Military equipment business Avon Protection (AVON) continues a worrying run of profit warnings going back to the back end of 2020.
Having attained all-time highs around £45 then, the shares now trade at less than a quarter of that level.
A 22% drop to £10.38 wipes out gains the company enjoyed along with the rest of the defence sector in the wake of Russia’s invasion of Ukraine.
Today’s post-close first half trading update, covering the six-month period to 31 March, does reveal an uptick in order enquiries since the start of the Ukrainian conflict however these are only likely to be reflected in revenue, profit and cash flow from 2023 and beyond.
In the near term the company is being hit by supply chain issues and rising costs which are putting pressure on margins. While the benefits of a $15 million cost saving programme and an improved product mix are expected to support a second half recovery in profitability, Avon does not expect this to be sufficient to make up the shortfall - hence today’s warning on annual profit.
A HEALTHY DOSE OF CONSERVATISM
Warning now looks a sensible move, particularly as the company has been caught out before when looking for a stronger second half to get it out of trouble.
Management have a tough task to rebuild credibility with the market, so a dose of conservatism is probably welcome.
The company is continuing with an orderly exit from the body armour business which was a key culprit behind its recent struggles.
CEO Paul McDonald commented: ‘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.’
