The bucolic Wiltshire countryside has been the incongruous setting for one of Britain’s oldest stock market stalwarts to stage a remarkable recovery to corporate health.
Avon Technologies, not far from river from which it takes its name, has undergone a transformation under Jos Sclater, the chief executive of the past two years, and his finance director Rich Cashin. The war in Ukraine and higher defence spending in Europe have boosted military-facing stocks in general.
Last month, for example, Avon reported two new contracts to supply gas masks for forces in Ukraine and advanced breathing equipment at €75,000 a time for naval divers involved in mine clearance. Those orders are in on top of the fact that the company has become the largest supplier of helmets to the US military.
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The new orders are expected to contribute to a 30 per cent growth in Avon’s revenues in the next three years, and analysts believe that the company will also double profits over the same period. This growth rate, however, has more to do with a fundamental shake up of the manufacturer’s processes rather than the scale of the orders it is winning.
Sclater, 52, is moving the company to the drumbeat of kaizen catchphrases — the Japanese philosophy of continual improvement — that made Toyota the most successful carmaker in history. This involves the introduction of just-in-time supply and lean production methods, level-loading output to match demand and orders, and ditching batch manufacturing, which can just end up filling warehouses for no return.
“Inventory is evil,” Sclater said. “Profits, returns and company value were all falling and we had negative cashflow. We had to change or die.”
To fully understand Avon Technologies, formerly the Avon Indian Rubber Company and later just Avon Rubber, is to take a trip along one of the more curious country byways of the British industrial revolution.
Stephen Moulton, a Victorian entrepreneur originally from Co Durham, became a sometime associate, agent and then rival of the American rubber baron Charles Goodyear.
Back in England, as the Wiltshire textiles industry began to recede in the 1840s, Moulton bought an old woollen mill in Bradford-on-Avon. With cheap rubber imports from Britain’s empire in southeast Asia, the Avon on tap for the steam machines and washing processes needed in vulcanisation, and access to an already skilled manufacturing workforce, Moulton hit the jackpot with the rocketing demand for rubber buffers, hoses and springs at Isambard Kingdom Brunel’s Great Western Railway.
Rivals sprang up in the area including the nascent Avon Rubber whose time came in the First World War when it was one of the biggest suppliers of tyres and other components for the British military and of gas masks for soldiers and civilians.
Avon, based up river in Melksham, became so much the dominant player in the area that it floated on the stock market in 1933 and after the Second World War took over the company created by Moulton. Its product portfolio stretched from conveyor belts to wetsuits to milking machines.
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By the second decade of the 21st century Avon had exited the tyre business — the historic factory straddling the river in the centre of Melksham was finally closed by its subsequent American owners a little over a year ago. And it had expanded its interests in gas mask respirators by acquisition in the US.
And then it doubled down on its US adventure. It sold its decades-old English dairy business to fund the acquisitions of American military body armour and helmet manufacturers.
The shares took off: from £12 at the end of 2018 to nearly £45 in two years.
And then disaster struck. Bulletproof vests it acquired in a deal from the US giant 3M turned out not to be bulletproof. Lucrative contracts were scrapped, credibility was destroyed, the share price tanked to below £10 and Paul McDonald, the chief executive who had transformed the company, was out the door.
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Yet it remained a market leader in industrial rubber moulding applications and specifically the production of more than 30,000 gas masks a year for customers such as the British police and special forces; and, by acquisition, helmets for the US military and emergency services.
“We came here with credibility and a clear strategy and have executed it,” said Sclater, a former finance director of GKN before its acquisition by Melrose, and of Ultra Electronics, another British defence industry which fell to takeover.
He joined a former colleague from Ultra, Rich Cashin, who had been hired as Avon’s finance director and who had been at Meggitt, yet another UK defence company that was taken over. “We’ve been here a couple of years and had three profit upgrades,” Sclater said. “We have been delivering what we said we would — and a bit more.”
And some of the City’s fund managers who had fled the company, Aberdeen, Fidelity and Jupiter, have been buying shares again.
Repurposed and reorganised production lines showed the company was carrying a fifth too many personnel and has led to the rationalisation of its plants in the US and the closure of one in California. It now has fewer than 1,000 employees with 250 at its factory just outside Melksham and the rest at three plants in the US.
The company is making 125,000 helmets a year, the most sophisticated of which sell at $3,000 a time. America’s first-responders, police and ambulance, now routinely demand head protection in the event of gun attacks at the scenes which they attend.
The pièce de résistance for Avon would be to win orders to supply helmets to the UK military, held by the North American firm Galvion and made under licence in the UK by a firm whose history can be traced back through Morgan Advanced Materials to the ceramics specialist Courtaulds.
“The UK is due to come to tender,” Sclater said. “If the UK decides it wants [helmets with] a higher ballistic protection, we would make them in the UK in Melksham and also aim to export them.”
As the company completes its period of stabilisation after the pyrotechnics of recent times, it will start seeking acquisitions in adjacent markets to become a one-stop shop for its customers, according to Sclater, who is adamant that the company will stay in the UK.
“Continuous improvements in productivity can outweigh the cost of jumping to a low-cost economy. That labour arbitrage, the marginal hour of labour savings, is minimal when you have high-value products.
“We have spare capacity, the supply chain in place and a wealth of capability in Melksham. The knowledge we have here runs very deep.”
