Avon Technologies PLC

Good morning, ladies and gentlemen, and welcome to our 2020 year end results. Before we start, I'd just like to thank David Evans, who joined the board in 2007 and served as chair since 2012, who's retiring from the board this morning and will be replaced by Bruce Thompson as chair. I'd like to thank David for his service and support over what's been a remarkable period for the group, and we wish him all the very best for the future. For our presentation this morning, I will start with the key highlights. Nick will present the 2020 financial review and 2021 outlook, following which I will provide further thoughts regarding the medium term outlook before closing with the key takeaways. We will then take questions from those of you that have dialed in, followed by questions from those of you that have logged into the webcast. 2020 has been an exceptional year for Avonrubber. We've delivered strong profit growth ahead of expectations and refocused the business as a leading provider of life-critical personal protection products. Over the last three years, the consistent delivery of our strategy has built a broader, more visible, longer-term contract portfolio to position the business for growth in 2021 and beyond. Organically, we've continued to focus on maximizing sales from the current products and complements with selective product development to expand the wider portfolio. During 2020, we've secured new multi-year sustainment contracts to supply the U.S. DOD with M50 masks, M61 filters, and associated spares and accessories to support the 2 million masks in service. Additionally, we further broadened our respiratory protection customer base through a 10-year contract with NATO to supply our M50 mask. We've also delivered a strong year in first responder due to increased demand for respiratory protection and greater use of the products as a result of the global pandemic. To complement our organic growth, we have continued to target selective value enhancing acquisitions. Helmets and armor, which completed in January, was a milestone acquisition and has significantly expanded our portfolio with the addition of ballistic helmets and armor. The business has made excellent progress since completion, securing multi-year contracts with the DoD, and the integration process is on track for completion by the end of 2020. The divestment of Milkright Interpulse was a significant step in our strategic development, focusing the group on life-critical protection products and providing funding for capacity for future acquisitions. The acquisition of Team Wendy in November is a further important step for the group, creating a global leader in helmets. The combination of Team Wendy and our helmets and armor business provides increased growth opportunities from a broader product range and an enhanced customer base. I'm delighted with the progress made to date, which is delivering a broader range of opportunities and adding value for all the group stakeholders, all of which leaves us well positioned to deliver further growth in 2021 and beyond. COVID. For most companies, 2020 has been defined by COVID, which has made this an unprecedented year. Whilst our results have been positive, this does not mean we're immune to COVID. So I wanted to take a few moments to discuss our collective response and the decisions we've made to manage and navigate this crisis. We have continued to prioritise the safety and wellbeing of our employees and their families as our primary focus. We updated our sickness policy and have paid full wages to all employees who could not attend work during this period through either illness or isolation. We've also moved nearly 20% of our global employees from our sites. So they've been working remotely since March and removed all our high risk employees on full pay. Our liquidity position has been strengthened throughout the period and we entered 2021 with a strong balance sheet and our new longer term $200 million bank facility. We've also ensured we paid our suppliers on time and helped prepare their COVID defenses in our supply chain. It's thanks to the dedication and resilience of our employees that we've been able to support our customers, maintain our operations and supply chains and deliver these strong results whilst overcoming this level of change and disruption. To meet the challenges of a wider and more US centric business, I've evolved the structure of the leadership team. So the key business leaders and global operations and supply chain leader are based in the US, which will also help us to overcome travel limitations for myself and Nick in the near term. When you look at our COVID response, I'm hugely proud that we did the right thing at the right time. This has resulted in a more resilient, progressive, and agile business that has delivered exceptional results and shows we continue to evolve and progress as a global organization. In 2017, we launched our investor proposition and said these are the KPIs you should measure us against. As you can see, broadly, it's another good set of numbers. We continue to make progress. and we remain confident in our ongoing commitments across these targets. With that, I'll hand over to Nick to provide more detail.

Thanks Paul and good morning everybody. So now turning to our year end numbers and our outlook for next year. I'm delighted to present another strong set of results today. The results shown on this slide are for the group's continuing operations. including the first nine months of contribution from Helmets & Armour, but excluding Milkright Interpulse, which was divested at the end of the year. To give you the full picture of our performance, we've also included the organic constant currency growth rates, which exclude Helmets & Armour. Revenue growth of 30.8% comprises flat organic revenues at constant currency, the first-time inclusion of Helmets & Armour revenues of £40.8 million, offset by a small currency headwind of around 1%, with the average exchange rate for the year of $1.275 to the pound. Moving further down the slide, you will see once again that we have continued to grow our profit ahead of revenue, with an adjusted EBITDA of $38.4 million, a 35.2% increase on last year, with an organic increase of 6.8%, in addition to the Howitzer and Armour EBITDA contribution of £7.3 million at an EBITDA margin of 17.9%, reflecting the initial cost synergies. On an organic constant currency basis, the EBITDA margin increased by 140 basis points as a result of improved product mix reflecting commercial pricing of the new M50 and M53A1 contracts and the strong increase in higher margin first responder revenues. Looking at EPS, the strong organic operating performance and first contribution from Helmets and Armour offset the increased adjusted tax rate of 17% compared to 8% last year, resulting in an adjusted EPS of 76.5 pence, an increase of 13.8%. Cash conversion of 84.9% was a little below our 90% bus target. due to the working capital outflow in helmets and armour as a result of the transitional arrangements for 3M. Organic cash conversion was 123.3%, well ahead of our normal expectations, reflecting collection of the $16.6 million rest of world receivable, which held back cash conversion last year. Following completion of the Milcri Interpol's divestment, net cash was £93.2 million at the end of September. Our ability to generate strong returns on capital employed continued with another excellent return of 22.7% in the year. So reflecting our confidence in the outlook for the business for next year and beyond, we have proposed the final dividend of 18.06 pence per share resulting in total dividends for the year of 27.08 pence. This is once again up 30% on last year and in line with our progressive dividend policy. And I want to talk a bit more about our revenue growth. As I've previously mentioned, revenue increased by 30.8%, reflecting the acquisitions of helmets and armor, flat revenue on an organic basis, and a small currency headwind. Military revenue, down 3.6%, was offset by first responder revenues, which were up 7.8%, notwithstanding our exit from the fire SCBA market at the beginning of the year. On an underlying basis, first responder revenues were up 23%. USDOD revenue of 58.9 million pounds was up 7.5%, benefiting from a full year of deliveries for the new M69 and M53A1 contracts, and an increase in M50 spares and accessories. Rest of the world military revenues of 23.9 million pounds were lower than last year, as a result of 2019, including the $16.6 million rest of the world contract. The exceptional underlying first responder growth of 23% was driven by a strong increase in demand as a result of the COVID pandemic for both original equipment, particularly masks, as well as replacement filters, spares, and accessories. Now moving on to look at our strong balance sheet position. As you can see on the right-hand side of the slide, our year-end net cash following the divestment of Milk White Interpulse and the £20 million one-off pension contribution was £93.2 million. Before deducting lease liabilities of £22.8 million, cash-less bank borrowings was £116 million, more than sufficient to fund the purchase of Team Wendy in November. Following the Team Wendy acquisition, we are left in a small cash position. This together with our new $200 million medium term bank facility provides both short term liquidity and funding to make further value enhancing acquisitions in due course. Given all the moving parts over recent months, I'd now like to walk you through the key building blocks for 2021. Our medium-term revenue outlook is underpinned by multi-year military contracts across the product portfolio. Together with a strong opening order book of $101.7 million and continuing strong demand from first responder customers, this provides excellent revenue visibility for the new financial year. In 2021, as you can see on the slide, we expect revenues to benefit from our military and first responder respiratory business growing in line with our 3% plus investor proposition, a full year contribution from Helmets and Armour, the ramp up of the VTP and DLA body armour contracts in the second half following completion of first article testing, and 11 months contribution from Team Wendy. We expect EBITDA margins to continue to improve as a result of continued improvements in product mix, synergy delivery and operational leverage within Helmets and Armour, and an inclusion of Team Wendy with its 30% EBITDA margin. CapEx, including capitalized development costs, is expected to be around $25 million, with depreciation and amortization before the amortization of required intangibles of around $20 million. Tax conversion is expected to be in line with our 90% plus medium-term guidance, and the adjusted tax rate is expected to normalize at around 21%. Finally, I would like to remind you that as previously announced, we'll be adopting the US dollar as our reporting currency for 2021. You will find US dollar summaries of our 2020 results and five year track record in the appendices to this presentation. So before I hand back to Paul, I'd just like to finish with a summary of our outlook for 2021. We're confident in delivering our 2021 expectations. This is supported by Military revenue continuing to be underpinned by our long-term contracts, our opening order book of $101.7 million, strong ongoing demand from first responders, a full year of helmets and body armor, and completion of the Team Wendy acquisition in November. When all of this is taken together, it sets us up for another great year in 2021. Thank you very much, and I'd now like to hand back to Paul.

Given the significant changes to the business this year, I'd like to spend some time to focus on the future so you can better understand the medium-term opportunities for the group. Over the last three years, we've been successfully executing our strategy, growing the core by maximizing revenue from our current portfolio and improving our operational efficiency, pursuing selective product development to maintain and expand our leading product positions, and targeting value-enhancing acquisitions to further accelerate growth and add value to the group. This has transformed the business with a strong product range of respiratory and ballistic protection products, which have established Avonruther as a leading provider of life-critical personal protection systems. I'd now like to talk to you about our military outlook and how you should be thinking about the portfolio over the medium term. I will start with the respiratory protection products When looking at the strength of the portfolio, the white bars show the expected life of the products with the customers, and the red bars show the period under contract. We have long-term contract frameworks with the DoD for the M50, M61, M69, and M53A1 products. These, along with the five-year contract for the UK GSR mask and the 10-year agreement with NATO, underpins the medium-term order expectations of 105 million to $150 million per annum. Now, turning to look at the military position for the ballistic protection product lines, we see similar framework contract agreements, but they're usually for shorter duration life cycles. The IHPS helmet is the next generation combat helmet for the US Army and remains in low rate production. We expect this product line to generate orders of $40 to $60 million each year with the recently announced $92 million contract, providing coverage through to 2023. The VTP product is our next generation of body armor for the US soldier protection system. And we supply three plates, the ASAPI, X-SAPI, and X-SIBI. We're currently going through the first article test process for these products. And once complete, we're guiding to annual orders of $25 million to $45 million. The legacy SAPI Body Armor contract with the Defense Logistics Agency is an 18 month base contract with two one year options with a maximum ceiling value of $333 million. We've already received the first $20 million delivery order and expect deliveries to begin during 2021, which further underpins our medium term outlook. And we're guiding for orders of 40 to $60 million per year over the lifetime of the contract. When we also include the additional run and repeat orders from Flat Armour and Rest of World Military, we're anticipating annual military orders of $115 million to $185 million for our helmet and armour product lines. Now turning to first responder. On the back of strong H2 revenues related to COVID, the underlying business has grown by an impressive 23% during the period. and we expect to see ongoing high demand through this next wave. We continue to see a wider global opportunity for the first responder products across both product lines and are continuing to build a wider customer base for the future. The NATO contract is a perfect example of our ability to maximize growth from our existing product portfolio and broaden our customer base. The 10-year framework contract provides NATO countries and partners access to our respiratory portfolio and includes masks, powered air, supplied air, filters, and accessories. The first five years will see the fielding stage of these masks, which will then create an install base, which will be maintained for the next 20 to 30 years, and we will see the sustaining phase of this program, where masks are replaced along with the spare parts, filters, and accessories that will provide an ongoing revenue stream. Our order expectations under this contract are included in the rest of world military guidance of $30 to $45 million outlined on the earlier slide. This brings us to our continued investment in product development, which has continued to grow and maintains a full pipeline of multi-year R&D programs. For those that are new to Avonruther, we're a customer-centric business. In our minds, this means looking at our customers, understanding their needs, and identifying the technologies that do not yet exist to further enhance their capability and effectiveness, and growing our business around our customers. We maintain our competitive advantage by continuing to develop the next generation of technology in partnership with our customers to meet their future operational needs. Over the last 10 years, we have an average spent over 5% of revenue on R&D investments. And we're committed to continuing this level over the medium term, even as we continue to grow. Hopefully, you have been able to see the benefits of the helmets and armor acquisition throughout this presentation. But I just want to give you an insight to the work we've done so far. After completion, Nick and I spent a lot of time in the US. getting to know the people, focusing on the key priorities, and putting our transition plans in place. And we made considerable progress in the first three months of ownership. Integration remains firmly on track to complete this quarter with the transfer of the business onto our IT systems and operational frameworks. We remain confident of delivering the $5 million of synergies we initially targeted in 2021, as well as identifying further long-term efficiencies. Team Wendy was another significant acquisition and strengthens our portfolio as a leading provider of life critical personal protection systems. The acquisition will create a global leader in military and first responder helmets, adding a high quality and highly complimentary business to the group. Team Wendy has a track record of profitable growth and delivers attractive financial returns that are above the group average. We completed the acquisition at the beginning of November so we'll have 11 months impact in 2021 which underpins further growth and higher margins during 2021 at a group level. Team Wendy have had a strong start to the year under our ownership but I'm really pleased with how things are progressing and the engagement of the team. We've transformed the outlook of the business in 2020 We believe our future performance is sustainable, is highly visible and has a wider range of medium and long-term opportunities across both military and first responder. Our products have high barriers to entry with significant advantages over our competition. We're committed to product development in partnership with our customers to develop the next generation of products and have maintained a full pipeline of R&D. We believe maintaining competitive advantage is critical to our strategy, along with further complementary M&A. And collectively, this will lead to further value creation for the future, which supports our confidence for 2021 and the group's medium-term outlook beyond. When considering all of this, I hope, like us, you're equally excited that the next three to five years will be very positive for the group, and we look forward to the future. Ladies and gentlemen, that's it from us. I'd like to thank you for listening and both Nick and I will now take questions. We'll take questions from the conference call first and then for those that have submitted questions via the webcast, we'll read them out and answer them. We'll now take questions from the conference call and if I could please ask you to state your name and the company followed by the question. Thank you.