No protection for Avon Rubber as delays on US military orders put skids under share price

December 18, 2020
By

Shares in defence manufacturing group Avon Rubber continued to fall today after it confirmed delays to two major US military contracts could hit its financial results.

The Melksham-headquartered group yesterday said approvals for protective gear ordered by the US Defense Logistics Agency and the US Army had been postponed due to a testing failure. 

Deliveries of the body armour plates and small arms protective inserts, which had been expected to last until the first half of next year, are not now expected to start until the first half of the group’s 2022 financial year.

As a result, Avon said in a statement to the London Stock Exchange that it had reduced its overall expectations for its 2021 financial year, but added: “The board remains confident in achieving its medium-term expectations given the momentum we are seeing across the business”.

The annoucement triggered a 14% drop in the FTSE 250-listed group’s share price. Its shares continued to come under pressure today, tumbling by a further 5% in early trading.

Separately, Avon said it had also been told that its sole contract to supply the US Army with its next generation integrated head protection system was being challenged, which would cause a delay but was not expected to hit its 2021 results.

Last month Avon become a global leader in the manufacture of helmets for military personnel and first responders following its $130m (£100m) acquisition of US-based Team Wendy, which makes head protection systems for military, law enforcement, search and rescue and the adventure markets. 

However, one-off costs of £17.8m linked to the deal profits hit its pre-profits in the year to September 30, pushing the down to around £500,000 from £8.7m in the previous year.

That followed the sale of its historic dairy industry business for £180m in the summer.

Avon’s directors said yesterday the group had over the past few weeks enjoyed a good order intake across its portfolio of life-critical personal protection systems for the world’s militaries and first responders, including the first orders under a NATO Support & Procurement Agency contract totalling $33m. 

Follow-on orders had also been received from the US Department of Defense (DOD) for its M53A1 mask and powered air system as well as continued strong demand for spares and accessories from the US and customers across the world. 

They said they expected to receive further follow-on orders under the group’s long-term US DOD contracts during the first half of its 2021 financial year.

Team Wendy had performed well and in line with expectations in the first month of ownership, Avon said,with strong order intake including follow-on ballistic helmet orders from the Australian Defence Force.

Its first responder business continued to experience strong Covid-related demand and there had been “encouraging progress” for its Ceradyne ballistic helmet range following its launch in North America in July.

Chief executive officer Paul McDonald said:We are working collaboratively with our customers to resolve the delays to product approval for the DLA ESAPI and VP contracts  as quickly as possible.

“These remain an important part of the ballistic protection portfolio and will be a significant contributor to the group over the medium term.

“The business continues to perform strongly, and our 2021 financial year will see further significant progress as a result of continued growth as well as the contribution from the recent Team Wendy acquisition.

“We remain very confident in the group’s medium-term prospects which are built on a strong, growing and visible contract pipeline, together with a clear strategy.”

 

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