Avon Rubber has announced another M50 order in the final year of the 10-year sole-source contract with the US Department of Defense (DoD). This order underpins FY18 and FY19 expectations and we make no changes to our forecasts. However, Avon is in advanced negotiations with the US DoD on future programmes, which fit comfortably with its growth strategy.
This month's order from the US DoD is for 93,000 M50 masks and has a value of c $25m. This follows on the order in January for 47,000 M50 mask systems and brings total orders in FY18 to 217,000. For reference, the brought-forward order book at the end of September 2017 was 49,000 masks.
Avon Rubber's long-standing, multi-level relationship with the US DoD is important to the group and the end-market backdrop is supportive. The active dialogue for the M50 replenishment phase should extend the programme for at least another 15 years. In addition, Avon continues to work with the DoD on some potentially significant new platform programmes, including the Joint Services Aircrew Mask (M69) and the M53A1 combined tactical mask and Powered Air Purifying Respirator system (more detail in our May Outlook report). It is also important to understand that as the company moves through this transition into other programmes, an improvement to operating margin is expected, given lower margins on the 10-year contract versus the portfolio average.
As a reminder, Avon's threefold growth strategy is to grow the core, add selective product development and make value-enhancing acquisitions to accelerate growth.