Avon Rubber enters second half with confidence

With the helmets and armour business contributing £14m of sales, revenue from the ‘protection’ division jumped over a third year-on-year to £68m. Stripping out the acquisition, organic sales still grew 10 per cent at constant currencies amid strong demand from ‘rest of world’ military customers and higher sales of M50 mask spares and accessories. As programmes with the US Department of Defence shift to higher value products such as newer M69 and M53A1 mask systems, this helped boost the adjusted cash profit margin by 4.2 percentage points to 23.5 per cent.

Improved efficiency in the smaller ‘milkrite’ business saw a more modest 0.6 percentage point expansion in the margin to 22 per cent. Sales rose by 8.5 per cent at constant currencies. The more cyclical dairy market means milkrite is vulnerable during a downturn. But it has held up well so far, with performance in April and May in line with the first three months of 2020.

The £76m health and armour acquisition swung the group from £48m of net cash at the September year-end to a £46m net debt position (excluding lease liabilities). Still, this is equivalent to a comfortable 1 times cash profits. Undeterred by Covid-19, Avon has increased its interim dividend and the balance sheet should support continued investment in product innovation and acquisitions.

The group is confident of meeting expectations for its 2020 financial year. Peel Hunt anticipates adjusted pre-tax profit of £38.6m and EPS of 99.2p for the full year, up from £31.4m and 90.9p in 2019.