Avon Protection (LON:AVON) reported a strong first half, with executives saying revenue, profit and returns improved materially as the group’s multi-year transformation program nears completion and its defense and first responder markets remain supportive.
Chief Executive Jos Sclater said the company delivered “strong growth in revenue, profit and margin” and achieved its financial targets 18 months ahead of schedule. He said the progress reflected the benefits of transformation and the group’s growth strategy across its businesses.
“With transformation now coming to an end, we’re increasingly able to focus on the next phase of driving sustainable growth,” Sclater said. He added that the company sees opportunities for organic growth and has a balance sheet that provides “further options for acceleration.”
First-half revenue and profit rise
Chief Financial Officer Rich Cashin said revenue rose 7% and adjusted operating profit increased 39% compared with the prior-year period on a constant currency basis. Adjusted earnings per share rose 45%.
Revenue was $160.8 million, up 6.8% year over year, while adjusted operating profit was GBP 24.4 million, producing a margin of 15.2%, more than 300 basis points higher than a year earlier. Cashin said finance costs fell due to lower average net debt, and the effective tax rate was 24%, in line with prior guidance.
The company’s preferred measure, return on invested capital, rose 450 basis points to 20.8%, which Cashin said was comfortably ahead of the company’s 2026 goal of more than 17%. The dividend increased 6.6% to GBP 0.081 per share.
Order intake of GBP 117.9 million was lower than the prior year, with book-to-bill below 1. Cashin said the comparison was against a strong first half last year that included about $30 million of one-off orders, including Ukraine-related demand. He said the order book of $220 million remained robust and supported confidence in growth for the rest of the year and beyond.
Avon Protection segment leads growth
The Avon Protection business delivered revenue growth of 23% to GBP 92.9 million. Cashin said the performance reflected strong underlying trading, including work supporting NSPA awards, continued execution of rebreather deliveries and completion of outstanding Ukraine demand.
Adjusted operating profit in the segment rose 44.8% to GBP 20.7 million, with a margin above 22%. Cashin said that level was helped by strong execution, operational gearing and favorable product mix, but he cautioned that margin would likely normalize lower over time as some of those factors unwind.
Steve Elwell, President of Avon Protection, said demand across NATO remains strong and that the number of nations purchasing the FM50 respirator under the NSPA framework has increased to 16. He also highlighted a $13 million filter order in the Middle East and a post-period $40 million filter award from the U.S. Department of War.
Elwell said the latest filter award was notable because it was the first time Avon had secured the full filter program on what is normally a dual-sourced award. In response to an analyst question, he said the award reflected close work with the customer, improved manufacturing rates, on-time deliveries and a strong delivery record.
Elwell also pointed to upcoming product launches and programs, including a new digital voice projection unit, the next-generation CS-PAPR pipeline, expected European certification for an SCBA system and opportunities in CBRN suits. He said the U.S. suits program remains competitive but has moved faster than expected.
Team Wendy expected to improve in second half
Team Wendy’s first-half performance was weaker, with order intake down due to strong existing U.S. Department of War order cover and softer commercial orders. Cashin said law enforcement demand was affected by grant funding delays following U.S. government shutdowns, but the company is seeing signs of recovery.
Revenue in Team Wendy was held back by shipment delays tied to a slower-than-expected production ramp and commercial weakness. Cashin said current output rates and signs of commercial demand recovery should support a return to growth in the second half and for the full year.
Sclater said production rates at the Cleveland facility have increased significantly and that the company is delivering both IHIP and ACH helmets at or above contractual rates. He said the focus has now shifted from ramping output to improving consistency, including machine reliability, quality, planning and shop-floor engagement.
In response to questions, Sclater said machine unreliability, staffing reliability and supply chain constraints had affected production consistency, though the company was meeting customer requirements. He said the company had replaced the head of procurement and expected to get on top of supply issues “in the next month or two.”
Sclater also said commercial demand for Team Wendy could rebound sharply if grant funding flows through, and that the company is preparing for a potential wave of orders from law enforcement customers.
Cash flow timing weighs on first-half conversion
Cash conversion was 38% in the first half, below the company’s full-year guidance of 80% to 100%. Cashin attributed the shortfall largely to timing, saying $18 million of cash tied to product deliveries in March was received in early April. Adjusting for those receipts, cash conversion would have been about 100%.
Net debt to EBITDA was 0.9 times at the end of the half. Cashin said the balance sheet was “in great shape,” and the company’s revolving credit facility had been extended by one year to 2029.
Cashin also said transformation cash costs halved to $3.2 million in the first half. The company made an additional GBP 3 million post-period contribution to its pension scheme to lock in the benefit of higher yields and further de-risk the balance sheet.
Full-year outlook remains intact
The company maintained a robust outlook for the year. Cashin said the order book and pipeline visibility support expectations for high single-digit revenue growth. He also said adjusted operating profit margin should be toward the upper end of the company’s 14% to 16% target range.
Sclater said the global geopolitical environment remains supportive, citing higher defense investment, European rearmament, conflicts in Ukraine and the Middle East, and increased focus on readiness and stock replenishment. He said the company’s long-term vision includes disciplined M&A, though management is not in a hurry given high asset multiples.
“We will remain disciplined and are happy to keep our powder dry until the right opportunity arises,” Sclater said.
The company said it plans to provide medium-term targets later this year, with Sclater saying those targets will reflect “the increasing scale” of management’s ambition.
About Avon Protection (LON:AVON)
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