REG - Avon Protection PLC - Final Results
15/12/2021 07:00
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RNS Number : 6621V Avon Protection PLC 15 December 2021
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
Restated(2)
Orders received $282.7m $209.6m 34.9%
Closing order book $143.1m $101.8m 40.6%
Revenue $248.3m $213.6m 16.2%
Adjusted(1) operating profit $22.0m $38.5m (42.9)%
Adjusted(1) profit before tax $18.9m $36.1m (47.6)%
Adjusted(1) 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
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
· 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%
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.
For further enquiries, please contact:
Avon Protection plc
Paul McDonald, Chief Executive
Officer +44 1225
896 848
Nick Keveth, Chief Financial Officer
Rachel Stevens, Director of Investor Relations
MHP Communications
Andrew Jaques
+44 783 462 3818
Charlie Barker
+44 771 003 2657
Peter Lambie
avonprotection@mhpc.com (mailto:avonprotection@mhpc.com)
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
(https://webcasting.brrmedia.co.uk/broadcast/618015c8df7b150b81e9ce4d)
Dial in: +44 (0)330 336 9434
PIN: 6259641
A copy of the presentation for the webcast will be uploaded to
https://www.avon-protection-plc.com (https://www.avon-protection-plc.com/) at
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
(http://www.avon-protection-plc.com) .
Chief Executive Officer's Review
2021 has regretfully been a challenging year for Avon Protection and our
stakeholders, however we have taken decisive action to address the issues of
our armor business and refocus the Group as a global leader in respiratory and
head protection.
Our body armor business has been impacted by first article testing failures
for the legacy DLA ESAPI product in December 2020, and the next-generation
Vital Torso Protection (VTP) product in November 2021. In response to these
unexpected events, the Board has undertaken a strategic review of our armor
business and concluded that an orderly wind-down of the body and flat armor
business to fulfil our existing body and flat armor customer commitments is in
the best interest of our stakeholders as a whole.
This is clearly a disappointing outcome which will impact a number of our
stakeholders, however this decisive action refocuses the Group and the
executive team on growing our world leading positions in respiratory and head
protection. While naturally overshadowed by events in armor, we have made
significant further progress in these businesses with significant levels of
investment to further underpin our position as a leading provider of
respiratory and head protection systems for Military and First Responder
customers.
Our strategy remains focused around three core strategic pillars:
· Growing the core by maximising organic sales growth from our current
product portfolio
· Pursuing selective product development to maintain our innovation
leadership position
· Targeting value enhancing acquisitions to complement our existing
businesses and add additional growth opportunities for the Group
This strategy is designed to grow revenue by supplying a wider range of
products to our existing customers, as well as broadening our global customer
base.
Over the past year, we have made further progress against these objectives and
towards growing and strengthening our respiratory and head protection
businesses. This includes growing orders from European customers under the
NATO framework contract, and through the acquisition of our second head
protection business, Team Wendy in November 2020. Combining Team Wendy with
the Ceradyne ballistic helmet business acquired in January 2020 has created a
global leader in military and first responder helmets, helmet liners and
retention systems to add to our world leading respiratory protection business,
with significant growth opportunities for the future.
Our revenue expectations, excluding armor, in the new financial year and
beyond remain underpinned by long-term contract positions with the U.S. DOD, a
growing customer base outside the U.S., and a growing aftermarket revenue
stream driven from the installed base of our products, providing confidence
and long-term visibility for our future revenues.
Sustainability
The Board recognises the importance to each of our main stakeholder groups of
Environmental, Social and Governance (ESG) matters. As practice and regulation
in this area continues to grow, we remain committed to delivering positive,
measurable improvement in these areas seriously, whilst recognising that we
are at the beginning of this journey.
We have acknowledged the need for a high-level sustainability vision, which
links to the Group's purpose, as a backdrop to our strategy. We have many
sustainability initiatives already in place throughout our sites, across all
three aspects of ESG, and over the coming months we will be aligning our
existing initiatives across all sites in order to put in place a clear
strategy and framework for delivery of the Group's ESG agenda, which will
include specific targets, initiatives and commitments against which
stakeholders will be able to measure the Group's performance and our progress
towards our vision of being net carbon neutral by 2045.
Strategic review of armor
On 12 November 2021 we announced that our next-generation VTP ESAPI body armor
product had failed first article testing. This followed a similar result in
December 2020 for the legacy DLA ESAPI body armor product. We also announced
that we were experiencing further delays to achieving final product approval
for the DLA ESAPI product following the successful completion of ballistic
testing in August 2021, thereby pushing expected revenues from the second
quarter into the third quarter of FY22.
As a result, the Board has conducted an in-depth strategic review of the armor
business. The best interests of all stakeholders, and in particular our
customers and employees in addition to our shareholders, have been at the core
of our decision-making.
We have concluded that continuing the body armor business and re-developing
the VTP ESAPI product is not in the best interests of our stakeholders, given
the lack of certainty of obtaining product approval and of generating an
acceptable return on our investment. Were we to continue to invest in this
product, at best, we would be able to achieve approval in late 2022 towards
the end of the four-year contract which is due to end in March 2023. As such,
the balance between risk and opportunity is one that the Board considers
unattractive.
The Board has also evaluated selling the body and flat armor business. The
Board's expectation is that any divestment is unlikely to be achievable given
the uncertainties surrounding the business.
As such, the Board has concluded that it is in the best interests of our
stakeholders as a whole to undertake an orderly wind-down of the body and flat
armor businesses. In the short-term, we will continue to engage with our
customers and operate the businesses in order to fulfil our contractual
obligations. As at 30 September 2021 our armor order book totalled $26.6
million, being $20.6 million of body armor and $5.9 million of flat armor. We
will not pursue further armor contracts or further contract extensions.
However, we anticipate a further $20 million order under the DLA ESAPI
contract terms once product approvals have been obtained, as well as
additional orders under existing flat armor contracts to facilitate the smooth
transition of these customers to alternative suppliers. We anticipate up to
$25 million of revenue from our armor business this year, with similar amounts
in our 2023 financial year. However, we will work to fulfil our obligations as
quickly as possible with closure expected during our 2023 financial year.
Following closure, the armor infrastructure and remaining assets will be sold
and overheads reduced by c. $15 million. The estimated net cash costs of
closure and right-sizing the retained organisation of between $3 and 5 million
are expected to be weighted towards our 2023 financial year.
Following closure of the body armor business we will vacate three U.S.
leasehold properties with annual lease costs of $1.7 million. The net present
value of these lease liabilities as at 30 September 2021 was $11.8 million, of
which $8.6 million relates to the lease for our Lexington, Kentucky facility
which expires in January 2035. Following closure of the armor business we
will look to mitigate these liabilities through sub-letting the properties.
We have booked impairments relating to the armor business of $46.8 million in
our 2021 financial statements to fully write down the armor specific assets to
their estimated recoverable amounts. This has been partially offset by a gain
of $15.7 million to reduce the provision for contingent consideration payable
to 3M due to lower revenue expectations under the DLA ESAPI contract,
resulting in a net non cash exceptional of $31.1 million in our 2021 financial
statements. There has been no impairment of the $28.0 million of goodwill
relating to the Ceradyne acquisition or the Ceradyne helmet intangible assets
of $28.9 million.
2021 performance
We have seen continued good commercial momentum in 2021 with an order intake
for the year of $282.7 million, representing year-on-year growth of 34.9% and
up 38.8% excluding Team Wendy and armor. Excluding armor, order intake was
$281.0 million (2020: $ 176.0 million). We carry an order book excluding armor
of $116.5 million into the new financial year, an increase of $46.2 million on
last year, predominantly due to a substantial increase in orders for our
Military respiratory products under the NATO framework contract.
Revenue of $248.3 million represents growth of +16.2% including a first time
contribution of $41.0 million from Team Wendy. Excluding Team Wendy, revenue
declined by 2.6% with our Military respiratory and First Responder businesses
delivering revenue growth of 8.1% and 1.3% respectively, while Military
ballistic revenue declined by 30.6% due to the delays in approval for our U.S.
DOD body armor contracts. Team Wendy, which we acquired in November 2020,
performed well and in line with our expectations at the time of the
acquisition.
Military respiratory revenue growth of 8.1% was appreciably lower than the
31.0% growth in orders, due to significantly increased COVID-19 related
disruption in the second half of the year, resulting in delays in the receipt
of customer orders, supply chain disruption due to longer lead times and a
tight U.S. labour market.
Ballistic protection revenues in 2021 were significantly lower than we had
anticipated, as a result of contract delays. However, given our confidence, at
the time, in the opportunity for this business we were committed to retaining
the cost base and infrastructure necessary to support our medium-term goals.
This has resulted in an adjusted EBITDA margin of 15.1% in the year.
Avon Protection a global leader in respiratory and head protection
Looking ahead, the future of Avon Protection is centred on our leading
respiratory and head protection businesses, which both provide significant
growth opportunities for the future.
World-leading respiratory business
The respiratory business has been at the heart of Avon Protection for well
over a decade. It is a global standard-setter and market leader in the field
of military and first responder respiratory protection. Built on our
long-standing partnership, the U.S. DOD is the flagship customer for our
Military respiratory portfolio, providing the Group with a stable, recurring
revenue base as well as a key reference point for other military and first
responder customers globally who look to the U.S. as a technology leader in
the defence sector. Alongside deliveries of new mask, powered air and supplied
air systems under our M50, M53A1 and M69 long-term contracts, we continue to
benefit from sustainable revenues from filters, spares and accessories to
support the installed base of over two million M50 general service
respirators.
In addition to the visible order pipeline with the U.S. DOD, we have seen
continued success with the broader respiratory portfolio in meeting a wider
range of needs for our global customers. The award of the 10-year NATO
framework contract in August 2020 provides NATO and associate members access
to our respiratory portfolio and will drive growth outside of the U.S. DOD in
the medium-term. During the year we have received orders totalling $48 million
under this contract from six NATO members and associates including Norway,
Finland, Belgium, Lithuania, Denmark and the Netherlands. We are in active
dialogue with three other NATO members with a view to them joining the
programme. Alongside this, we have continued to deliver the sustainment
volumes of the U.K. General Service Respirator and develop a pipeline of other
earlier-stage programmes that will play a part in driving growth in the
medium-term.
Creating a global leader in head protection
Combining Team Wendy with the Ceradyne ballistic helmet business has created a
global leader in military and first responder helmets, helmet liners and
retention systems. Ceradyne is the technology leader in high performance rifle
rated ballistic helmets through its partnership with the U.S. Army. In
September 2021, we were pleased to announce that following the retender
process, we had been awarded a new contract for the next-generation U.S. Army
IHPS worth up to $87.6 million over two years on a dual source basis, together
with an initial $1.3 million order for first article testing samples for
delivery in the second quarter of our 2022 financial year. Production under
this contract will underpin helmet revenues in 2023 and follow on from
production of the existing first generation IHPS which, following the
extension in March 2021, is due to end in 2022. During the year Team Wendy has
collaborated with Ceradyne to develop an updated liner pad system for the
next-generation IHPS helmet which is expected to be introduced in 2022
following completion of first article testing.
The body armor first article test failures, acted as a catalyst to accelerate
management and process integration between the acquired Ceradyne business and
Avon Protection, with a result that engineering systems and processes are
considerably more robust compared to this time last year. Preparations for the
next-generation first article testing are well advanced with regular reporting
and progress updates being provided to the Executive Directors.
Following completion of the acquisition in November 2020, Team Wendy has
performed well and in line with expectations at the time of acquisition.
Whilst Team Wendy continues to operate on a standalone basis, we have
integrated the business into the Avon Protection governance, management
structures and performance management processes.
Team Wendy has also started to work together with the Ceradyne business within
Avon Protection on major tender processes as well as opportunities to enhance
our helmet portfolio. In particular, Team Wendy and Avon Protection have
collaborated on the development of the next-generation IHPS liner pad system
and the F90, our first combined commercial helmet for first responders and
rest of the world militaries. The F90 helmet combines the Ceradyne ballistic
helmet shell forming capabilities and Team Wendy's liner and retention
capabilities.
In addition, we have delivered procurement benefits from utilising Avon
Protection's buying power and supplier relationships as well as transferring
the manufacturing of Team Wendy ballistic helmet shells to in-house
production.
Our combined head protection portfolio has a growing pipeline of opportunities
with the U.S. DOD, Rest of World Militaries and First Responders that will
drive growth in 2022 and beyond.
First Responder well positioned for further growth
During 2021 we have seen the benefits of offering a broader range of
respiratory and head protection products to our existing U.S. First Responder
customers. Revenues increased by 1.3% against a strong comparator in 2020,
driven by 81.3% growth in helmet revenues.
Following the launch of the F90, a lightweight mid performance ballistic
helmet, in the fourth quarter of 2021, we are confident in delivering further
growth from our First Responder customer base in 2022. Investing for growth
We continue to focus on maintaining our reputation for technological
excellence and innovation across both respiratory and head protection product
lines. The strategic objective of our product development programme is to both
increase the capability of the current platforms we provide and also to move
up the value chain by providing more advanced systems for our specialist user
groups. We continue to ensure our development pipeline is designed in
partnership with our customers to ensure that their exacting performance
requirements are met, whilst ensuring we have a committed and commercial route
to market to maximise our return on investment.
We have continued this focus on selective new product development in the year,
with $13.2 million (2020: $10.1 million) of investment in new product
development projects in respiratory and head protection. The increase in
investment over the prior year primarily reflects the Group's growth with
additional development resources and capability across the respiratory and
head protection product portfolio being supplemented with the addition of Team
Wendy.
In the respiratory portfolio, we have made notable investments over the year
in;
· enhancing the ST54 tactical self-contained breathing apparatus;
· FM61 filter development for the NATO framework contract;
· developing a range of CBRN boots and gloves; and
· enhancements to the MCM100 underwater rebreather in association with
the ongoing U.S. Navy tender process.
For the head protection portfolio, development expenditure has focused on the
next-generation IHPS programme and the F90 helmet launch.
In addition to the helmet in-sourcing, Team Wendy has focused on developing an
additional small sized variant of its EXFIL ballistic helmet in response to a
customer specific requirement as well as developing the next-generation IHPS
liner pad system, supporting development of the F90 helmet and contributing to
a U.S. DOD funded research project exploring innovative helmet liner solutions
to reduce traumatic brain injury.
Over the long-term, the strategy of our selective product development
programme is focused on looking to the future of ever more sophisticated
technical and operational requirements of serving military and first responder
personnel through the development of seamlessly integrated respiratory and
head protection systems with data and communications technology.
Integration of Ceradyne and Team Wendy
In the past two years we have become a focused protection business, with the
acquisitions of Team Wendy and Ceradyne, alongside the sale of the milkrite |
InterPuls dairy business. This has transformed the Group into a leading
provider of life critical respiratory and head protection systems for military
and first responder customers.
Our priority over the past year has been on the integration of the new
businesses into Avon Protection. Our fully aligned management structure,
through our executive leadership team, is well established and has been
augmented, as we integrate our U.S. businesses into a standardised platform.
This year we have completed the transfer of the Ceradyne ballistic protection
business onto Avon Protection IT and finance systems, and at the same time
expanded senior management in this area to support the business for the growth
ahead. Our processes across research and development, including product
testing protocols, have been aligned in order that the businesses can work
together effectively and share best practice.
Our current focus is on maximising the potential of our respiratory and head
protection businesses and exiting the armor business. As such, the Board does
not intend to initiate any further major merger and acquisition activity until
after our 2022 financial year.
Strengthening our team
As we continue to grow, it is important that we continue to strengthen both
our people and senior leadership team to meet our long-term aspirations and to
improve the diversity of our team. During the year we have made significant
progress in strengthening our team.
We have appointed Steve Genzer as a U.S. based Chief Operating Officer (COO),
to oversee day-to-day operations across all aspects of the business and have
expanded the Group Executive leadership team to strengthen the U.S. presence
of our leaders, with the addition of Jose Rizo-Patron who leads the Team Wendy
business.
We have continued to strengthen the finance structures and have added a
Director of Strategy and M&A, a Director of Investor Relations, and a
Group Financial Controller, whilst further strengthening our U.S. finance
team.
Commercially we have welcomed a new EMEA Sales & Business Development
Director, in addition to a dedicated Sales & Business Development Director
for our U.S. DOD ballistic protection business.
In Human Resources we have appointed a U.S. Human Resources Director and have
standardised our pay and benefits structures across our U.S. sites.
In Operations, we have added a Quality Director and centralised our Sourcing
& Supply Chain structure under a unified system as we migrated to an
integrated global operating platform.
To reinforce our focus on diversity and inclusion we launched a women's
mentoring programme as part of Balance@Avon. The initiative aims to motivate,
empower and help our female employees understand themselves and their aims and
how they might work towards achieving them. The programme is currently
running with 18 employees in the first cohort, each having been allocated a
female mentor.
Current trading and outlook
We have a global market leading position in specialist respiratory and head
protection products, with visible opportunities to grow in these markets in
both the short and medium-term. We enter 2022 with a well-invested operating
infrastructure, which combined with sustained investment in product
development, increased management bench strength, and a strong order book,
means that the Board has confidence in the prospects of the business for 2022
and beyond.
We have had a solid start to trading in our respiratory and head protection
businesses in the first two months of the new financial year, with revenues
excluding Team Wendy ahead of last year, despite ongoing supply chain
constraints.
Our Military respiratory business is expected to show consistent delivery in
the U.S. and good growth from Rest of World military customers, in particular
from the NATO framework contract. Our First Responder and Team Wendy
businesses are both expected to grow in line with our medium-term revenue
growth expectations.
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 and we expect our respiratory and head protection businesses
to deliver revenue in the range of $260 million to $290 million in FY22 (8% to
20% growth), with further revenue of up to $25 million from the armor business
depending on the timing of DLA ESAPI product approvals.
While we expect to deliver growth, the year ahead will also be one of
transition, as we wind-down the armor business and refocus the Group as a
respiratory and head protection business. We expect our adjusted EBITDA margin
to recover materially in FY22 as a result of the operational gearing effect
and actions to reduce overheads as part of the body armor exit.
Our medium-term outlook is underpinned by multi-year military contracts across
the product portfolio. Growth in Rest of World revenues in both respiratory
and head protection are expected to continue, with growth over the medium-term
at least in line with our long-term growth KPIs, and the Board remains
confident in the medium-term prospects for Avon Protection.
Financial Review
Avon Protection has continued to see good commercial momentum in 2021 with
order intake for the year of $282.7 million up 34.9% on last year and revenue
of $248.3 million up 16.2%. However, the results for the year have been
impacted by the delays to the product approvals for the U.S. DOD body armor
contracts which has triggered impairment charges against the armor assets
thereby resulting in a statutory operating loss of $29.0 million (2020: profit
of $8.9 million), and, subsequent to year-end, has led to a strategic review
of the armor business.
2021 2020 Change
Restated(2)
Orders received $282.7m $209.6m 34.9%
Closing order book $143.1m $101.8m 40.6%
Revenue $248.3m $213.6m 16.2%
Adjusted(1) EBITDA $37.6m $49.0m (23.3)%
Adjusted(1) EBITDA margin 15.1% 22.9% -780 bps
Adjusted(1) operating profit $22.0m $38.5m (42.9)%
Adjusted(1) net finance costs $(3.1)m $(2.4)m 29.2%
Adjusted(1) profit before tax $18.9m $36.1m (47.6)%
Adjusted(1) taxation $(0.3)m $(5.9)m (94.9)%
Adjusted(1) profit after tax $18.6m $30.2m (38.4)%
Adjusted(1) 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(1) $26.8m $(147.7)m
Cash conversion(1) 83.2% 81.6% +160bps
Statutory results
Operating (loss)/profit(3) $(29.0)m $8.9m
Net finance costs $(6.6)m $(6.7)m
(Loss)/profit before tax $(35.6)m $2.2m
Taxation $11.1m $1.6m
(Loss)/profit after tax from continuing operations $(24.5)m $3.8m
(Loss)/profit from discontinued operations $(1.1)m $6.9m
Gain on divestment - $160.7m
(Loss)/profit for the year $(25.6)m $171.4m
Basic (loss)/earnings per share from continuing operations (79.9)c 12.5c
Net debt/(cash) (1) $55.9m $(118.7)m
(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.
(3 )The reported operating loss 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 the Ceradyne ballistic protection business, and
a $0.7 million write off of prior year capitalised cloud computing costs.
Our orders received for the year totalled $282.7 million (2020: $209.6
million) up 34.9%, reflecting strong momentum across our portfolio of life
critical personal protection systems for the world's militaries and first
responders. Excluding Team Wendy, which has been part of Avon Protection for
11 months of the financial year and contributed $36.6m of orders, orders
received grew by 17.4% with Military growing by 24.6% and First Responder by
0.3%.
The closing order book of $143.1 million (2020: $101.8 million) reflects a
40.6% increase on last year, or 37.4% excluding the $3.2 million Team Wendy
closing order book.
The first-time contribution from Team Wendy supported revenue growth of 16.2%
to $248.3 million (2020: $213.6 million). Excluding Team Wendy revenue was
$208.0 million, a decrease of 2.6%. This was a result of declining Military
ballistic revenue due to the contract delays announced in December 2020,
offset by revenue growth in our Military respiratory and First Responder
businesses.
Adjusted EBITDA of $37.6 million is down 23.3% versus last year (2020: $49.0
million). The adjusted EBITDA margin of 15.1%, down 780 bps, is impacted by
the lower ballistic protection revenues, reflecting the impact of operational
gearing, with some overheads fixed in the short-term.
Adjusted operating profit of $22.0 million (2020: $38.5 million) is after
adjusted depreciation, amortisation and impairment of $15.6 million (2020:
$10.5 million), a decrease of 42.9% over last year.
Adjusted net finance costs increased to $3.1 million (2020: $2.4 million) due
to higher bank facility costs.
After an adjusted tax charge of $0.3 million (2020: charge of $5.9 million),
the Group recorded an adjusted profit for the period after tax of $18.6
million (2020: $30.2 million). The tax charge for the year includes benefits
of $2.4 million from prior year credits and the revaluation of the U.K.
deferred tax assets following the announced increase of the U.K. corporate tax
rate to 25% from 1 April 2023. In the medium-term the Group expects the
adjusted tax rate to be approximately 21% in the absence of any increase to
U.S. federal tax rates.
Adjusted basic earnings per share decreased by 38.5% to 60.6 cents (2020: 98.6
cents).
On a reported basis, after taking account of $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 the Ceradyne ballistic protection business, and
a $0.7 million write off of prior year capitalised cloud computing costs,
statutory operating loss was $29.0 million (2020: profit of $8.9 million).
Statutory net finance costs of $6.6 million (2020: $6.7 million) includes $1.3
million (2020: $1.0 million) of discount unwind relating to the U.K. pension
scheme and a discount unwind of $2.2 million (2020: $2.9 million) relating to
the contingent consideration payable to 3M. The loss before tax was $35.6
million (2020: profit of $2.2 million) and, after a tax credit of $11.1
million (2020: credit of $1.6 million) reflecting the prior credits and
deferred tax revaluation included in the adjusted tax charge, the loss for the
period from continuing operations was $24.5 million (2020: profit of $3.8
million). Basic losses per share from continuing operations were 79.9 cents
(2020: earnings of 12.5 cents).
Revenue Respiratory Ballistic(1) 2021 Respiratory Ballistic(1) 2020
$m Restated
Total $m
Total
Military 113.5 34.0 147.5 104.9 49.0 153.9
First Responder 55.1 5.4 60.5 56.7 3.0 59.7
Avon Protection 168.6 39.4 208.0 161.6 52.0 213.6
Team Wendy - 41.0 41.0 - - -
Eliminations - (0.7) (0.7) - - -
Total 168.6 79.7 248.3 161.6 52.0 213.6
(1 )Military Ballistic revenue includes armor revenues of $6.5 million (2020:
$13.7 million)
Military
Military revenues declined by 4.2% to $147.5 million (2020: $153.9 million)
with respiratory revenue growth of 8.1% being offset by a 30.6% decline in
ballistic revenues as a result of delays to the U.S. DOD body armor contracts.
U.S. DOD revenues of $119.7 million (2020: $127.5 million), reflect the
decline in ballistic revenues offset by higher respiratory revenues. During
the year we continued to install the base volumes for the IHPS helmet, the M69
aircrew mask and the M53A1 mask and powered air system. Alongside this, we
continued to see the benefit of the large installed base of two million M50
masks with strong associated revenues from filters, spares and accessories
alongside new mask deliveries across the period.
Stable rest of world revenues of $27.8 million compared to $26.4 million in
2020, reflects first deliveries under the NATO framework contract.
Our opening order book for 2022 of $129.9 million (2021: $94.0 million)
provides excellent revenue visibility for 2022 and is comprised of $79.2
million respiratory orders and $50.7 million ballistic orders. $43.6 million
of the order book relates to rest of world customers with the remaining $86.3
million U.S. DOD.
First Responder
First Responder revenue increased by 1.3%, against a strong comparator in 2020
to $60.5 million (2020: $59.7 million). Increasing demand from U.S. law
enforcement agencies for the Ceradyne ballistic helmet range following its
launch through our respiratory sales force in July 2020 resulted in growth in
ballistic revenues of 81.3%, offsetting the decline in respiratory revenues.
The momentum and benefit of adding the ballistic protection portfolio last
year continues to build and we are pleased with the progress being made
through our distribution network as sales of ballistic helmets have delivered
strong growth versus the prior year. We have strong traction in our First
Responder markets and together with a $10.0 million opening order book gives
us a confident outlook going into the new financial year.
Team Wendy
We completed the acquisition of Team Wendy on 2 November 2020, so the results
for the year include the first 11 months of ownership. Over the period we have
benefitted from revenue of $41.0 million with broadly half of those sales
being for ballistic helmets and the balance of sales to a very broad range of
customers procuring non-ballistic helmets, helmet pads and liner and retention
systems.
Team Wendy benefits from a diversified customer base with broadly two thirds
of the revenues being from Military customers and one third from First
Responder customers. The opening order book of $3.2 million for 2022 reflects
the short cycle nature of the business and the quick turnaround of order
fulfilment.
Research and development expenditure
In line with our strategy and to maintain our leadership position in
technological excellence we continue to invest in the next generation of
products and our total investment in research and development (capitalised and
expensed) amounted to $19.1 million (2020: $11.8 million) of which $7.8
million (2020: $5.5 million) relates to our respiratory portfolio, $5.4
million (2020: $4.6 million) to the development of our helmets portfolio and
$5.9 million (2020: $1.7 million) to the armor portfolio which has
subsequently been impaired. Total research and development as a percentage of
revenue was 7.7% (2020: 5.5%).
2021 2020
$m Restated
$m
Total expenditure 19.1 11.8
Less customer funded (2.3) (2.6)
Group expenditure 16.8 9.2
Capitalised (15.0) (6.8)
Amortisation and impairment of development expenditure 12.4 3.6
Total income statement impact 14.2 6.0
Revenue 248.3 213.6
R&D spend as a % of revenue 7.7% 5.5%
The increase in investment over the prior year primarily reflects the Group's
growth with additional development resources and capability across the
respiratory and ballistic product portfolio being supplemented with the
addition of Team Wendy.
Over the year we have made notable investment in enhancing the Supplied Air
ST54 tactical self-contained breathing apparatus, the FM61 filter development
for the NATO framework contract and developing a range of CBRN boots and
gloves. There has also been a focus on enhancements to the MCM100 underwater
rebreather in association with the ongoing U.S. Navy tender process.
Development expenditure for the ballistic protection portfolio has focused on
the next-generation IHPS programme, the F90 helmet launch and $5.9 million
(2020: $ 1.7 million) in respect of body armor first article testing.
Team Wendy has focused on developing a small size variant of its EXFIL
ballistic helmet in response to a customer specific requirement as well as
developing the next-generation IHPS liner pad system, supporting development
of the F90 helmet and contributing to a U.S. DOD funded research project
exploring innovative helmet liner solutions to reduce traumatic brain injury.
Net cash and cash flow
2021 2020
$m Restated
$m
Adjusted continuing EBITDA 37.6 49.0
Fair value of share-based payments 0.7 1.8
Defined benefit pension scheme cost 1.2 0.9
Working capital(1) (8.2) (11.7)
Cash flows from continuing operations before the impact of exceptional items 31.3 40.0
Acquisition and integration costs (4.4) (10.9)
Cash flows from continuing operations 26.9 29.1
Cash flows from discontinued operations (3.3) 9.0
Cash flow from operations 23.6 38.1
Payments to pension plan (2.9) (27.8)
Net interest (2.7) (3.5)
Repayment of lease liability (3.7) (2.0)
Tax excluding capital gains tax paid on divestment(2) (4.3) (3.5)
Purchase of property, plant and equipment (11.7) (7.8)
Capitalised development costs and purchased software (19.9) (12.1)
Acquisitions net of acquired cash of $1.1million (2020: nil) (130.9) (91.2)
Divestments, net of costs and capital gains tax paid(2) (6.2) 207.2
Investing and financing activities used in divestments - (2.6)
Purchase of own shares (4.3) -
Dividends to shareholders (12.1) (8.9)
Net proceeds from loan drawdowns 1.4 39.4
Foreign exchange 0.6 2.3
(Decrease)/increase in net cash (173.1) 127.6
Opening net cash, excluding lease liabilities 147.7 59.5
(Decrease)/increase in net cash (173.1) 127.6
Net loan drawdowns (1.4) (39.4)
Closing net (debt)/cash, excluding lease liabilities (26.8) 147.7
1 2021 working capital excludes $1.7m armor inventory impairment and $2.4m
inventory acquisition accounting adjustments (2020: $7.7m inventory
acquisition accounting adjustments). These are included within changes in
inventory in the statutory reconciliation of cash flow from operations.
2 Cash flows from divestments in the year are shown net of $9.0 million
capital gains tax paid. This is included in tax paid in the Consolidated Cash
Flow Statement.
Cash flows from continuing operations before exceptional items were $31.3
million (2020: $40.0 million). Cash flows from continuing operations before
exceptional items as a percentage of adjusted EBITDA of 83.2% (2020: 81.6%)
were impacted by the build-up of inventory to manage the impact of longer
material lead times arising due to COVID-19 related supply chain disruptions,
offset by tight control of receivables and payables in the fourth quarter of
the year. We expect cash conversion to return in line with our target of 90%
or above, in 2022.
Total capital expenditure was $31.6 million (2020: $19.9 million) including
$15.0 million of capitalised development costs and $4.9 million of IT
infrastructure investment relating to the integration of the ballistic
protection business.
Dividends paid were $12.1 million (2020: $8.9 million) reflecting the 30%
increase in the 2020 final and 2021 interim dividends. The cash outflow in
respect of the divestment of milkrite | InterPuls was principally payment of
$9.0 million capital gains tax offset by final consideration receipts of $3.4
million.
Net debt was $55.9 million (2020: net cash $118.7 million), which includes
lease liabilities of $29.1 million (2020: $29.0 million). Excluding lease
liabilities, net debt was $26.8 million (2020: net cash $147.7 million).
The move from a net cash to a net debt position is principally due to the
acquisition of Team Wendy which completed at the start of November for a cash
consideration net of acquired cash of $130.9 million, with associated
acquisition costs of $4.4 million paid in the year.
During the year we exercised our option to extend the maturity of our $200
million revolving credit facility (RCF) to 8 September 2024. We have a further
one-year extension option which is exercisable in 2022. As at 30 September
2021 $40.9 million of the RCF was drawn.
The RCF is subject to financial covenants measured on a bi-annual basis. These
include a limit of 3.0 times for the ratio of net debt, excluding lease
liabilities, to adjusted EBITDA (leverage). The Group was in compliance with
all financial covenants during the current and prior financial years.
In addition to the RCF our U.S. operations have access to a $5.0 million
overdraft facility.
Our strong balance sheet and undrawn RCF facilities provide us with capacity
to deliver our growth strategy.
Strategic review of armor
As highlighted in the Chief Executive Officer's review, the Board has
conducted an in-depth strategic review of the armor business and concluded
that it is in the best interests of our stakeholders as a whole to undertake
an orderly wind-down of the body and flat armor businesses. The following
tables summarise the contribution of the armor business to the Group's
financial statements in our 2021 financial statements.
Armor 30 Sept 2021 30 Sept 2020
Orders received $1.7m $33.6m
Closing order book $26.6m $31.4m
Revenue $6.5m $13.7m
2021 Adjusted Armor Respiratory & Head Total
$m $m $m
Orders received 1.7 281.0 282.7
Closing order book 26.6 116.5 143.1
Revenue 6.5 241.8 248.3
Adjusted EBITDA (8.4) 46.0 37.6
Adjusted EBITDA margin (129.2)% 19.0% 15.1%
Adjusted operating profit/(loss) (10.5) 32.5 22.0
2021 Adjustments Armor Respiratory & Head Total
$m $m $m
Revenue - - -
EBITDA(1) 14.0 (5.0) 9.0
Operating profit/(loss)(2) (38.4) (12.6) (51.0)
2021 Total Armor Respiratory & Head Total
$m $m $m
Revenue 6.5 241.8 248.3
EBITDA 5.6 41.0 46.6
Operating profit/(loss) (48.9) 19.9 (29.0)
1 Armor EBITDA adjustments totalling a credit of $14.0m comprise a gain of
$15.7 million to reduce the provision for contingent consideration payable to
3M, less $1.7m armor inventory impairments.
2 Armor operating profit adjustments totalling a charge of $38.4m comprise a
gain of $15.7 million to reduce the provision for contingent consideration
payable to 3M, less impairments relating to the armor business of $46.8
million and amortisation of armor specific amortisation acquired intangibles
of $7.3m.
We have booked impairments relating to the armor business of $46.8 million in
our 2021 financial statements to fully write down the armor specific assets to
their estimated recoverable amounts. This has been partially offset by a gain
of $15.7 million to reduce the provision for contingent consideration payable
to 3M due to lower revenue expectations under the DLA ESAPI contract,
resulting in a net non cash exceptional of $31.1 million in our 2021 financial
statements. The following table sets out the carrying values of the armor
assets, the impairments reflected in the 2021 financial statements and the
remaining recoverable amounts.
Carrying value Impairment Recoverable amounts
$m
$m $m
Acquired intangibles 11.3 (11.3) -
Development expenditure 8.1 (8.1) -
Right of use assets 11.7 (11.7) -
Plant and machinery 14.4 (13.9) 0.5
Leasehold improvements 0.1 (0.1) -
Inventory 13.3 (1.7) 11.6
Total assets/(impairment) 58.9 (46.8) 12.1
Contingent consideration provision (21.7) 15.7 (6.0)
Total net impact 37.2 (31.1) 6.1
Following completion of this impairment review, there has been no impairment
of the $28.0 million of goodwill relating to the Ceradyne acquisition or the
Ceradyne helmet intangible assets of $28.9 million.
Following closure, the armor infrastructure and remaining assets will be sold
and overheads reduced by c. $15 million. The estimated net cash costs of
closure and right-sizing the retained organisation of between $3 and 5 million
are expected to be weighted towards our 2023 financial year.
Following closure of the body armor business we will vacate three U.S. lease
hold properties with annual lease costs of $1.7 million. The net present
value of these lease liabilities as at 30 September 2021 was $11.8 million, of
which $8.6 million relates to the lease for our Lexington, Kentucky facility
which expires in January 2035. Following closure of the armor business we
will look to mitigate these liabilities through sub-letting the properties.
In our reporting going forward, we will focus on the ongoing respiratory and
head protection businesses, while providing a detailed breakdown of the
outgoing armor operations. The armor business is expected to be classified as
a discontinued operation in the future.
Acquisition of Team Wendy
The acquisition of Team Wendy was completed on 2 November 2020, and our 2021
financial statements reflect the results from the first 11 months of
ownership.
The Group acquired 100% of the equity for a total consideration of $132.0
million, being the $130.0 million initial consideration and purchase price
adjustments of $2.0 million reflecting the cash and working capital position
at close. The net assets acquired had a book value of $22.3 million before
fair value adjustments of $51.4 million resulting in a fair value of net
assets acquired of $73.7 million.
Goodwill of $58.3 million was recognised in respect of this acquisition,
representing the amount paid for future sales growth from both new customers
and new products, operating cost synergies and employee know-how. All of the
goodwill and acquired intangibles totalling $110.0 million are expected to be
deductible for tax purposes over 15 years from the date of acquisition.
From the first 11 months of ownership, Team Wendy contributed $41.0 million to
revenue, adjusted EBITDA of $12.3 million (at an adjusted EBITDA margin of
30.0%) and reported an operating profit of $4.6 million. The operating profit
is stated after amortisation of acquired intangibles of $4.0 million and
expensing the $2.4 million inventory fair value step up following the sell
through of the acquired inventory.
Acquisition costs of $2.2 million were expensed in the year, following the
recognition of $7.4 million of such costs during the 2020 financial year.
Acquisition costs of $4.4 million were paid in the period (2020: $4.8
million).
Divestment of milkrite | InterPuls
In September 2020 the Group divested the entire milkrite | InterPuls business.
As part of the sale and purchase agreement, the Group entered into a
Manufacturing Service Agreement with the purchasers of milkrite | InterPuls to
support ongoing manufacturing whilst arrangements are made to relocate
manufacturing equipment from a previously shared U.K. facility. The Group also
entered into agreements to provide certain other information technology and
administrative services under a 12-month Transitional Services Agreement. As
the activities under these agreements are not part of the continuing
operations of the Group, the revenue and costs associated with these
agreements have been classified as discontinued operations. During the year
the loss from milkrite | InterPuls discontinued operations was $1.1 million
(2020: profit of $6.9 million).
Defined benefit pension scheme
The Group operated a contributory defined benefits plan to provide pension and
death benefits for the employees of Avon Protection plc and its Group
undertakings in the U.K. employed prior to 31 January 2003. The plan was
closed to future accrual of benefit on 1 October 2009 and has a weighted
average maturity of approximately 15 years. The net pension liability for this
scheme amounted to $68.3 million as at 30 September 2021 (2020: $79.6
million). During the year the Group made payments to the fund of $2.9 million
(2020: $27.8 million) in respect of scheme expenses and deficit recovery plan
payments. In accordance with the deficit recovery plan agreed following the 31
March 2019 actuarial valuation, the Group will make payments in FY22 of $4.6
million and $4.9 million in FY23 in respect of deficit recovery plan payments
and scheme expenses.
Financial risk management
The Group has clearly defined policies for the management of foreign exchange
risk. Exposures resulting from sales and purchases in foreign currency are
matched where possible and net exposure may be hedged by the use of forward
exchange contracts. There are no open forward exchange contracts as at 30
September 2021.
Credit and counterparty risk are managed through the use of credit evaluations
and credit limits.
Borrowings and overdrafts are at floating interest rates. The Group does not
carry out any interest rate hedging.
Currency effect and change of reporting currency
On 1 October 2020 the Group changed its reporting currency to U.S. dollars for
the 2021 financial year, reflecting the currency in which the vast majority of
the Group's income is earned and costs incurred. This substantially reduced
the translational exposure of the Group compared to its previous sterling
reporting. Following the change in reporting currency, the Group has a small
remaining translational exposure principally relating to the corporate costs
and some manufacturing costs in the U.K. which are incurred in sterling. A one
cent movement in the exchange rate impacts operating profit by approximately
$0.2 million.
Dividends
The Board is recommending a final dividend of 30.6 cents per share (2020: 23.5
cents) which together with the 14.3 cents per share interim dividend gives a
total dividend of 44.9 cents (2020: 34.5 cents), up 30% on last year. The
final dividend will be paid in pounds sterling on 11 March 2022 to
shareholders on the register at 11 February 2022 with an ex-dividend date of
10 February 2022. The final dividend will be converted into pounds sterling
for payment at the prevailing exchange rate immediately prior to payment.
Our policy is to maintain a progressive dividend policy balancing dividend
increases with the rates of adjusted earnings per share growth achieved,
taking into account potential acquisition spend and the Group's financing
position. Over recent years, we have grown the dividend per share by 30% per
annum in order to reduce the ratio of dividend per share to adjusted earnings
per share towards two times, with the intention of growing the dividend in
line with the growth in adjusted earnings per share once the adjusted cover
ratio reaches two times.
Given the impact on the financial result for 2021 of the body armor contract
delays, the recommended dividend results in an adjusted cover ratio of 1.3
times (2020: 2.9 times). On a statutory continuing basis the ratio was a
deficit of 1.8 times (2020: cover of 0.4 times). In recommending this year's
final dividend the Board has taken into account that, given its expectations
for 2022, the adjusted cover ratio is expected to recover to two times next
year.
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
the review of the capital allocation policy the Board will consider the merits
of a share buyback programme.
Adjusted Performance Measures
Performance Measurement
The Directors assess the operating performance of the Group based on adjusted
measures of EBITDA, operating profit, net finance cost, taxation and earnings
per share, as well as other measures not defined under IFRS including orders
received, closing order book, organic revenue growth, EBITDA margin, cash
conversion, Return on Capital Employed and net debt excluding lease
liabilities. These measures are collectively described as Adjusted Performance
Measures (APMs) in this Annual Report.
The Directors believe that the APMs provide a useful comparison of business
trends and performance. The APMs exclude exceptional items considered
unrelated to the underlying trading performance of the Group. 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 within the
Group.
The following table summarises the statutory and adjusted profit and loss
account measures for the year together with the adjustments made to each line
item.
2021 2020 - restated(1)
Adjusted Adjustments Total Adjusted Adjustments Total
$m $m $m $m $m $m
Continuing operations
Revenue 248.3 - 248.3 213.6 - 213.6
Cost of sales (165.4) (4.1) (169.5) (122.4) (7.7) (130.1)
Gross profit 82.9 (4.1) 78.8 91.2 (7.7) 83.5
Selling and distribution costs (22.2) - (22.2) (17.4) - (17.4)
General and administrative expenses (38.7) (46.9) (85.6) (35.3) (21.9) (57.2)
Operating (loss)/profit 22.0 (51.0) (29.0) 38.5 (29.6) 8.9
Operating profit
EBITDA 37.6 9.0 46.6 49.0 (21.3) 27.7
Depreciation, amortisation and impairment (15.6) (60.0) (75.6) (10.5) (8.3) (18.8)
Operating (loss)/profit 22.0 (51.0) (29.0) 38.5 (29.6) 8.9
Net finance costs (3.1) (3.5) (6.6) (2.4) (4.3) (6.7)
(Loss)/Profit before taxation 18.9 (54.5) (35.6) 36.1 (33.9) 2.2
Taxation (0.3) 11.4 11.1 (5.9) 7.5 1.6
(Loss)/Profit for the year from continuing operations 18.6 (43.1) (24.5) 30.2 (26.4) 3.8
Discontinued operations - gain on disposal - - - - 160.7 160.7
Discontinued operations - (loss)/profit from discontinued operations
- (1.1) (1.1) - 6.9 6.9
(Loss)/profit for the year 18.6 (44.2) (25.6) 30.2 141.2 171.4
Basic (loss)/earnings per share 60.6c (144.1c) (83.5c) 98.6c 461.9c 560.5c
Diluted (loss)/earnings per share 60.3c (143.3c) (83.0c) 97.3c 455.6c 552.9c
1 On 1 October 2020, the Group changed its reporting currency from
sterling to U.S. dollars. See section 1, General information and Basis of
Preparation, for further details.
Adjustments to operating profit
Adjusted operating profit excludes exceptional items considered unrelated to
the underlying trading performance of the Group. Transactions are classified
as exceptional where they relate to an event that falls outside of the
underlying trading activities of the business and where individually, or in
aggregate, they have a material impact on the financial statements.
2020
2021 $m restated(1)
$m
Operating (29.0) 8.9
(loss)/profit
Amortisation of acquired intangibles(2) 14.2 8.3
Items related to armor assets
Impairment of acquired intangibles 11.3 -
Impairment of development expenditure 8.1 -
Impairment of right of use assets 11.7 -
Impairment of plant and machinery 13.9 -
Impairment of leasehold improvements 0.1 -
Inventory provisions 1.7 -
Release of contingent consideration (15.7)
Net charge related to armor assets 31.1 -
Acquisition 2.6 10.7
costs
Integration - 2.9
costs
Inventory fair value acquisition accounting adjustment 2.4 -
Inventory pro-forma acquisition accounting adjustment (unaudited) - 7.7
Write down of brought forward capitalised cloud computing costs 0.7 -
Other adjusting items 5.7 21.3
Adjusted operating profit 22.0 38.5
Depreciation 10.4 6.5
Other impairment charges 0.4 -
Other amortisation charges 4.8 4.0
Adjusted 37.6 49.0
EBITDA
1
On 1 October 2020, the Group changed its reporting currency from sterling to U.S. dollars. See
section 1, General information and Basis of Preparation, for further details.
2 $7.3m of 2021 amortisation charges for acquired intangible assets
relate to the armor business.
Amortisation of acquired intangibles
Amortisation charges for acquired intangible assets of $14.2m (2020: $8.3m)
are considered exceptional as they do not change each period based on
underlying business trading and performance.
Items related to armor assets
On 12 November 2021 the Group announced the next-generation VTP ESAPI body
armor product had failed first article testing. This followed a similar result
in December 2020 for the legacy DLA ESAPI body armor product. It was also
announced that the Group is experiencing further delays to achieving final
product approval for the DLA ESAPI product, pushing expected revenues from the
second quarter into the third quarter of FY22.
The failure of the VTP ESAPI body armor product is considered an adjusting
event that provides evidence of conditions that existed at the end of the
reporting period. As such the Group performed an impairment review of assets
at 30 September 2021 removing all future revenue for VTP ESAPI body armor. The
review also incorporated reduced revenue expectations for DLA ESAPI in line
with minimum volumes for the base and two extension years.
The review resulted in total non-current asset impairments of $45.1m in
respect of assets relating to the armor business acquired from 3M as part of
the ballistic protection acquisition. In addition, inventory provisions of
$1.7m were recognised against VTP ESAPI armor materials.
Offsetting these charges, a gain of $15.7m was recognised to reduce the net
present value of the contingent consideration payable to 3M as a result of the
reduced revenue expectations from the DLA ESAPI body armor contract.
The impairment charges, provisions and related release of contingent
consideration resulted from changes in recoverable amounts and expected future
payments arising from assumptions of forecast trading. As such they are
considered unrelated to 2021 trading performance.
Acquisition costs, integration costs and acquisition accounting adjustments
These charges resulted from two significant acquisitions by the Group, which
are considered exceptional items as they are material and unrelated to the
underlying trading activities of the business.
· Acquisition costs of $2.6m (2020: $10.7m) relating to the acquisition
of Team Wendy and the 3M ballistic protection business.
· In 2020, the exceptional costs also included transition costs of
$2.9m in relation to the acquisition of the 3M ballistic protection business.
· Acquisition accounting adjustment of $2.4m to account for acquired
inventory at the underlying historic cost before the fair value adjustments
arising on acquisition.
· In 2020, an unaudited pro-forma acquisition accounting adjustment
to inventory was made for $7.7m. This reflected the difference between fair
value of inventory acquired from 3M and the estimated cost of that inventory
based on the cost structure associated with the business acquired. No such
adjustments has been made in respect of the Team Wendy acquisition.
Other exceptional items
The write down of brought forward capitalised costs as at 1 October 2020
relating to configuration and customisation costs of cloud computing
arrangements $0.7m (2020: Nil), following newly issued guidance by the IFRS
Interpretations Committee. This change in guidance was unrelated to the
underlying trading performance of the Group hence has been presented as
exceptional. Costs associated with configuration and customisation of cloud
computing arrangements incurred in the 2021 financial year have been expensed
as incurred and included within the adjusted performance measures.
Adjustments to net finance costs
Adjusted net finance costs excludes exceptional items considered unrelated to
the underlying trading performance of the Group.
2020
2021 $m restated(1)
$m
Net finance costs 6.6 6.7
Defined benefit pension unwind discount (1.3) (1.0)
Contingent (2.2) (2.9)
consideration unwind discount
Finance fees written off on refinancing - (0.4)
Adjusted net finance costs 3.1 2.4
1
On 1 October 2020, the Group changed its reporting currency from sterling to U.S. dollars. See
section 1, General information and Basis of Preparation, for further details.
· $1.3m (2020: $1.0m) unwind of discounting on the U.K. defined benefit
pension scheme liability is treated as exceptional given the scheme relates to
employees employed prior to 31 January 2003 and was closed to future accrual
of benefits on 1 October 2009.
· $2.2m (2020: $2.9m) unwind of discounting on contingent consideration
relating to the acquisition of the 3M ballistic protection business.
· $0.4m of finance fees written off in 2020 on refinancing have been
treated as exceptional as the bank facility was refinanced early to support
the Team Wendy acquisition.
Adjustments to taxation
Adjustments to taxation represent the tax effects of the adjustments to
operating profit and net finance costs. Adjusting items do not have
significantly different effective tax rates, with the overall effective rate
of 21% (2020: 22%) approximating statutory rates applicable.
(Loss)/profit from discontinued operations
The adjusted profit measures exclude the result from discontinued operations
relating to the divestment of milkrite | InterPuls.
During the year, the Group incurred a loss after tax of $1.1m on these
discontinued operations. The prior period contained a total profit from
discontinued operations of $167.6m, being the profit after tax of
milkrite | InterPuls operations of $6.9m and a post-tax gain on disposal of
$160.7m.
Adjustments to (loss)/profit for the year
2020
2021 $m restated(1)
$m
(Loss)/profit for the year (25.6) 171.4
Amortisation of acquired intangible assets 14.2 8.3
Impairments related to armor assets 45.1 -
Armor inventory provisions 1.7
Release of contingent consideration (15.7) -
Defined benefit pension unwind discount 1.3 1.0
Contingent 2.2 2.9
consideration unwind discount
Finance fees written off on refinancing - 0.4
Acquisition 2.6 10.7
costs
Integration - 2.9
costs
Inventory fair value acquisition accounting adjustment 2.4 -
Inventory pro-forma acquisition accounting adjustment (unaudited) - 7.7
Write down of brought forward capitalised cloud computing costs 0.7 -
Tax on exceptional items (11.4) (7.5)
Loss/(Profit) from 1.1 (167.6)
discontinued operations
Adjusted profit for the year 18.6 30.2
1
On 1 October 2020, the Group changed its reporting currency from sterling to U.S. dollars. See
section 1, General information and Basis of Preparation, for further details.
Adjusted earnings per share
Weighted average number of shares 2021 2020
Weighted average number of ordinary shares in issue used in basic calculation 30,669 30,576
(thousands)
Potentially dilutive shares (weighted average) (thousands) 189 423
Diluted number of ordinary shares (weighted average) (thousands) 30,858 30,999
2020
Adjusted continuing earnings per share 2021 restated(1)
$ cents $ cents
Basic 60.6 98.6
Diluted 60.3 97.3
1
On 1 October 2020, the Group changed its reporting currency from sterling to U.S. dollars. See
section 1, General information and Basis of Preparation, for further details.
Net debt/(cash)
2020
2021 $m restated(1)
$m
Net 55.9 (118.7)
debt/(cash)
Less lease liabilities (29.1) (29.0)
Net debt/(cash) excluding lease liabilities 26.8 (147.7)
1
On 1 October 2020, the Group changed its reporting currency from sterling to U.S. dollars. See
section 1, General information and Basis of Preparation, for further details.
Adjusted dividend cover ratio
2020
2021 $ cents restated(1)
$ cents
Interim 14.3 11.0
dividend
Final dividend 30.6 23.5
Total 44.9 34.5
dividend
Adjusted basic earnings per share 60.6 98.6
Adjusted dividend cover ratio 1.3 2.9
times
times
1
On 1 October 2020, the Group changed its reporting currency from sterling to U.S. dollars. See
section 1, General information and Basis of Preparation, for further details.
Cash conversion
Cash conversion excludes the impact of exceptional items from operating cash
flows and EBITDA.
2020
2021 $m restated(1)
$m
Cash flows from continuing operations before exceptional items 31.3 40.0
Adjusted 37.6 49.0
EBITDA
Cash 83.2% 81.6%
conversion
2020
2021 $m restated(1)
Cash flows from continuing operations before exceptional items $m
Cash flows from continuing operations 26.9 29.1
Acquisition and integration costs paid 4.4 10.9
Cash flows from continuing operations before exceptional items 31.3 40.0
1
On 1 October 2020, the Group changed its reporting currency from sterling to U.S. dollars. See
section 1, General information and Basis of Preparation, for further details.
In the prior year the Group also presented organic cash conversion as an
alternative performance measure. Given the significant acquisitions in the
current and prior years, a comparison against the historic base business was
no longer considered relevant, and also could not be presented consistently.
Therefore this measure is no longer disclosed.
Organic revenue
2020
2021 $m restated(1)
$m
Revenue, excluding Team Wendy 207.3 213.6
Organic revenue growth compares current year revenue with prior year revenue,
excluding the impact of acquisitions.
Return on capital employed (ROCE)
Return on capital employed (ROCE) is calculated as adjusted operating profit
over average capital employed. The following shows the ROCE calculations and
reconciling tables:
2020
2021 $m restated(1)
$m
Shareholders' 205.4 69.5
funds
Current 7.5 52.3
borrowings
Non current 145.8 131.4
liabilities
Capital 358.7 253.2
employed
Average capital employed 382.1 222.0
Adjusted operating profit 22.0 49.4
Return on capital employed 5.8% 22.3%
2020
2021 $m restated(1)
Average capital employed $m
Current year capital employed 358.7 253.2
Prior year capital employed 405.4 190.8
Average capital employed 382.1 222.0
In 2020, the Return on capital employed (ROCE) was adjusted to remove the
impact of the milkrite | InterPuls divestment, including the proceeds from
this divestment which had not been reinvested at the end of the financial
year. The Directors considered this provided a fairer representation of the
ROCE in 2020 given milkrite | InterPuls was held throughout the year.
The milkrite | InterPuls divestment proceeds were reinvested in 2021,
principally via the acquisition of Team Wendy on 2 November 2020. This has
resulted in an upwards rebasing of shareholders' funds and capital employed
due to the recognition of the gain of $167.6m arising on the divestment of
milkrite | InterPuls.
The following tables outline the adjustments made in 2020 to remove the impact
of the milkrite | InterPuls divestment.
2020
2021 $m restated(1)
Shareholders' funds $m
Shareholders' 205.4 229.5
funds
Less sales proceeds - (227.3)
Add back net assets disposed - 44.3
Add back costs of divestment - 11.3
Add back tax on gain - 11.7
Shareholders' funds for ROCE 205.4 69.5
2020
2021 $m restated(1)
Current borrowings $m
Current 4.0 42.7
borrowings
Current provisions for liabilities and charges 3.5 9.6
Current borrowings for ROCE 7.5 52.3
2020
2021 $m restated(1)
Non current liabilities $m
Non current 145.8 123.6
liabilities
Add back liabilities disposed - 7.8
Non current liabilities for ROCE 145.8 131.4
2020
2021 $m restated(1)
Adjusted operating profit for ROCE $m
Adjusted continuing operating profit 22.0 38.5
Add back adjusted discontinued operating profit (as below) - 10.9
Adjusted operating profit for ROCE 22.0 49.4
2020
$m
restated(1)
Adjusted discontinued operating profit
Profit after tax from discontinued operations 6.9
Add back taxation 1.0
Profit before tax from discontinued operations 7.9
Add 0.1
back finance costs
Add back amortisation of acquired intangibles within discontinued operations 2.9
Adjusted discontinued operating profit 10.9
1
On 1 October 2020, the Group changed its reporting currency from sterling to U.S. dollars. See
section 1, General information and Basis of Preparation, for further details.
The ROCE for 2020 has been restated to correct immaterial misstatements
identified following the FRC's review of the Group's 2020 Annual Report and
Accounts. The corrections reduce the 2020 ROCE to 22.3% from the previously
reported 22.7%.
Consolidated Statement of Comprehensive Income
For the year ended 30 September 2021
2020
2021 Restated(1)
Note $m $m
Continuing operations
Revenue 2.1 248.3 213.6
Cost of sales (169.5) (130.1)
Gross profit 78.8 83.5
Selling and distribution costs (22.2) (17.4)
General and administrative expenses (85.6) (57.2)
Operating (loss)/profit 2.1 (29.0) 8.9
Net finance costs 5.2 (6.6) (6.7)
(Loss)/profit before taxation (35.6) 2.2
Taxation 2.4 11.1 1.6
(Loss)/profit for the year from continuing operations (24.5) 3.8
Discontinued operations
Gain on divestment 6.2 - 160.7
(Loss)/profit from discontinued operations 2.2 (1.1) 6.9
(Loss)/profit for the year (25.6) 171.4
Other comprehensive income/(expense)
Items that are not subsequently reclassified to the income statement
Remeasurement gain/(loss) recognised on retirement benefit scheme 16.2 (36.7)
Deferred tax relating to retirement benefit scheme 2.4 (3.1) 6.9
Deferred tax relating to change in tax rates 2.4 4.1 1.2
Deferred tax relating to other temporary differences 0.3 -
Items that may be subsequently reclassified to the income statement
Translation reserve recycled on divestment - (0.7)
Net exchange differences offset in reserves 0.6 (1.7)
Cash flow hedges(2) - 1.7
Deferred tax relating to cash flow hedges - (0.3)
Other comprehensive income/(expense) for the year 18.1 (29.6)
Total comprehensive (expense)/income for the year (7.5) 141.8
Earnings per share 2.3
Basic (83.5c) 560.5c
Diluted (83.0c) 552.9c
Earnings per share from continuing operations 2.3
Basic (79.9c) 12.5c
Diluted (79.4c) 12.3c
1
On 1 October 2020, the Group changed its reporting currency from sterling to U.S. dollars. See
section 1, General information and Basis of Preparation, for further details.
2 In the prior year the net cash flow hedge credit of $1.7m included
a $3.5m credit in respect of goodwill reclassification. The credit relating to
the goodwill reclassification should however have been included directly in
equity rather than presented within other comprehensive income. The Directors
consider this error immaterial for prior period restatement, and as such it
has not been corrected. The error in presentation has no impact on the Group's
total equity.
Consolidated Balance Sheet
For the year ended 30 September 2021
2020 2019
2021 Restated(1) Restated(1)
Note $m $m $m
Assets
Non-current
assets
Intangible 3.1 181.0 89.4 43.5
assets
Property, plant and equipment 3.2 48.6 65.9 37.7
Deferred tax assets 2.4 40.2 29.7 18.3
269.8 185.0 99.5
Current
assets
Inventories 62.3 36.3 25.5
Trade 44.7 46.0 43.6
and other receivables
Current tax 7.8 - -
receivables
Cash and cash equivalents 4.1 14.1 187.2 59.6
128.9 269.5 128.7
Liabilities
Current
liabilities
Borrowings 5.1 4.0 42.7 1.7
Trade and other payables 40.0 39.5 36.8
Derivative financial instruments - - 1.6
Provisions for liabilities and charges 6.1 3.5 9.6 -
Current tax liabilities - 9.6 5.1
47.5 101.4 45.2
Net current assets 81.4 168.1 83.5
Non-current
liabilities
Borrowings 5.1 66.0 25.8 14.3
Deferred tax liabilities 2.4 6.1 5.6 6.7
Retirement benefit obligations 68.3 79.6 66.6
Provisions for liabilities and charges 6.1 5.4 12.6 2.8
145.8 123.6 90.4
Net 205.4 229.5 92.6
assets
Shareholders'
equity
Ordinary 5.4 50.3 50.3 50.3
shares
Share premium account 5.4 54.3 54.3 54.3
Other (15.0) (15.6) (13.2)
reserves
Hedging - - (1.4)
reserve
Retained 115.8 140.5 2.6
earnings
Total 205.4 229.5 92.6
equity
1
On 1 October 2020, the Group changed its reporting currency from sterling to U.S. dollars. See
section 1, General information and Basis of Preparation, for further details.
Consolidated Cash Flow Statement
For the year ended 30 September 2021
2020
2021 Restated(1)
Note $m $m
Cash flows from operating activities
Cash flows from continuing operations 4.1 26.9 29.1
Cash flows from discontinued operations 4.1 (3.3) 9.0
Cash flows from operations 4.1 23.6 38.1
Retirement benefit deficit recovery contributions (2.9) (27.8)
Tax (13.3) (3.5)
paid
Net cash flows from operating activities 7.4 6.8
Cash flows used in investing activities
Proceeds from disposal of discontinued operations 6.2 3.4 217.2
Costs of divestment 6.2 (0.6) (10.0)
Purchase of property, plant and equipment 3.2 (11.7) (7.8)
Capitalised development costs and purchased software 3.1 (19.9) (12.1)
Acquisition of business, net of acquired cash of $1.1million (2020: nil) 6.2 (130.9) (91.2)
Investing cash flows used in discontinued operations - (1.8)
Net cash (used in)/from investing activities (159.7) 94.3
Cash flows used in financing activities
Proceeds from loan drawdowns 5.3 42.0 67.0
Loan 5.3 (40.6) (27.6)
repayments
Finance costs paid in respect of bank loans and overdrafts (1.6) (2.5)
Finance costs paid in respect of leases (1.1) (1.0)
Repayment of lease liability (3.7) (2.0)
Dividends paid to shareholders 5.5 (12.1) (8.9)
Purchase of own shares (4.3) -
Financing cash flows used in discontinued operations - (0.8)
Net cash (used in)/from financing activities (21.4) 24.2
Net (decrease)/ increase in cash, cash equivalents and bank overdrafts (173.7) 125.3
Cash, cash equivalents, and bank overdrafts at beginning of the year 187.2 59.6
Effects of exchange rate changes 0.6 2.3
Cash and cash equivalents at end of the year 4.1 14.1 187.2
1
On 1 October 2020, the Group changed its reporting currency from sterling to U.S. dollars. See
section 1, General information and Basis of Preparation, for further details.
Consolidated Statement of Changes in Equity
For the year ended 30 September 2021
Share capital Share premium Hedging reserve Other reserves Retained earnings Total equity
$m $m $m $m $m $m
Note
At 30 September 2019 restated(1,2) 50.3 54.3 (1.4) (13.2) 2.6 92.6
Profit for the year - - - - 171.4 171.4
Net exchange differences offset in reserves - - - - (1.7) - (1.7)
Translation reserve recycled to P&L on divestment 2.4 - - - (0.7) - (0.7)
Cash flow hedges - - 1.7 - - 1.7
Deferred tax relating to cash flow hedges 2.4 - - (0.3) - - (0.3)
Remeasurement loss recognised on retirement benefit scheme
- - - - (36.7) (36.7)
Deferred tax relating to change in tax rates 1.2 1.2
Deferred tax relating to retirement benefit scheme 2.4 - - - - 6.9 6.9
Total comprehensive income for the year - - 1.4 (2.4) 142.8 141.8
Dividends 5.5 - - - - (8.9) (8.9)
paid
Fair value of share-based payments - - - - 2.2 2.2
Deferred tax relating to employee share schemes 2.4 - - - - 1.8 1.8
At 30 September 2020 restated(1,2) 50.3 54.3 - (15.6) 140.5 229.5
Loss for the year - - - - (25.6) (25.6)
Net exchange differences offset in reserves - - - 0.6 - 0.6
Deferred tax relating to other temporary differences 2.4 - - - - 0.3 0.3
Remeasurement gain recognised on retirement
benefit scheme
- - - - 16.2 16.2
Deferred tax relating to change in tax rates 2.4 - - - - 4.1 4.1
Deferred tax relating to retirement benefit scheme 2.4 - - - - (3.1) (3.1)
Total comprehensive (expense)/income for the year - - - 0.6 (8.1) (7.5)
Dividends 5.5 - - - - (12.1) (12.1)
paid
Own shares acquired - - - - (4.3) (4.3)
Fair value of share-based payments - - - - 0.5 0.5
Current tax relating to employee share schemes charged to equity
2.4 - - - - 1.2 1.2
Deferred tax relating to employee share schemes charged directly to equity
2.4 - - - - (1.9) (1.9)
At 30 September 2021 50.3 54.3 - (15.0) 115.8 205.4
1
On 1 October 2020, the Group changed its reporting currency from sterling to U.S. dollars. See
section 1, General information and Basis of Preparation, for further details.
2 The Group has disaggregated the hedging reserve from retained
earnings where it was previously included. Prior year retained earnings have
been restated accordingly for this disaggregation.
Other reserves consist of the capital redemption reserve of $0.6m (2020:
$0.6m) and the translation reserve of ($15.6m) (2020: ($16.2m)). All movements
in other reserves relate to the translation reserve.
Notes to the Financial Statements
Section 1: General information and Basis of Preparation
Accounting policies
The principal accounting policies adopted in the preparation of these
financial statements are set out below. These policies have been consistently
applied to all the years presented, unless otherwise stated.
Basis of preparation
Avon Protection plc is a public limited company incorporated and domiciled in
England and Wales and its ordinary shares are traded on the London Stock
Exchange.
These financial statements have been prepared in accordance with international
accounting standards in conformity with the requirements of the Companies Act
2006 and in accordance with international financial reporting standards
pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union
(IFRSs as adopted by the EU). The financial statements have been prepared
under the historical cost convention except for derivative instruments which
are held at fair value through profit or loss.
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 30 September 2021 or 30 September 2020
but is derived from those accounts. Statutory accounts for 2020 have been
delivered to the registrar of companies, and those for 2021 will be delivered
in due course. The auditor has reported on those accounts; their reports were
(i) unqualified, (ii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
Change in presentational currency
On 1 October 2020 the Group changed its reporting currency to U.S. dollars. As
such, these financial statements including the prior year comparatives are
presented in U.S. dollars with figures rounded to the nearest $0.1m.
Going concern
The financial statements have been prepared on a going concern basis, which
the Directors believe to be appropriate for the following reasons:
The Directors have prepared a going concern assessment covering the 12 month
period from the date of approval of these financial statements. The assessment
indicates that, taking account of the impact of the strategic review of armor
and reasonably possible downsides, including the ongoing impact of COVID-19 on
the operations, the Group will have sufficient funds to meet its liabilities
as they fall due for that period.
The Directors have also considered the sensitivity of the assessment to severe
downside scenarios. In particular, the Directors considered a severe scenario
involving a 25% decline in adjusted EBITDA against latest forecast. Even in
this unlikely scenario, the assessment indicates that the Group will have
sufficient funds to meet its liabilities as they fall due, and will continue
to comply with its loan covenants, throughout the forecast period. Loan
covenants include a limit of 3.0 times for the ratio of net debt, excluding
lease liabilities, to adjusted EBITDA (leverage).
On this basis, and on their assessment of the Group's financial position,
including undrawn RCF facilities, the Directors are confident that the Group
will have sufficient funds to continue to meet its liabilities as they fall
due for at least 12 months from the approval of these financial statements.
Accordingly, the Group continues to adopt the going concern basis in preparing
its financial statements.
Recent accounting developments
In March 2021, the IFRS Interpretation Committee issued further guidance for
the accounting treatment of configuration and customisation costs relating to
cloud computing arrangements. This guidance included a requirement to
re-evaluate the accounting for such costs incurred in previous reporting
periods. Following an internal review during the year in line with the updated
guidance, the Group expensed $0.7m of cost capitalised in prior years.
Significant accounting judgements and estimates
The preparation of financial statements requires the use of estimates and
assumptions that affect the reported amounts of assets and liabilities, income
and expenses. It also requires management to exercise its judgement in the
process of applying the Group's accounting policies. The key areas where
assumptions and estimates are significant to the financial statements are
disclosed below.
Development costs
The Group capitalises the development costs of new products and processes as
intangible assets or property, plant and equipment.
Initial capitalisation and any subsequent impairment are based on management's
judgement of technological and economic feasibility, including regulatory
approvals required and forecast customer demand. In determining the amounts to
be capitalised the Group makes estimates regarding the expected future cash
generation of the project, discount rates to be applied and the expected
period of benefits. If either technological or economic feasibility is not
demonstrated then the capitalised costs will be written off to the income
statement.
Significant judgements in the period included:
· A judgement on technical feasibility and therefore future successful
first article testing and product approval for the next generation Integrated
Head Protection System ('IHPS').
· A judgement that following the failure of first article testing on
the DLA ESAPI body armor, it remained appropriate to continue recognising the
previously capitalised costs and further costs to achieve final product
approval were appropriate to capitalise.
· A judgement that it remained technically feasible to achieve first
article testing and product approval for VTP ESAPI body armor, given the
failure on the DLA ESAPI, and therefore continue to capitalise costs, prior to
the failure in testing post year end.
Significant estimates made and sensitivity in respect of the assumptions used
that could have a significant impact on the carrying value of assets in
determining the carrying amount of development costs at the balance sheet date
are disclosed in note 3.1.
Adjusting events
The Group considers when events after the end of the reporting period should
be adjusted in the financial statements. Adjusting events are those providing
evidence of conditions existing at the end of the reporting period, whereas
non-adjusting events are indicative of conditions arising after the reporting
period.
The treatment of the VTP ESAPI body armor product failure as an adjusting
event was considered a significant judgement in the period. See note 6.3 for
further details and note 3.1 for the impact of this event.
Impairment review asset grouping
Intangible assets are tested for impairment by grouping development assets
into the smallest identifiable group of assets generating future cash flows
largely independent from other assets (CGUs). Included in these CGUs are
development expenditure, tangible assets related to the product group and
acquired intangibles where associated with the development project.
The identification of the levels at which to group assets for the purpose of
impairment testing in relation to those associated with the amor business is
considered a significant judgement in the period as it required the Group to
exercise judgment in respect of what assets were solely used in the armor
business. See note 3.1 for further details.
Identification and valuation of acquired intangibles
Acquisitions may result in the recognition of acquired intangibles which
include customer relationships, brands and trademarks, patents and order
books, the identification of which are inherently judgemental.
The fair value of assets acquired is determined using complex valuation
techniques including forecasting and discounting of future cash flows. This
includes assumptions such as discount rates, royalty rates and estimates for
growth rates, weighted average cost of capital and useful lives. Changes in
these assumptions could have a significant impact on the carrying value of
assets.
The Group engages with external experts to support the valuation of acquired
intangibles and validate the assumptions made in this process.
See note 3.1 for further details including sensitivity analysis.
Section 2: Results for the year
2.1 Operating segments
The Group Executive team is responsible for allocating resources and assessing
performance of the operating segments. Operating segments are therefore
reported in a manner consistent with the internal reporting provided to the
Group Executive team.
Following the divestment of milkrite | InterPuls the Group has one clearly
defined reportable segment, which is made up of two aggregated operating
segments Avon Protection and Team Wendy, and operates primarily out of Europe
and the U.S. In the prior period, the Ceradyne ballistic protection business
was also treated as a separate operating segment. This has now been fully
integrated into Avon Protection. The presentation of the two operating
segments as a single reportable segment is considered appropriate due to the
very close alignment of customers, markets, manufacturing processes,
distribution methods and regulatory environment across the underlying lines of
business.
2020
2021 restated(1)
$m $m
Revenue 248.3 213.6
Segmental result (adjusted EBITDA)(2) 37.6 49.0
Depreciation (10.4) (6.5)
Other impairment charges (0.4) -
Other amortisation charges (4.8) (4.0)
Items related to armor assets (31.1) -
Amortisation of acquired intangibles (14.2) (8.3)
Other adjusting items(2) (5.7) (21.3)
Operating (loss)/profit (29.0) 8.9
Net finance costs (6.6) (6.7)
(Loss)/profit (35.6) 2.2
before taxation
Taxation 11.1 1.6
(Loss)/profit for the year from continuing operations (24.5) 3.8
Discontinued operations - (loss)/profit (1.1) 167.6
for the year
(Loss)/profit for the year (25.6) 171.4
Segment
assets
398.7 454.5
Segment (193.3) (225.0)
liabilities
Other segment items
Capital
expenditure
- Intangible assets 19.9 12.3
- Property, plant and equipment 11.7 9.3
1
On 1 October 2020, the Group changed its reporting currency from sterling to U.S. dollars. See
section 1, General information and Basis of Preparation, for further details.
2 Other adjusting items are outlined in the Adjusted Performance
Measures section, which shows a full breakdown of adjusted measures, including
a reconciliation between segmental adjusted EBITDA and statutory operating
profit by line item. Other adjusting items for the prior year include a $7.7m
inventory pro-forma acquisition accounting adjustment which is unaudited.
Revenue includes $130.8m (2020: $127.5m) of revenues from the U.S. DOD, sold
directly and through indirect channels, the only customer which individually
contributes more than 10% to Group revenues.
Revenue analysed by geographic origin
2021 2020
$m $m
Europe 32.3 19.3
U.S. 216.0 194.3
Total 248.3 213.6
Revenue by nature of performance obligation
2021 2020
$m $m
Sale of goods(1) 246.5 210.5
Provision of services(2) 1.8 3.1
248.3 213.6
1 Products transferred to the customer and therefore revenue
recognised at a point in time.
2 Products and services transferred over time and therefore revenue
recognised over that period of time.
Revenue by line of business - restated(1)
Year ended 30 September 2021 Year ended 30 September 2020
Respiratory Ballistic(2) Total Respiratory Ballistic(2) Total
$m $m $m $m $m $m
Military 113.5 34.0 147.5 104.9 49.0 153.9
First 55.1 5.4 60.5 56.7 3.0 59.7
Responder
Avon 168.6 39.4 208.0 161.6 52.0 213.6
Protection
Team - 41.0 41.0 - - -
Wendy
Eliminations - (0.7) (0.7) - - -
168.6 79.7 248.3 161.6 52.0 213.6
1 Following the change in operating segments, any revenues
formerly generated through the Ceradyne ballistic protection business are
subsumed into Avon Protection and have been allocated in line with the rest of
the Group.
2 Military Ballistic revenue includes armor revenues of $6.5 million
(2020: $13.7 million)
2.2 Discontinued operations
In September 2020 the Group disposed of the entire milkrite | InterPuls
business. As a result of the divestment the milkrite | InterPuls business has
been classified as discontinued. As part of the sale and purchase agreement,
the Group entered into a Manufacturing Service Agreement with the purchasers
of milkrite | InterPuls to provide ongoing manufacturing whilst arrangements
are made to relocate manufacturing equipment from our U.K. facility. The Group
also entered into agreements to provide certain other information technology
and administrative services under a 12-month Transitional Services Agreement.
As the activities under these agreements are not part of the continuing
operations of the Group, the revenue and costs during the year associated with
these agreements have been classified as discontinued operations.
The results of discontinued operations are as follows:
2021 2020
$m $m
Revenue 4.1 68.6
Cost of (5.3) (35.7)
Sales
Gross (1.2) 32.9
(loss)/profit
Selling and distribution costs - (12.0)
General and administrative expenses (0.9) (12.9)
Operating (loss)/profit (2.1) 8.0
Finance costs - (0.1)
(Loss)/Profit before (2.1) 7.9
taxation
Taxation 1.0 (1.0)
(Loss)/Profit for the (1.1) 6.9
period
Gain on divestment (note 6.2) - 172.4
Tax on gain on divestment - (11.7)
Gain on divestment - 160.7
(Loss)/Profit from discontinued operations (1.1) 167.6
Basic earnings per share (3.6c) 548.0c
Diluted earnings per (3.5c) 540.6c
share
Cash flows from discontinued operations included in the cash flow statement
are as follows:
2021 2020
$m $m
Net cash flows from operating activities (3.3) 9.0
Net cash flows from investing activities 2.8 205.4
Net cash flows from financing activities - (0.8)
Net cash flows from discontinued operations (0.5) 213.6
2.3 Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable
to ordinary shareholders by the weighted average number of ordinary shares in
issue during the year, excluding those held in the employee share ownership
trust. The Company has dilutive potential ordinary shares in respect of the
Performance Share Plan.
Reconciliations of the earnings and weighted average number of shares used in
the calculations are set out below.
Weighted average number of shares 2021 2020
Weighted average number of ordinary shares in issue used in basic calculations 30,669 30,576
(thousands)
Potentially dilutive shares (weighted average) (thousands) 189 423
Diluted number of ordinary shares (weighted average) (thousands) 30,858 30,999
2021 2020
Earnings $m $m
Basic (25.6) 171.4
Basic - continuing operations (24.5) 3.8
Basic - discontinued operations (1.1) 167.6
2021 2020
Earnings per share $ cents $ cents
Basic (83.5) 560.5
Basic - continuing operations (79.9) 12.5
Basic - discontinued operations (3.6) 548.0
Diluted (83.0) 552.9
Diluted - continuing operations (79.4) 12.3
Diluted - discontinued operations (3.6) 540.6
2.4 Taxation
2021 2020
$m $m
U.K. current tax 0.4 (0.5)
Overseas current tax (2.7) (1.8)
Overseas adjustment in respect of previous periods (0.6) (1.7)
Total current tax credit (2.9) (4.0)
Deferred tax - current year (6.5) 2.8
Deferred tax - adjustment in respect of previous periods (1.7) (0.4)
Total deferred tax charge (8.2) 2.4
Total tax credit (11.1) (1.6)
The overseas adjustment in respect of the prior period of $0.6m (2020: $1.7m)
includes a $0.3m credit in connection with the resolution of a number of prior
year uncertain tax positions (2020: $1.0m).
The above table excludes tax on discontinued operations which amounted to a
credit of $1.0m in the current period (2020: charge of $1.0m on profit from
discontinued operations and capital gains tax on the divestment of milkrite |
InterPuls of $11.7m).
The U.K. Budget Announcement on 3 March 2021 stated that the corporation tax
rate would increase to 25% (effective 1 April 2023), this increase was
substantively enacted on 14 May 2021 and will increase the Company's future
current tax charge accordingly. The impact of this increase is also reflected
in these financial statements for all U.K. deferred tax assets.
The tax on the Group's (loss)/profit before taxation differs from the
theoretical amount that would arise using the standard U.K. tax rate
applicable to profits of the consolidated entities as follows:
2021 2020
$m $m
(Loss)/profit (35.6) 2.2
before taxation
(Loss)/profit before taxation at the average standard rate of 19.0% (2020: (6.8) 0.4
19.0%)
Tax allowances (U.K. and U.S.) (0.3) (0.8)
Non deductible expenses 0.2 0.3
Changes in tax rates (0.9) -
Differences in overseas tax rates (0.7) 0.6
Adjustment in respect of previous periods (2.6) (2.1)
Total tax credit (11.1) (1.6)
The income tax credited directly to equity during the year was $1.2m (2020:
$nil). The deferred tax credited directly to Other Comprehensive Income during
the year was $2.6m (2020: $7.6m). The deferred tax charged directly to equity
during the year was $1.9m (2020: credit of $1.8m).
Deferred tax liabilities
Accelerated capital allowances Other temporary
$m differences Total
$m $m
At 1 October 2019 1.8 4.9 6.7
Charged/(credited) to profit for the year 3.8 (1.5) 2.3
Charged to Other Comprehensive Income - 0.1 0.1
Removed on divestment - (3.5) (3.5)
At 30 September 2020 5.6 - 5.6
Charged/(credited) to profit for the year 0.5 - 0.5
At 30 September 2021 6.1 - 6.1
Deferred tax assets
Deferred tax assets have been recognised in respect of temporary differences
giving rise to deferred tax assets where it is probable that these assets will
be recovered.
Retirement Accelerated Other temporary differences $m
benefit obligation Share options capital allowances Tax losses Pension spreading Right of Use Assets
$m $m $m $m $m Intangibles $m Total
$m $m
At 30 September 2019 11.3 1.1 0.1 - - 0.4 0.5 4.9 18.3
Provided on acquisition - - - - - - - 0.6 0.6
(Charged)/credited against profit for the year
(4.3) - - 1.2 3.7 2.1 - (1.3) 1.4
Credited/(charged) to Other Comprehensive Income
6.9 - - - - - - (0.5) 6.4
Impact of change in tax rates credited to Other Comprehensive Income
1.2 - - - - - - - 1.2
Credited to equity - 1.8 - - - - - - 1.8
At 30 September 2020 15.1 2.9 0.1 1.2 3.7 2.5 0.5 3.7 29.7
Credited/(charged) against profit for the year
- 0.1 (0.1) 3.4 (1.3) 5.0 2.8 (1.0) 8.9
Impact of change in tax rates credited to profit for the year
- - - 0.6 0.2 - 0.1 - 0.9
Credited/(charged) to Other Comprehensive Income
(3.1) - - - - - - 0.3 (2.8)
Impact of change in tax rates credited to Other Comprehensive Income
4.1 - - - - - - - 4.1
Exchange differences offset in reserves
1.0 0.2 - (0.1) 0.2 - - - 1.3
Charged to equity - (1.9) - - - - - - (1.9)
At 30 September 2021 17.1 1.3 - 5.1 2.8 7.5 3.4 3.0 40.2
The standard rate of corporation tax in the U.K. is 19%. The Group has
unrecognised deferred tax assets of $4.7m (2020: $3.3m) in respect of capital
losses where it is not considered that there will be sufficient available
future profits to utilise these losses. The gross amount of unrecognised
deferred tax assets is $18.7m and has no expiry date.
Deferred tax on pension spreading relates to excess pension contributions made
in the previous year for which tax relief is spread across four years.
$1.6m of the deferred tax asset within other temporary differences relates to
inventory reserves and differing cost capitalisation rules for accounting and
tax purposes, with the remainder of other temporary differences relating to a
number of smaller timing differences between tax and accounting treatment.
Section 3: Non-current assets
3.1 Intangible assets
Acquired intangibles Development Computer software
expenditure
Goodwill $m $m Total
$m $m $m
At 1 October 2019
Cost 4.1 29.4 47.1 6.5 87.1
Accumulated amortisation
and
impairment - (11.1) (27.0) (5.5) (43.6)
Net book amount 4.1 18.3 20.1 1.0 43.5
Year ended 30 September 2020
Opening net book amount 4.1 18.3 20.1 1.0 43.5
Exchange - 0.6 0.7 0.2 1.5
differences
Additions - - 6.6 5.7 12.3
Acquisitions 28.0 38.4 - - 66.4
Divestment of milkrite | InterPuls (1.8) (13.4) (2.9) (0.1) (18.2)
Amortisation - (11.2) (4.1) (0.8) (16.1)(1)
Closing net book amount 30.3 32.7 20.4 6.0 89.4
At 30 September 2020
Cost 30.3 46.5 49.4 10.2 136.4
Accumulated amortisation
and - (13.8) (29.0) (4.2) (47.0)
impairment
Net book amount 30.3 32.7 20.4 6.0 89.4
Year ended 30 September 2021
Opening net book amount 30.3 32.7 20.4 6.0 89.4
Exchange 0.2 - 0.2 0.6 1.0
differences
Additions - - 15.0 4.9 19.9
Acquisitions 58.3 51.7 - 0.1 110.1
Armor related impairments - (11.3) (8.1) - (19.4)
Other - - (0.3)(2) (0.7)(3) (1.0)
impairment
Amortisation - (14.2) (4.0) (0.8) (19.0)
Closing net book amount 88.8 58.9 23.2 10.1 181.0
At 30 September 2021
Cost 88.8 98.2 64.6 15.1 266.7
Accumulated amortisation and impairment
- (39.3) (41.4) (5.0) (85.7)
Net book amount 88.8 58.9 23.2 10.1 181.0
1 2020: $3.8m of the amortisation charge in the year relates to
discontinued operation.
2 An ongoing development project was written off during the year as
a tender to obtain additional third party funding was not successful.
3 Computer software includes the write down of $0.7m brought forward
capitalised costs relating to the configuration and customisation costs in
cloud computing arrangements, see adjusted performance measures.
The remaining useful economic life of the development expenditure is between
four and ten years.
Impairment Review
Development costs (excluding armor related development costs)
The Group tests development cost assets not yet ready for use annually for
impairment, or more frequently if there are indications of impairment.
Intangible assets are tested for impairment by grouping development assets
into the smallest identifiable group of assets generating future cash flows
largely independent from other assets (CGUs). Included in these CGUs are
development expenditure, tangible assets related to the product group and
acquired intangibles where associated with the development project. The CGUs
have been tested against their recoverable amount deemed to be their value in
use. Cash flows were discounted to give a present value using pre-tax discount
rates ranging between 10.4% and 37.2% depending on the deemed associated risk
profiles of each CGU.
At the year end $13.0m of development costs relate to technology under
development, including $3.9m subject to final feasibility tests and $3.5m with
future cash flows reliant on key customers. If final feasibility tests are
unsuccessful or delayed such that the projected economic benefit will not be
achieved in the asset's lifetime these costs, along with associated assets,
could be subject to impairment. Key customer reliance includes assumptions of
contractual extensions and future contract wins.
Specifically $3.9m subject to final feasibility tests relates to the next
generation Integrated Head Protection System ('IHPS'). It is assumed
successful first article testing and product approval will be achieved for
this product.
Where reliant on key customers if those customers choose not to renew or
awards contracts to the Group, and there is no alternative use for the
developed technology, approximately 15% of capitalised development cost
($3.5m) could be subject to impairment, along with associated assets. New
product development in its early development stages is subject to assumptions
made regarding demands in the market. If such demand did not materialise
approximately 4% of capitalised development costs ($1.0m) would be subject to
impairment, along with associated assets.
Goodwill impairment testing
Separately, goodwill was tested for impairment by comparing the carrying
values against the value in use of the relevant CGU groups, being the Avon
Protection and Team Wendy operating segments. The value in use calculations
were based on projected cash flows derived from the latest three-year plan
approved by the Board. Cash flows for beyond three years for the Avon
Protection CGU were projected to grow by 2.0% p.a. and for the Team Wendy CGU
by 4.0% p.a. Cash flows were discounted to give a present value using a
pre-tax discount rate of 8.9% (2020: 8.6%) for the organic Avon Protection
business and 10.9% for the Team Wendy business. These discount rates were
derived at using external expert advice taking into consideration current
market conditions based on U.S. market data.
Sensitivity analysis demonstrates that a decrease in forecast revenue of more
than 58% (2020: 60%) in relation to the organic Avon Protection business and
28% in relation to the Team Wendy business could be sustained before an
impairment was required. In addition, increasing the discount rate by 2% would
not lead to any indications of impairment.
Armor related impairments
On 12 November 2021 the Group announced the next-generation VTP ESAPI body
armor product had failed first article testing. This followed a similar result
in December 2020 for the legacy DLA ESAPI body armor product. It was also
announced that the Group is experiencing further delays in achieving final
product approval for the DLA ESAPI product following the successful completion
of ballistic testing in August 2021, thereby pushing expected revenues from
the second quarter into the third quarter of FY22.
The failure of the VTP ESAPI body armor product is considered an adjusting
event that provides evidence of conditions that existed at the end of the
reporting period (see note 6.3). As such the Group's impairment review of
assets at 30 September 2021 included the removal of all future revenue for VTP
ESAPI body armor. The impairment review also incorporated reduced revenue
expectations for DLA ESAPI in line with minimum volumes for the base and two
extension years, given the increased uncertainty of timing of the approval
following the already experienced delays during FY21, and uncertainty over
whether the customer would extend the contract. The DLA revenue assumed
reflects the Group's expectations at 30 September 2021, and is not related to
post balance sheet events.
Impairment testing at 30 September 2021 for assets related to the armor
business has been performed at multiple levels as these assets generate cash
inflows along with assets in other parts of the Group. The levels the
impairment testing has been performed as follows:
1. Product level - VTP ESAPI and DLA ESAPI are both separate products.
Included in these CGUs are development expenditure, tangible assets related to
the product group, inventory and acquired intangibles where associated with
the development project.
2. At the armor business level - this includes the VTP ESAPI and DLA ESAPI
CGUs, and other armor specific assets such as acquired intangibles as well as
PPE (including Right of Use Assets) which solely relate to the entire armor
business.
3. Ballistic level - this includes the armor business assets, and the
assets related to the acquired Ceradyne helmet business.
4. Avon Protection business level - this includes ballistic assets and
other assets that make up the Avon Protection operating segment, including
goodwill relating to the Ceradyne acquisition (see below).
The impairment review resulted in total non-current asset impairment of $45.1m
in respect of assets relating to the Ceradyne armor business acquired from 3M
as part of the ballistic protection acquisition - these arose at the
individual product level and the armor business level. In addition, inventory
provisions of $1.7m were recognised against VTP ESAPI armor materials.
Offsetting these charges, a gain of $15.7m was recognised to reduce the net
present value of the contingent consideration payable to 3M as a result of the
reduced revenue expectations from the DLA ESAPI body armor contract.
The pre tax discount rates used in determining the value in use at each level
were between 8.9% on the Avon Protection business level and 62.3% at the
product level, reflecting the level of uncertainty associated with each of the
asset groups reviewed for impairment.
There was no further impairment when subsequently testing Ballistic protection
level assets and finally Avon Protection CGU assets against expected values in
use. Goodwill relating to the Ceradyne acquisition of $28.0m and the Ceradyne
helmet intangible assets with a carrying value of $28.9m have therefore been
unaffected by the impairment review.
The impairments have fully written down armor assets to recoverable amounts.
The overall armor asset base, impairments charged and remaining recoverable
amounts are summarised as follows:
Armor-specific Recoverable Amounts
assets
Carrying Value Impairment $m
$m $m
Acquired intangibles 11.3 (11.3) -
Development 8.1 (8.1) -
expenditure
Right of use assets 11.7 (11.7) -
Plant and machinery 14.4 (13.9) 0.5
Leasehold 0.1 (0.1) -
improvements
Inventory 13.3 (1.7) 11.6
Total 58.9 (46.8) 12.1
Recoverable amounts for plant and machinery are based on fair value less costs
to sell. These are considered level 2 assets in a fair value hierarchy, valued
based on market data for resale values on disposal. The recoverable amount for
all other assets is based upon the relevant value in use. Remaining
non-current assets have both fair value less costs to sell and value in use of
nil.
Changes in the discount rate or growth rate utilised in the product level and
armor level reviews would not materially change the total impairment.
Impairments were recognised through general and administrative expenses in the
Consolidated Statement of Comprehensive Income.
The failures in testing within the armor business do not impact respiratory
and head protection products, and the Group remains confident future
regulatory approvals will be obtained for these businesses as required.
Goodwill
Goodwill acquired in a business combination is allocated to the groups of cash
generating units (CGUs) that are expected to benefit from that business
combination. During the year additional Goodwill of $58.3m was recognised on
the acquisition of the assets of Team Wendy (2020: $28.0m recognised on
acquisition of the 3M ballistic protection business less $1.8m derecognised on
the divestment of the milkrite | InterPuls business). Subsequent to these
transactions the full carrying value of $58.3m associated with Team Wendy was
recognised in the Team Wendy CGU with the full carrying value of $28.0m
associated with the acquisition of the 3M ballistic protection business being
recognised in the Avon Protection CGU, following the incorporation of the 3M
ballistic protection business into the Avon Protection operating segment.
Acquired Intangibles
Acquired intangibles include brands, customer relationships and other
intangibles:
At 30 September
At 1 October 2021
2020 Net book amount
Net book amount $m
$m Additions Divestments Amortisation Impairment
$m $m $m $m
Brand 2.2 10.4 - (1.1) - 11.5
Customer 20.0 28.2 - (10.0) (9.8) 28.4
relationships
Other 10.5 13.1 - (3.1) (1.5) 19.0
intangibles
32.7 51.7 - (14.2) (11.3) 58.9
At
30 September
2020
Net book
amount
$m
At 1 October Additions Divestments Amortisation Foreign
2019 $m $m $m Exchange
Net book Difference
amount $m
$m
Brand 2.1 2.4 (1.5) (0.8) - 2.2
Customer 11.8 25.9 (9.7) (8.2) 0.2 20.0
relationships
Other 4.4 10.1 (2.2) (2.2) 0.4 10.5
intangibles
18.3 38.4 (13.4) (11.2) 0.6 32.7
The valuation of acquired assets is determined at point of acquisition, using
complex valuation techniques including forecasting and discounting of future
cashflows. This includes assumptions such as discount rates, royalty rates and
estimates for growth rates, weighted average cost of capital and useful lives.
In the current period, the Group acquired additional intangibles through the
acquisition of the Team Wendy business (see note 6.2) which related to trade
names ($10.4m), technology ($13.1m) and customer contracts ($28.2m). External
experts were engaged to support the Group in establishing appropriate
estimates for the fair values of these assets. Trade names and technology were
valued using the relief from royalty method, whilst customer contracts were
valued using the excess earnings method. Assumptions adopted for the valuation
of the individual assets included average annual growth rates of 4.7%-5.4% for
revenue forecasts, royalty rates between 1%-7.5% depending on the individual
assets, relevant qualitative factors and comparable market data as well
discount factors of 10.6%-12.6%, based on current market data and the risks
associated with each of the individual assets.
Sensitivity analysis has shown that a reduction of assumed growth rates by 2%
would lead to a reduced value of $1.6m across the acquired intangibles with a
corresponding increase in value of Goodwill. A change in assumed discount
factors by 1% would lead to a change in value of $2.1m and a 10% variance in
assumed royalty rates would lead to a change in value of $2.4m across acquired
intangibles with a corresponding change in the valuation of Goodwill.
Customer Relationships
Customer relationships include two separately identifiable individually
material contracts one with the National Industries for the Blind (NIB) and
one with the Defense Logistics Agency (DLA). The NIB contract was acquired in
the current period through the acquisition of Team Wendy at a fair value of
$14.9m. As at 30 September 2021, this acquired intangible had a carrying value
of $13.7m and a remaining amortisation period of 10 years.
The DLA contract was acquired in the prior period through the acquisition of
the 3M ballistic protection business at a fair value of $20.0m and an initial
amortisation period of three years. As a result of lower revenue expectations
from this contract, an impairment of $8.3m was recognised in the year within
general and administrative expenses to reduce the carrying value to $nil as at
the 30 September 2021.
Other customer relationships include those associated with the acquisition of
the 3M ballistic protection business originally recognised at a fair value of
$5.9m amortised over five years. The remaining carrying value of these assets
is $2.3m, after amortisation charges and a $1.5m impairment as a result of the
armor review.
Other customer relationships also included other Team Wendy customer
relationships acquired at fair value of $13.3m. As at 30 September 2021, these
acquired intangibles had a carrying value of $12.4m and a remaining
amortisation period of 13 years.
3.2 Property, Plant and Equipment
Right of use Plant and machinery Leasehold Improvements
Freeholds assets $m $m Total
$m $m $m
At 1 October 2019
Cost 15.5 25.2 87.8 - 128.5
Accumulated depreciation and impairment (5.4) (13.9) (71.5) - (90.8)
Net book amount 10.1 11.3 16.3 - 37.7
Year ended 30 September 2020
Opening net book amount 10.1 11.3 16.3 - 37.7
Exchange 0.4 (0.3) 0.1 - 0.2
differences
Transfers - 0.5 (0.5) - -
Additions - 7.8 9.3 - 17.1
Acquisition - 12.6 24.7 1.3 38.6
Disposal - - (0.1) - (0.1)
Divestment milkrite | InterPuls (8.4) (2.9) (6.5) - (17.8)
Depreciation (0.4) (3.3) (6.1) - (9.8)(1)
charge
Closing net book amount 1.7 25.7 37.2 1.3 65.9
At 30 September 2020
Cost 2.8 37.5 83.8 1.3 125.4
Accumulated depreciation and impairment (1.1) (11.8) (46.6) - (59.5)
Net book amount 1.7 25.7 37.2 1.3 65.9
Year ended 30 September 2021
Opening net book amount 1.7 25.7 37.2 1.3 65.9
Exchange - 0.5 0.5 - 1.0
differences
Additions 0.2 1.6 9.0 2.5 13.3
Acquisition - 3.1 5.4 0.1 8.6
Reclassification - - (4.0)(2) - (4.0)
Armor review impairments - (11.7) (13.9) (0.1) (25.7)
Other - - (0.1) - (0.1)
impairment
Depreciation (0.1) (4.2) (5.8) (0.3) (10.4)
charge
Closing net book amount 1.8 15.0 28.3 3.5 48.6
At 30 September 2021
Cost 3.0 42.7 94.7 3.9 144.3
Accumulated depreciation and impairment (1.2) (27.7) (66.4) (0.4) (95.7)
Net book amount 1.8 15.0 28.3 3.5 48.6
1 2020: $3.3m of the depreciation charge related to discontinued
operations.
2 Following an internal review of assets acquired in the prior
period as part of the acquisition of the 3M ballistic protection business, the
Group has re-classified $4.0m from fixed assets to inventory due to the
underlying nature of such assets being consumable and having a short useful
economic life.
Property, plant and equipment of $61.2m is located within the United States of
America (2020: $54.0m). The balance is located in the United Kingdom.
Armor review related impairments
The Group performed an impairment review of assets at 30 September 2021
following the failure of the VTP ESAPI body armor product (note 3.1). As a
result of this review impairments totalling $25.7m were recognised on
property, plant and equipment.
The right of use asset impairment of $11.7m fully writes down amounts relating
the three U.S. lease hold properties that will be vacated following the
expected closure of the armor business.
The plant and machinery impairment of $13.9m writes down assets related to the
armor business located at these facilities to their estimated recoverable
amount following closure of the operations.
Section 4: Working capital
4.1 Cash and cash equivalents
2021 2020
Cash at bank and in hand 14.1 187.2
Cash at bank and in hand balances are denominated in U.S. dollars, pound
sterling and euro and earn interest based on national rates.
The Group generates cash from its operating activities as follows:
2021 2020
$m $m
Continuing
operations
(Loss)/profit for the year (24.5) 3.8
Adjustments
for:
Taxation (11.1) (1.6)
Depreciation 10.4 6.5
Amortisation of intangible assets 19.0 12.3
Impairment of non-current assets 46.2 -
Defined benefit pension scheme cost 1.2 0.9
Finance costs 3.1 2.4
Other finance expense 3.5 4.3
Change in contingent consideration (15.7) -
Fair value of share-based payments 0.7 1.8
Acquisition and integration costs expensed 2.6 13.6
(Increase) in inventories (9.7) (2.4)
Decrease/(increase) in receivables 5.4 (1.9)
Increase in payables and provisions 0.2 0.3
Cash flows from continuing operations before acquisition and integration costs 31.3 40.0
Acquisition and integration costs paid (4.4) (10.9)
Cash flows from continuing operations 26.9 29.1
Discontinued
operations
(Loss)/profit for the year (1.1) 167.6
Adjustments
for:
Taxation (1.0) 1.0
Depreciation - 3.3
Amortisation of intangible assets - 3.8
Finance costs - 0.1
Gain on divestment - (160.7)
(Increase) in inventories - (1.0)
(Increase) in receivables - (8.3)
(Decrease)/increase in payables and provisions (1.2) 3.2
Cash flows from discontinued operations (3.3) 9.0
Cash flows from operations 23.6 38.1
Section 5: Funding
The Group has maintained a strong balance sheet in order to fund its growth
strategy. Additional funding is available via undrawn committed facilities.
The following section provides disclosures about the Group's funding position,
including borrowings, finance costs, exposure to financial risks and its
capital management policies.
5.1 Borrowings
2021 2020
$m $m
Current
Bank - 39.5
loans
Lease liabilities 4.0 3.2
4.0 42.7
Non
Current
Bank 40.9 -
loans
Lease liabilities 25.1 25.8
66.0 25.8
Total Group borrowings 70.0 68.5
Bank loans comprise drawings under the revolving credit facility.
The Group has the following undrawn committed facilities:
2021 2020
$m $m
Expiring beyond one year
Total undrawn committed borrowing facilities 164.1 165.1
Bank loans and overdrafts utilised 40.9 39.5
Utilised in respect of guarantees - 0.4
Total Group facilities 205.0 205.0
The Group has a revolving credit facility (RCF) with a total commitments of
$200m across six lenders with an accordion option of an additional $50m. The
facility matures on 8 September 2024 with a one-year extension option to 8
September 2025.
The RCF is subject to financial covenants measured on a bi-annual basis. These
include a limit of 3.0 times for the ratio of net debt, excluding lease
liabilities, to adjusted EBITDA (leverage). The Group was in compliance with
all financial covenants during the current and prior financial years.
The RCF is drawn in short to medium-term tranches of debt which are repayable
within 12 months of draw-down. These tranches of debt can be rolled over
provided certain conditions are met, including covenant compliance. The Group
considers that it is highly unlikely it would be unable to exercise its right
to roll-over the debt based on forecast covenant compliance. Even in a severe
downside scenario there are mitigating actions (within the control of the
Group) that could be taken to maintain compliance with these conditions,
including future covenant requirements. The Directors therefore believe that
the Group has the ability and the intent to roll-over the drawn RCF amounts
when due and consequently has presented the RCF as a non-current liability.
The RCF is floating rate priced on dollar LIBOR plus a margin of 1.45-2.35%
depending on leverage. The Group has provided the lenders with a negative
pledge in respect of certain shares in Group companies.
In addition to the revolving credit facility our U.S. operations have access
to a $5.0m overdraft facility.
The table below presents the maturity analysis in respect of lease liabilities
and bank loans:
As at 30 September 2021 As at 30 September 2020
$m $m
In one year or less, or on demand 4.0 42.7
Two to five years 55.8 14.0
More than five years 10.2 11.8
Total Group borrowings 70.0 68.5
Lease liabilities relate to land and buildings (right of use assets) leased by
the Group for its office space and manufacturing facilities. The leases
typically run for a period of 5-15 years. Most leases include an option to
renew the lease for an additional period of 3-10 years after the end of the
contract term. Where practicable, the Group seeks to include extension options
in new leases to provide operational flexibility. The extension options held
are exercisable only by the Group and not by the lessors. The Group assesses
at lease commencement whether it is reasonably certain to exercise the
extension options. It reassesses whether it is reasonably certain to exercise
the options if there is a significant change in circumstances within its
control and discloses any potential future lease payments not included in
lease liabilities where it is reasonably certain extension options will be
exercised.
Payments associated with short-term leases and leases of low-value assets are
recognised on a straight-line basis as an expense in the income statement.
Short-term leases are leases with a lease term of 12 months or less. Low-value
assets comprise IT and other equipment.
5.2 Net finance costs
2021 2020
$m $m
Finance Costs
Interest payable on bank loans and overdrafts (1.4) (1.3)
Interest payable in respect of leases (1.1) (1.1)
Amortisation of finance fees (0.6) -
(3.1) (2.4)
Other Finance Expenses
Net Interest cost: U.K. defined benefit pension scheme (1.3) (1.0)
Refinancing - (0.4)
costs
Unwinding of discount on contingent consideration (note 6.1) (2.2) (2.9)
(3.5) (4.3)
Net Finance (6.6) (6.7)
Costs
The effective interest rates at the balance sheet dates were as follows:
2021 2020
Sterling Dollar Sterling Dollar
% % % %
Bank - 1.60% - 1.85%
loans
Lease liabilities 6.5% 2.5% 6.5% 2.5%
5.3 Analysis of net cash/(debt)
At 30 September
At 1 October Cash flow Non cash movements Exchange movements 2021
2020 $m $m $m $m
$m
Cash at bank and in hand 187.2 (173.7) - 0.6 14.1
Bank loans (39.5) (1.4) - - (40.9)
Interest due on bank loans - 1.3 (1.3) - -
Cash net of bank loans and interest 147.7 (173.8) (1.3) 0.6 (26.8)
Lease liabilities (29.0) (4.8) 4.2 0.5 (29.1)
Net 118.7 (178.6) 2.9 1.1 (55.9)
cash/(debt)
At 30 September
At 1 October Cash flow Non cash movements Exchange movements 2020
2019 $m $m $m $m
$m
Cash at bank and in hand 59.6 125.3 - 2.3 187.2
Bank (0.1) (39.4) - - (39.5)
loans
Interest due on bank loans - 1.1 (1.1) - -
Cash net of bank loans and interest 59.5 87.0 (1.1) 2.3 147.7
Lease liabilities (15.9) 3.0 (15.2) (0.9) (29.0)
Net 43.6 90.0 (16.3) 1.4 118.7
cash/(debt)
5.4 Equity
Share capital
Ordinary Share Ordinary shares Share premium
No. of shares 2021 shares premium 2020 2020
2021 2021 No. of shares 2020 $m $m
$m $m
Called up allotted and fully paid ordinary shares of £1 each
At the beginning of the year 31,023,292 50.3 54.3 31,023,292 50.3 54.3
At the end of the year 31,023,292 50.3 54.3 31,023,292 50.3 54.3
Ordinary shareholders are entitled to receive dividends and to vote at
meetings of the Company.
5.5 Dividends
On 29 January 2021, the shareholders approved a final dividend 23.5c per
qualifying ordinary share in respect of the year ended 30 September 2020. This
was paid on 12 March 2021 utilising $7.7m of shareholders funds (2020: $5.5m).
The Board of Directors declared an interim dividend of 14.3c (2020: 11.0 c)
per qualifying ordinary share in respect of the year ended 30 September 2021.
This was paid on 3 September 2021 utilising $4.4m (2020: $3.4m) of
shareholders funds.
The Board is recommending a final dividend of 30.6 cents per share (2020: 23.5
cents) which together with the 14.3 cents per share interim dividend gives a
total dividend of 44.9 cents (2020: 34.5 cents), up 30% on last year. The
final dividend will be paid on 11 March 2022 to shareholders on the register
at 11 February 2022 with an ex-dividend date of 10 February 2022.
Section 6: Other
6.1 Provisions for liabilities and charges
Property obligations Contingent consideration
$m $m Total
$m
Balance at 30 September 2019 2.8 - 2.8
Provision reversed during the year (0.3) - (0.3)
Provision released during the year due to divestment (0.8) - (0.8)
Provision created during the year 0.3 - 0.3
Property provision assumed on acquisition 0.8 - 0.8
Provision for contingent consideration created during the year - 20.0 20.0
Unwind - 2.9 2.9
of discount on provisions
Payments in the year - (3.4) (3.4)
Foreign exchange movements (0.1) - (0.1)
Balance at 30 September 2020 2.7 19.5 22.2
Provision created during the year 0.1 - 0.1
Release of contingent consideration - (15.7) (15.7)
Unwind - 2.2 2.2
of discount on provisions
Foreign exchange movements 0.1 - 0.1
Balance at 30 September 2021 2.9 6.0 8.9
2021 2020
Analysis of total provisions $m $m
Current 3.5 9.6
Non-current 5.4 12.6
8.9 22.2
Property obligations relate to leased premises of the Group which are subject
to dilapidation risks and are expected to be utilised within the next 10
years. In the prior year, movements in respect of dilapidations provisions
during the year included release of provisions on exit of lease ($0.3m),
provisions released as a result of the divestment of the milkrite | InterPuls
business ($0.8m), and provisions created on the acquisition of the Helmets
& Armor business ($0.8m), and in respect of other sites $0.3m. Property
provisions are subject to uncertainty in respect of any final negotiated
settlement of any dilapidation claims with landlords.
The purchase consideration in relation to the 3M ballistic protection business
acquisition included contingent consideration up to a maximum of $25.0m
depending on the outcome of certain tenders which were pending at the
acquisition date and the level of sales which were generated on these
contracts if secured. At acquisition the fair value of the contingent
consideration was recognised as
$20.0m based on the expected value and timing of those payments after applying
a discount rate of 12% to reflect the risk in the cash flows at that date.
The contract that triggered the contingent consideration was awarded shortly
after the acquisition date and an initial order has subsequently been received
resulting in the first payment of $3.4m being made in 2020.
At the balance sheet date, the remaining contingent consideration has a fair
value of $6.0m, being the present value of the future expected cash flows
relating to the contract. This is expected to be settled over the next two
years.
The release of $15.7m in the year is due to reduced expectations of the timing
and amount of orders that will arise under this contract ($14.9m), and an
increase to the discount rate applied to expected future payments ($0.8m). The
range of possible outcomes could result in additional payments between $3.2m
and $21.6m.
6.2 Acquisitions & divestments
Acquisition - Team Wendy
The results of the Team Wendy business are consolidated for the first time in
the current period's financial statements as the acquisition was completed and
control passed on 2 November 2020.
The Group acquired 100% of the equity for a total consideration of $132.0m,
being the $130.0m initial consideration and purchase price adjustments of
$2.0m reflecting the cash and working capital position at close. The net
assets acquired had a book value of $22.3m before fair value adjustments.
Set out below is an analysis of the assigned fair values of the assets
acquired and liabilities assumed relating to this acquisition:
Fair value
$m
Customer 28.2
relationships
Brand 10.4
Other intangible assets 13.1
Property, plant and equipment 8.6
Inventories 12.2
Trade 5.8
and other receivables
Cash 1.1
Lease (3.1)
liability
Trade and other payables (2.6)
Net assets acquired 73.7
Goodwill 58.3
Total 132.0
consideration
Initial cash consideration 130.0
Post completion working capital adjustment 0.9
Cash acquired 1.1
Total 132.0
consideration
Goodwill of $58.3m was recognised in respect of this acquisition, representing
the amount paid for future sales growth from both new customers and new
products, operating cost synergies and employee know-how. 100% of the value of
goodwill is expected to be deductible for tax purposes.
From the date of acquisition to 30 September, Team Wendy generated $41.0m of
revenue (including $0.7m from other Group companies) and reported an operating
profit of $4.6m. The operating profit is stated after amortisation of acquired
intangibles of $4.0m and expensing the $2.4m inventory fair value step up
following the sell through of the acquired inventory. Had Team Wendy been
acquired on the first day of the financial year, then estimated contribution
to revenue would have been $44.7m and operating profit of $5.0m.
Acquisition costs of $2.2m were expensed in the year, following the
recognition of $7.4m of such costs in 2020. Acquisition costs of $4.4m were
paid in the period (2020 $4.8m).
Acquisition - 3M's ballistic protection business
The acquisition of the 3M ballistic protection business and the rights to the
Ceradyne brand completed on 2 January 2020. The acquisition took the form of a
trade and assets purchase.
The total acquisition consideration of $107.2m comprised initial consideration
agreed of $91m less an initial closing adjustment of $1.6m, resulting in a
payment on completion of $89.4m (£70.8m), a further post completion
adjustment of $2.2m (£1.7m) resulting from the closing inventory being lower
than the targeted level, plus fair value of contingent consideration of $20.0m
(£15.2m).
Set out below is an analysis of the assigned fair values of the assets
acquired and liabilities assumed relating to this acquisition:
Fair value
$m
Customer 25.9
relationships
Brand 2.4
Other intangible assets 10.1
Property, plant and equipment 37.2
Inventories 16.9
Lease (11.5)
liability
Accruals (1.4)
Dilapidations provisions (0.8)
Deferred 0.4
tax
Net assets acquired 79.2
Goodwill 28.0
107.2
Cash paid excluding acquisition expenses 89.4
Post completion inventory true up due from 3M (2.2)
Deferred contingent consideration payable* 20.0
Total 107.2
consideration
*
$3.4m of the deferred contingent consideration payable was paid during the prior year subsequent to the acquisition. $3.5m of the deferred contingent consideration payable is
expected to be paid in Q1 FY22.
Goodwill of $28.0m was recognised in respect of this acquisition, representing
the amount paid for future sales growth from both new customers and new
products, operating cost synergies and employee know-how. All of the value of
goodwill is deductible for tax purposes.
A further $0.4m of deal and transition costs were recognised in the year to 30
September 2021 and are included within general and administrative expenses
(2020: $6.2m).
Divestment - milkrite | InterPuls business
In September 2020, the Group disposed of milkrite | InterPuls to DeLaval
Holding BV for a cash consideration of $227.3m after customary closing
adjustments. Further details are given in note 2.2.
$m
Total consideration received 227.3
Net assets disposed (44.3)
Costs of divestment (11.3)
Translation reserve recycled to profit and loss on divestment 0.7
Gain on divestment 172.4
Tax on gain on divestment (11.7)
Gain on divestment after tax 160.7
Assets and liabilities at the date of divestment were:
$m
Intangible 18.2
assets
Property, plant and equipment 17.8
Inventories 7.6
Cash 3.4
Receivables 10.1
Payables (6.0)
Other (6.8)
liabilities
Total net assets disposed 44.3
6.3 Post balance sheet events
On 12 November 2021 the Group announced the next-generation VTP ESAPI body
armor product had failed first article testing. This followed a similar result
in December 2020 for the legacy DLA ESAPI body armor product. It was also
announced that the Group is experiencing further delays in achieving final
product approval for the DLA ESAPI product following the successful completion
of ballistic testing in August 2021, thereby pushing expected revenues from
the second quarter into the third quarter of FY22. As a result, the Board
conducted an in-depth strategic review of the armor business.
The failure of the VTP ESAPI body armor product is considered an adjusting
event that provides evidence of conditions that existed at the end of the
reporting period. As such the Group performed an impairment review of assets
at 30 September 2021 removing all future revenue for VTP ESAPI body armor. The
review also incorporated reduced revenue expectations for DLA ESAPI in line
with minimum volumes for the base and two extension years, given the
identified uncertainty of timing of the approval following the already
experienced delays during FY21, and uncertainty over whether the customer
would extend the contract. The DLA revenue assumed reflects the Group's
expectations at 30 September 2021, and is not related to post balance sheet
events.
The review resulted in total non-current asset impairments of $45.1m in
respect of assets relating to the armor business acquired from 3M as part of
the ballistic protection acquisition. In addition, inventory provisions of
$1.7m were recognised against VTP ESAPI armor materials. Offsetting these
charges, a gain of $15.7m was recognised to reduce the net present value of
the contingent consideration payable to 3M as a result of the reduced revenue
expectations from the DLA ESAPI body armor contract.
The strategic review of the armor business concluded it is in the best
interests of our stakeholders as a whole to undertake an orderly wind-down of
trading. As a result the Group expects to incur net cash costs of closure and
right-sizing the retained organisation of between $3 and 5 million over the
next two years. Given the strategic review concluded after the reporting
period it is considered a non-adjusting event, and the provision for closure
costs will therefore be charged in the 2022 financial year as an exceptional
item.
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