a well invested and growing business with strong profitability and cash generation
  o Recognised global leader in Military and First Responder Chemical, Biological, Radiological, Nuclear (CBRN) markets
  o Long-term track record of delivery and excellent customer relationships across a portfolio of contracts
  o The ramp-up of NATO framework contract for FM50 is a key growth driver
  o Further opportunities with the U.S. Department of Defence (DOD), Rest of World Military and First Responder customers being pursued
• Our helmet operations combine expertise from Team Wendy and Ceradyne, creating a global leader in head protection
  o Standard-setting business, combining industry leading ballistic shell technology and design with best-in-class liner and retention systems
  o Leading provider of high-performance ballistic head protection to the U.S. DOD with further growth opportunities to expand our head protection portfolio with this customer
  o Growing pipeline of Rest of World Military opportunities
  o Growth in First Responder from the recently launched F90 product o Operational synergies are being realised as expected

FY21 highlights

• Acquisition of Team Wendy in November 2020 for $130 million
• Strong order intake up 34.9% to $282.7 million (+38.8% excluding Team Wendy and armor), including orders worth $48 million under the 10-year NATO framework contract
• U.S. Army ballistic helmet contract to supply the next-generation Integrated Head Protection System (IHPS) as part of a dual source programme worth up to $88 million over two years
• Integration of the Ceradyne ballistic protection business completed
• F90 ballistic helmet combining Ceradyne ballistic and Team Wendy impact technology successfully launched in U.S. First Responder market
• Ceradyne and Team Wendy collaborated on an updated liner pad system for the next-generation
  IHPS

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• Team Wendy ballistic helmet manufacturing insourcing completed to improve margins and reduce risk
• Significant levels of investment in the business, as well as significant progress strengthening our people, leadership team and infrastructure, including
  o appointment of a U.S. based Chief Operating Officer
  o reinforcement of management and controls around helmet product development ahead of IHPS first article testing
  o roll out of SAP in the ballistic protection sites
• The CFO recruitment process is well advanced, and we expect to be in a position to update shareholders on or before the AGM in January
• Focused on developing our sustainability strategy to minimise our environmental impact and deliver our vision of being net carbon neutral by 2045

Financial overview

• Financial performance impacted by ballistic protection contract delays and COVID-related disruption
• • Revenue growth of 16.2% to $248.3 million includes a first-time contribution of $41.0 million from Team Wendy in line with expectations at the time of acquisition
  • Respiratory and head protection revenues of $241.8 million grew by 21.0%, being 0.8% excluding Team Wendy
  • Revenue growth in our Military respiratory and First Responder businesses, offset by declines in Military ballistic revenue due to the previously announced contract delays
  • • Military revenue declined by 4.2% to $147.5 million with respiratory growth of 8.1% being offset by a 30.6% decline in ballistic revenues.
    • First Responder revenues increased by 1.3%, against a strong comparator in 2020, driven by very encouraging growth in our helmet portfolio.
  • Adjusted EBITDA margin of 15.1%, reflects lower than expected ballistic protection revenues with some overheads fixed in the short-term. Adjusted EBITDA margin excluding armor of 19.0%
  • Adjusted operating profit of $22.0 million and adjusted earnings per share of 60.6 cents
• Reported operating loss of $29.0 million includes
• • $14.2 million of amortisation of acquired intangibles
  • $46.8 million of asset impairments relating to the armor business,
  • a gain of $15.7 million to reduce the net present value of the contingent consideration payable to 3M due to lower revenue expectations under the DLA ESAPI contract,
  • $5.0 million of costs related to the acquisition and integration of Team Wendy and Ceradyne ballistic protection
  • a $0.7 million write off of prior year capitalised cloud computing costs.
• Strong financial position maintained
• • Cash conversion of 83.2% reflects tight control of receivables and payables in the fourth quarter, offsetting higher inventory to manage COVID related supply chain disruption
  • Net debt excluding lease liabilities of $26.8 million represents leverage of less than 1 times adjusted EBITDA
  • Strong liquidity with $200 million Revolving Credit Facility of which $40.9 million utilised at 30 September
• Final dividend per share of 30.6 cents, up 30%, resulting in total dividends for the year of 44.9 cents, also up 30%

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Capital allocation policy review

• Given the strong financial position, expected cash generation in our 2022 financial year and the Board's intention not to initiate any further major merger and acquisition activity until after our 2022 financial year the Board is undertaking a review of the Group's capital allocation policy.
• As part of its review of the capital allocation policy the Board is keeping the merits of a share buyback programme under review

Outlook

• Growth expectations for FY22 and beyond are underpinned by our long-term contracts in respiratory and head protection and our strong opening order book excluding armor of $116.5 million, which provides good visibility going into the new financial year
• We are continuing to experience the impact of disruption in global supply chains and customer order pattern volatility, which we are actively working to mitigate
• Given the ongoing challenges, we are taking a cautious view on the anticipated rate of growth for FY22 at this stage in the year
• As such, the Board is guiding to revenues excluding armor, in FY22 of between $260 and 290 million, being growth of between c. 8 and 20%, with further revenue of up to $25 million from the armor business depending on the timing of DLA ESAPI product approvals
• We expect our adjusted EBITDA margin to recover materially in FY22 given operational leverage and the actions to address overheads
• Our leading technology and product offering, together with our long-term contracts and a strong pipeline of opportunities, underpin our confidence in our future growth prospects

Notes:

1. The Directors believe that adjusted performance measures provide a useful comparison of business trends and performance. The adjusted performance measures relate to continuing operations and exclude exceptional items including, costs associated with acquisitions, amortisation of acquired intangibles, net charges related to armor assets, discontinued operations and the unwind of the discount on the net pension liability. The term adjusted is not defined under IFRS and may not be comparable with similarly titled measures used by other companies. The Group uses these measures for planning, budgeting, and reporting purposes and for its internal assessment of the operational performance of the Group. Further details on the Adjustment Performance Measures including reconciliations to the statutory results can be found below.
2. 2020 has been retranslated following the change in reporting currency to U.S. dollars.

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For further enquiries, please contact:
Avon Protection plc
Paul McDonald, Chief Executive Officer	[phone]
Nick Keveth, Chief Financial Officer
Rachel Stevens, Director of Investor Relations
MHP Communications
Andrew Jaques	[phone]
Charlie Barker	[phone]
Peter Lambie	[e-mail]

Analyst and investor webcast

Paul McDonald, Chief Executive Officer and Nick Keveth, Chief Financial Officer, will host a presentation for analysts and investors at 9.00am this morning.

The webcast will be broadcast live at: https://webcasting.brrmedia.co.uk/broadcast/618015c8df7b150b81e9ce4d

Dial in: [phone]

PIN: 6259641

1. copy of the presentation for the webcast will be uploaded tohttps://www.avon-protection-plc.comat 8:30am this morning.

Legal Entity Identifier: 213800JM1AN62REBWA71

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation ("MAR") EU no.596/2014. Upon the publication of this announcement via Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain.

Note to editors:

Avon Protection designs and produces life critical personal protection solutions for the world's militaries and first responders. With a portfolio that includes Chemical, Biological, Radiological, Nuclear ("CBRN"), respiratory and head protection products, Avon Protection's mission is to relentlessly advance the future of protection enhancing the performance, efficiency and capability of their customers whilst providing ever increasing levels of protection.

Avon Protection operates from 7 sites employing more than 1,000 people and is listed on the London Stock Exchange (LSE: AVON).

For further information, please visit our website www.avon-protection-plc.com.

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