Avon Protection shares dive over 20% as earnings are hit by rising production costs

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 had plummeted 20.5 per cent to £10.51 during the late afternoon 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

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 group 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.

But, because of the war in Ukraine, the company 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, it recently won a five-year contract worth as much as $204million from the US Defense Logistics Agency (DLA) to provide combat helmets.

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.

‘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.’

Looking forward, the London-listed group forecasts profitability and underlying earning margins improving in the second half of the financial year as revenues rise and production inefficiencies reduce.

It also said it was ‘progressing well’ on its plan to save $15million in overhead costs, having shut one of its offices in the United States and altered its management structure.

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, but is now predominantly a supplier of personal protection gear for the US military and law enforcement. 

This post first appeared on Dailymail.co.uk