TIDMAVON
RNS Number : 6621V
Avon Protection PLC
15 December 2021
PRELIMINARY RESULTS FOR THE YEAR
ED 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
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
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 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 .
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 2020
2021 Restated
$m $m
Respiratory Ballistic(1) Total Respiratory Ballistic(1) 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%).
2020
2021 Restated
$m $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
2020
2021 Restated
$m $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 30 Sept
2021 2020
-------------------- -------- --------
Orders received $1.7m $33.6m
Closing order book $26.6m $31.4m
Revenue $6.5m $13.7m
-------------------- -------- --------
Respiratory &
Armor Head Total
2021 Adjusted $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
---------------------------------- ---------- -------------- ------
Respiratory
Armor & Head Total
2021 Adjustments $m $m $m
---------------------------- ------- ------------ -------
Revenue - - -
EBITDA(1) 14.0 (5.0) 9.0
Operating profit/(loss)(2) (38.4) (12.6) (51.0)
---------------------------- ------- ------------ -------
Respiratory
Armor & Head Total
2021 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.
2021 2020
$m $m restated(1)
======================================================== ====== ============================
Operating
(loss)/profit (29.0) 8.9
-------------------------------------------------------- ------ ----------------------------
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
costs 2.6 10.7
======================================================== ------ ============================
Integration
costs - 2.9
======================================================== ------ ============================
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
EBITDA 37.6 49.0
======================================================== ====== ============================
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.
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.
2021 2020
$m $m restated(1)
========================================= ===== ============================
Net finance costs 6.6 6.7
----------------------------------------- ----- ----------------------------
Defined benefit pension unwind discount (1.3) (1.0)
----------------------------------------- ----- ----------------------------
Contingent
consideration unwind discount (2.2) (2.9)
----------------------------------------- ----- ----------------------------
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
2021 2020
$m $m restated(1)
======================================================== ====== ============================
(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
consideration unwind discount 2.2 2.9
-------------------------------------------------------- ------ ============================
Finance fees written off on refinancing - 0.4
-------------------------------------------------------- ------ ============================
Acquisition
costs 2.6 10.7
-------------------------------------------------------- ------ ============================
Integration
costs - 2.9
-------------------------------------------------------- ------ ============================
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
discontinued operations 1.1 (167.6)
-------------------------------------------------------- ------ ----------------------------
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 (thousands) 30,669 30,576
------------------------------------------------------------ ------ ------
Potentially dilutive shares (weighted average) (thousands) 189 423
------------------------------------------------------------ ------ ------
Diluted number of ordinary shares (weighted average)
(thousands) 30,858 30,999
============================================================ ====== ======
Adjusted continuing earnings per share 2021 2020
$ cents restated(1)
$ 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)
2021 2020
$m $m restated(1)
============================================= ====== ============================
Net
debt/(cash) 55.9 (118.7)
--------------------------------------------- ------ ----------------------------
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
2021 2020
$ cents $ cents restated(1)
=================================== ========= =============================
Interim
dividend 14.3 11.0
----------------------------------- --------- -----------------------------
Final dividend 30.6 23.5
----------------------------------- --------- -----------------------------
Total
dividend 44.9 34.5
=================================== ========= =============================
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.
2021 2020
$m $m restated(1)
========================================================== ===== ============================
Cash flows from continuing operations before exceptional
items 31.3 40.0
---------------------------------------------------------- ----- ----------------------------
Adjusted
EBITDA 37.6 49.0
---------------------------------------------------------- ----- ----------------------------
Cash
conversion 83.2% 81.6%
========================================================== ===== ============================
Cash flows from continuing operations before exceptional 2021 2020
items
$m $m restated(1)
=========================================================== ===== ============================
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
2021 2020
$m $m restated(1)
=============================== ================ ============================
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:
2021 2020
$m $m restated(1)
============================ ===== ============================
Shareholders'
funds 205.4 69.5
---------------------------- ----- ----------------------------
Current
borrowings 7.5 52.3
---------------------------- ----- ----------------------------
Non current
liabilities 145.8 131.4
---------------------------- ----- ----------------------------
Capital
employed 358.7 253.2
---------------------------- ----- ----------------------------
Average capital employed 382.1 222.0
---------------------------- ----- ----------------------------
Adjusted operating profit 22.0 49.4
---------------------------- ----- ----------------------------
Return on capital employed 5.8% 22.3%
============================ ===== ============================
Average capital employed 2021 2020
$m $m restated(1)
=============================== ===== ============================
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.
Shareholders' funds 2021 2020
$m $m restated(1)
============================== ===== ============================
Shareholders'
funds 205.4 229.5
------------------------------ ----- ----------------------------
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
============================== ===== ============================
Current borrowings 2021 2020
$m $m restated(1)
================================================ ===== ============================
Current
borrowings 4.0 42.7
------------------------------------------------ ----- ----------------------------
Current provisions for liabilities and charges 3.5 9.6
------------------------------------------------ ----- ----------------------------
Current borrowings for ROCE 7.5 52.3
================================================ ===== ============================
Non current liabilities 2021 2020
$m $m restated(1)
================================== ===== ============================
Non current
liabilities 145.8 123.6
---------------------------------- ----- ----------------------------
Add back liabilities disposed - 7.8
---------------------------------- ----- ----------------------------
Non current liabilities for ROCE 145.8 131.4
================================== ===== ============================
Adjusted operating profit for ROCE 2021 2020
$m $m restated(1)
===================================================== ===== ============================
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
===================================================== ===== ============================
Adjusted discontinued operating profit 2020
$m
restated(1)
=================================================================== ==========================
Profit after tax from discontinued operations 6.9
------------------------------------------------------------------- --------------------------
Add back taxation 1.0
------------------------------------------------------------------- --------------------------
Profit before tax from discontinued operations 7.9
------------------------------------------------------------------- --------------------------
Add
back finance costs 0.1
------------------------------------------------------------------- --------------------------
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
Note 2021 2020
$m Restated(1)
$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
Note 2021 2020 2019
$m Restated(1) Restated(1)
$m $m
======================================= ====== ============ ============
Assets
--------------------------------------- ------ --------------------------
Non-current
assets
--------------------------------------- ------ --------------------------
Intangible
assets 3.1 181.0 89.4 43.5
---------------------------------- --- ------ ------------ ------------
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
and other receivables 44.7 46.0 43.6
---------------------------------- --- ------ ------------ ------------
Current tax
receivables 7.8 - -
--------------------------------------- ------ ------------ ------------
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
assets 205.4 229.5 92.6
--------------------------------------- ------ ------------ ------------
Shareholders'
equity
--------------------------------------- ------ --------------------------
Ordinary
shares 5.4 50.3 50.3 50.3
---------------------------------- --- ------ ------------ ------------
Share premium account 5.4 54.3 54.3 54.3
---------------------------------- --- ------ ------------ ------------
Other
reserves (15.0) (15.6) (13.2)
--------------------------------------- ------ ------------ ------------
Hedging
reserve - - (1.4)
--------------------------------------- ------ ------------ ------------
Retained
earnings 115.8 140.5 2.6
--------------------------------------- ------ ------------ ------------
Total
equity 205.4 229.5 92.6
======================================= ====== ============ ============
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
Note 2021 2020
$m Restated(1)
$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
paid (13.3) (3.5)
-------------------------------------------------------- ------- ------------
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
repayments 5.3 (40.6) (27.6)
--------------------------------------------------- --- ------- ------------
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 Share Hedging Other Retained Total
capital premium reserve reserves earnings equity
Note $m $m $m $m $m $m
----------------- ------ ---------------- ---------------- ----------- ---------------- ----------- -----------
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
paid 5.5 - - - - (8.9) (8.9)
----------------- ------ ---------------- ---------------- ----------- ---------------- ----------- -----------
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
paid 5.5 - - - - (12.1) (12.1)
----------------- ------ ---------------- ---------------- ----------- ---------------- ----------- -----------
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.
2021 2020
$m restated(1)
$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
before taxation (35.6) 2.2
------------------------------------------------------- ------- ------------
Taxation 11.1 1.6
------------------------------------------------------- ------- ------------
(Loss)/profit for the year from continuing operations (24.5) 3.8
------------------------------------------------------- ------- ------------
Discontinued operations - (loss)/profit
for the year (1.1) 167.6
------------------------------------------------------- ------- ------------
(Loss)/profit for the year (25.6) 171.4
------------------------------------------------------- ------- ------------
Segment
assets 398.7 454.5
------------------------------------------------------- ------- ------------
Segment
liabilities (193.3) (225.0)
------------------------------------------------------- ------- ------------
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 Year ended 30 September
2021 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
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) - - -
-------------- ------------ ---------------------- ------ ------------ ---------------------- ------
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
Sales (5.3) (35.7)
-------------------------------------------- ------ ------
Gross
(loss)/profit (1.2) 32.9
-------------------------------------------- ------ ------
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
taxation (2.1) 7.9
-------------------------------------------- ------ ------
Taxation 1.0 (1.0)
-------------------------------------------- ------ ------
(Loss)/Profit for the
period (1.1) 6.9
-------------------------------------------- ------ ------
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
share (3.5c) 540.6c
============================================ ====== ======
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 (thousands) 30,669 30,576
------------------------------------------------------------ ------ ------
Potentially dilutive shares (weighted average) (thousands) 189 423
------------------------------------------------------------ ------ ------
Diluted number of ordinary shares (weighted average)
(thousands) 30,858 30,999
============================================================ ====== ======
Earnings 2021 2020
$m $m
================================= ====== =====
Basic (25.6) 171.4
--------------------------------- ------ -----
Basic - continuing operations (24.5) 3.8
--------------------------------- ------ -----
Basic - discontinued operations (1.1) 167.6
================================= ====== =====
Earnings per share 2021 2020
$ 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
before taxation (35.6) 2.2
------------------------------------------------------- ------ -----
(Loss)/profit before taxation at the average standard
rate of 19.0% (2020: 19.0%) (6.8) 0.4
------------------------------------------------------- ------ -----
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 Other temporary Total
allowances differences $m
$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
benefit Share capital Tax Pension Right temporary
obligation options allowances losses spreading Intangibles of Use differences Total
$m $m $m $m $m $m Assets $m $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
Goodwill Acquired intangibles Development Computer Total
$m expenditure software
$m
--------------------------- ===============
$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
differences - 0.6 0.7 0.2 1.5
-------------------------- --------- --------------------------- ---------------- --------------- -------
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)
-------------------------- --------- --------------------------- ---------------- --------------- -------
(16.1)
Amortisation - (11.2) (4.1) (0.8) (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
impairment - (13.8) (29.0) (4.2) (47.0)
-------------------------- --------- --------------------------- ---------------- --------------- -------
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
differences 0.2 - 0.2 0.6 1.0
-------------------------- --------- --------------------------- ---------------- --------------- -------
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
impairment - - (0.3)(2) (0.7)(3) (1.0)
-------------------------- --------- --------------------------- ---------------- --------------- -------
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 Carrying Value Impairment Recoverable
assets $m $m Amounts
$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 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
At 1 September
October 2021
2020 Net book
Net Additions Divestments Amortisation Impairment amount
book $m $m $m $m $m
amount
$m
=============== ============= =========== ============= ============== ============ ===============
Brand 2.2 10.4 - (1.1) - 11.5
--------------- ------------- ----------- ------------- -------------- ------------ ---------------
Customer
relationships 20.0 28.2 - (10.0) (9.8) 28.4
--------------- ------------- ----------- ------------- -------------- ------------ ---------------
Other
intangibles 10.5 13.1 - (3.1) (1.5) 19.0
--------------- ------------- ----------- ------------- -------------- ------------ ---------------
32.7 51.7 - (14.2) (11.3) 58.9
=============== ============= =========== ============= ============== ============ ===============
At
At 1 October 30 September
2019 Foreign 2020
Net book Exchange Net book
amount Additions Divestments Amortisation Difference amount
$m $m $m $m $m $m
===============
Brand 2.1 2.4 (1.5) (0.8) - 2.2
--------------- ------------- ----------- ------------- -------------- ------------ -----------------
Customer
relationships 11.8 25.9 (9.7) (8.2) 0.2 20.0
--------------- ------------- ----------- ------------- -------------- ------------ -----------------
Other
intangibles 4.4 10.1 (2.2) (2.2) 0.4 10.5
--------------- ------------- ----------- ------------- -------------- ------------ -----------------
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
Freeholds assets machinery Leasehold Improvements Total
$m $m $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
differences 0.4 (0.3) 0.1 - 0.2
-------------------------------- --------- ------------ ---------------- ---------------------- ------
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 (9.8)
charge (0.4) (3.3) (6.1) - (1)
-------------------------------- --------- ------------ ---------------- ---------------------- ------
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
differences - 0.5 0.5 - 1.0
-------------------------------- --------- ------------ ---------------- ---------------------- ------
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
impairment - - (0.1) - (0.1)
-------------------------------- --------- ------------ ---------------- ---------------------- ------
Depreciation
charge (0.1) (4.2) (5.8) (0.3) (10.4)
-------------------------------- --------- ------------ ---------------- ---------------------- ------
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
loans - 39.5
------------------------ ---- ----
Lease liabilities 4.0 3.2
======================== ==== ====
4.0 42.7
------------------------ ---- ----
Non
Current
------------------------ ---- ----
Bank
loans 40.9 -
------------------------ ---- ----
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 As at 30 September
2021 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
costs - (0.4)
-------------------------------------------------- ----- -----
Unwinding of discount on contingent consideration
(note 6.1) (2.2) (2.9)
================================================== ===== =====
(3.5) (4.3)
================================================== ===== =====
Net Finance
Costs (6.6) (6.7)
================================================== ===== =====
The effective interest rates at the balance sheet dates were as
follows:
2021 2020
------------------ ---------------- ----------------
Sterling Dollar Sterling Dollar
% % % %
------------------ -------- ------ -------- ------
Bank
loans - 1.60% - 1.85%
------------------ -------- ------ -------- ------
Lease liabilities 6.5% 2.5% 6.5% 2.5%
------------------ -------- ------ -------- ------
5.3 Analysis of net cash/(debt)
At 1 October Cash flow Non cash movements Exchange movements At 30 September
2020 $m $m $m 2021
$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
cash/(debt) 118.7 (178.6) 2.9 1.1 (55.9)
============================ ============= ========== =================== =================== ===============
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
loans (0.1) (39.4) - - (39.5)
-------------------- ------------- ---------- ------------------- ------------------- ----------------
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
cash/(debt) 43.6 90.0 (16.3) 1.4 118.7
==================== ============= ========== =================== =================== ================
5.4 Equity
Share capital
Ordinary Share Ordinary Share premium
shares
No. of shares shares premium 2020 2020
2021
2021 2021 No. of shares $m $m
2020
$m $m
========================= ============== ========= ========= ============== ========= ==============
Called up allotted
and fully paid ordinary
shares of GBP1 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 Total
$m $m $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
of discount on provisions - 2.9 2.9
------------------------------------------ -------------------- ------------------------ ------
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
of discount on provisions - 2.2 2.2
------------------------------------------ -------------------- ------------------------ --------
Foreign exchange movements 0.1 - 0.1
------------------------------------------ -------------------- ------------------------ --------
Balance at 30 September 2021 2.9 6.0 8.9
========================================== ==================== ======================== ========
Analysis of total provisions 2021 2020
$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
relationships 28.2
-------------------------------------------- ----------
Brand 10.4
-------------------------------------------- ----------
Other intangible assets 13.1
-------------------------------------------- ----------
Property, plant and equipment 8.6
-------------------------------------------- ----------
Inventories 12.2
-------------------------------------------- ----------
Trade
and other receivables 5.8
-------------------------------------------- ----------
Cash 1.1
-------------------------------------------- ----------
Lease
liability (3.1)
-------------------------------------------- ----------
Trade and other payables (2.6)
-------------------------------------------- ----------
Net assets acquired 73.7
-------------------------------------------- ----------
Goodwill 58.3
-------------------------------------------- ----------
Total
consideration 132.0
-------------------------------------------- ----------
Initial cash consideration 130.0
-------------------------------------------- ----------
Post completion working capital adjustment 0.9
-------------------------------------------- ----------
Cash acquired 1.1
-------------------------------------------- ----------
Total
consideration 132.0
============================================ ==========
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 (GBP70.8m), a
further post completion adjustment of $2.2m (GBP1.7m) resulting
from the closing inventory being lower than the targeted level,
plus fair value of contingent consideration of $20.0m
(GBP15.2m).
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
relationships 25.9
----------------------------------------------- ----------
Brand 2.4
----------------------------------------------- ----------
Other intangible assets 10.1
----------------------------------------------- ----------
Property, plant and equipment 37.2
----------------------------------------------- ----------
Inventories 16.9
----------------------------------------------- ----------
Lease
liability (11.5)
----------------------------------------------- ----------
Accruals (1.4)
----------------------------------------------- ----------
Dilapidations provisions (0.8)
----------------------------------------------- ----------
Deferred
tax 0.4
----------------------------------------------- ----------
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
consideration 107.2
=============================================== ==========
* $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
assets 18.2
------------------------------ -----
Property, plant and equipment 17.8
------------------------------ -----
Inventories 7.6
------------------------------ -----
Cash 3.4
------------------------------ -----
Receivables 10.1
------------------------------ -----
Payables (6.0)
------------------------------ -----
Other
liabilities (6.8)
------------------------------ -----
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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