Avon Protection shares dive 19% as firm’s earnings are hit by rising production costs

Avon Protection shares dive 19% as firm's earnings are hit by rising production costs 2
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Avon Protection shares dive nearly 20% as respiratory equipment maker flags hit to earnings from rising production costs

  • Avon has been hit by supply chain issues and problems with its body armour 
  • The firm was the largest faller on the FTSE Small Cap Index by some stretch
  • An increase in customer enquiries has come about due to the Ukraine War

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Avon Protection saw its share price tumble today after the group reported profits being hurt by higher manufacturing costs and a weaker sales mix. 

Avon Protection shares plummeted by 19 per cent to £10.51 on Wednesday, making it the largest faller on the FTSE Small Cap Index by some stretch.

It marks a continued torrid pandemic-era period for the respiratory equipment maker, which has been beset by troubles in its body armour business, supply chain bottlenecks and profit warnings.

Problems: During the coronavirus pandemic, Avon Protection has been beset by troubles in its body armour business, supply chain bottlenecks and profit warnings

Problems: During the coronavirus pandemic, Avon Protection has been beset by troubles in its body armour business, supply chain bottlenecks and profit warnings

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Last November, the Wiltshire-based firm’s share price dropped 51 per cent in one day when it admitted that a batch of bullet-proof vests designed for use by American soldiers had failed regulatory tests.

Before then, the company saw £260million wiped off its total market capitalisation on 13 August after it downgraded revenue forecasts and cautioned that earnings would be affected by logistics issues for the next two years.

In a trading update today, Avon said its profitability had been hit by supply chain problems pushing up costs production costs, particularly in its helmets business, lower than expected sales and a weak performance by its body armour division.

Order intake was also weaker in the six months to the end of March relative to the much stronger comparable period last year, although revenue was up around 4 per cent and in line with anticipations.

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But, because of the war in Ukraine, the group has noted an increase in customer enquiries and said it is having discussions over possible incremental orders for both respiratory and helmet products.

Alongside this, the group recently won a five-year contract worth as much as $204million from the US Defense Logistics Agency (DLA), a branch within the US Department of Defense, to provide combat helmets.

Interest: Avon has noted an increase in customer enquiries since the Ukraine War started

Interest: Avon has noted an increase in customer enquiries since the Ukraine War started

‘As a global leader in military-grade respiratory and head protection, we are seeing an increased demand for our products for both the short and longer-term,’ remarked Avon’s chief executive Paul McDonald.

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‘We are working proactively with our key customers to confirm their requirements and maximise our available capacity in the short term. Longer term, this will create further opportunities and will likely result in mid-term capacity expansion to meet expected demand.’

Avon also stated that it was making ‘good ‘progress’ on its plan to save $15million in overhead costs, having shut one of its offices in the United States and altered its management structure. 

In the second half of the fiscal year, the group forecasts margins benefitting from this efficiency programme, as well from stronger revenues and a ‘substantial unwinding’ of the unfavourable sales mix. 

Yet while it expects profitability to additionally improve, it cautioned that full-year underlying earnings would still be weaker than it had previously anticipated.

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Founded in 1885 and formerly known as Avon Rubber, the business started as a tyremaker before later turning its hand to manufacturing gas masks during the First and Second World Wars.

It has also moved into making cow-milking machines, leg and neck tags for animals, and thermal imaging cameras, and is now predominantly a supplier of personal protection gear for the US military and law enforcement.

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