Avon Protection rebounds after announced closure of armor business

LONDON—Like the material that was until recently at the center of its name, Avon Protection P.L.C. has seen a rubber-style rebound in the value of its shares over the past few days.

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

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

The bounce-back perhaps reflected the financial details and mid-term prospects presented in Avon's annual report issued Dec. 17 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 U.S. Department of Defense, 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 armor 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 Sept. 30, which included the $130 million acquisition of Team Wendy in November 2020, Avon reported order intake up 34.9 percent to $282.7 million. The increase equated to 38.8 percent excluding Team Wendy and armor.

Revenues grew 16.2 percent to $248.3 million, including a first-time contribution of $41 million from Team Wendy. Respiratory and head protection sales grew by 21 percent to $241.8 million, though just by 0.8 percent excluding the acquired business.

An adjusted earnings (EBITDA) margin of 15.1 percent reflected lower than expected ballistic protection revenues, Avon noted. The EBITDA margin excluding armor was 19 percent

A reported operating loss of $29 million, meanwhile, included $14.2 million of amortization of acquired intangibles and $46.8 million of asset impairments relating to the armor business,

Avon said it 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 million to $5 million across its next two fiscal years.