Avon Protection (AVON) , a technology company specialising in respiratory protection equipment for military, law enforcement, and fire personnel, released a trading update for FY23 ended September 30 2023 ahead of its final results expected on November 21 2023.
Avon reported stronger trading in H2 with order book growth and higher underlying earnings. Avon's order book was 10% larger on September 30 2023 compared to last year, driven by strong demand for helmets offsetting some expected weakness in Respiratory demand. The company reported US$59m of outstanding orders for its Next Generation Integrated Head Protection System (NG IHPS) helmets in addition to a S$7m order for its Advanced Combat Helmet GEN II (ACH GEN II), bringing total outstanding orders for the latter to US$20m.
Revenue excluding Armour in H2 was significantly higher than in H1, driven by the successful ramp up of the NG IHPS programme. H2 margins were broadly flat versus H1, with some early benefits from the company's "STAR" strategy, aimed to drive revenue growth and improve margins, offsetting the mix effect of strong growth in the lower-margin Head Protection business.
Avon's year-end net debt position on a covenant basis is expected to be approx. US$65m, with the net debt:EBITDA ratio reducing to 2.0 from 2.6 at the end of H1 as a result of the company's exit from the Armour business as well as improved profitability in H2. The US$65m figure is impacted by the timing of cash receipts from several large orders in the last month of the FY. Once paid, debt in Q1 2024 is expected to reduce by c. US$20m.
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A great set of preliminary results from Avon, proving that its STAR strategy outlined in its interim results in May is working. AVON shares rose 7% on the update. STAR was developed to drive value creation, with good progress so far in planning and executing the strategy's initiatives, confirming there is ample opportunity to grow Avon's top line and improve margins and cash generation.
Specifically, the strategy delivered on several key metrics in H2. Avon delivered all outstanding Armour products and expects its Armour business to be classified as discontinued for FY23. This should result in a more profitable, streamlined, and focused business. Furthermore, 10,000 NG IHPS helmets were delivered in line with STAR's plan for H2 2023, with initiatives underway to strengthen Avon's Irvine and Salem plants, expected to yield materially higher operational performance.
As mentioned above, Avon has received a further delivery order for the ACH GEN II helmet valued at over US$7m, demonstrating the US Department of Defense's confidence in the company. Finally, following the commercial launch of Avon's EPIC helmet in H2, the company has received orders for over 5,500 units and shipped 3,200 so far.
Overall, Avon delivered stronger trading and more reliable financial performance in H2 with higher underlying earnings and order book, as a result of earning the trust of the US Department of Defense, as well as successful operational inititives. Full-year performance is in line with expectations, with a stronger H2 reflecting good strategic progress. The company's focus remains on its multi-year plan to improve margins per its STAR strategy. If the trajectory initiated by STAR continues, investors can expect further improvements in margins, revenues, and cash generation.
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