Avon Rubber's interim profits suffer after US government shutdown

Avon Rubber on Wednesday reported a drop in interim revenue and profits following a decrease in Law Enforcement revenues as a result of the extended US government partial shutdown.

The manufacturing and engineering company, which specialises in respiratory protection equipment, achieved a profit before tax of £3.4m for the six-month period ended 31 March, down 63.8% compared to the same period last year.

This reduction came as revenues dropped by 5.3% to £73.6m and general and administrative expenses increased by 39% to £12.8m.

Revenues were lower as Avon Protection revenue fell by 7.2% to £49.3m, driven by a 38.1% reduction in revenue from its Law Enforcement division on a constant currency basis to £11.7m due to the extended partial US government shutdown, which disrupted the timing of orders from US customers and export licence approvals for Rest of World customers.

Meanwhile, the milkrite | InterPuls business, which specialises in milking equipment, saw its revenue edge 1.2% lower to £24.3m as tougher dairy market conditions due to falling milk prices impacted all three lines of business.

However, orders received during the period came in 7.5% higher at £94.9m and the closing order book was 45.6% higher than at the same point last year as the Avon Protection business landed a number of contracts from the US department of defense (DOD).

Paul McDonald, chief executive of Avon, said: "As a result of this strong contract momentum in Avon Protection and despite the financial performance in H1 being adversely impacted by the US government partial shutdown and challenging dairy market conditions, the board remains confident in delivering full year expectations. Building on the significantly enhanced contract base, the ongoing benefits of our strategy and the strength of our broad, innovation-led product portfolio, the board remains excited about our longer-term growth prospects."

Avon Rubber declared an interim dividend of 6.94p per ordinary share, an increase of 30% on the 2018 interim dividend.

Going forward, the London-listed company said the revenue from its new M69 aircrew mask and M53A1 mask and powered air system will more than offset an anticipated reduction in DOD M50 mask systems and the impact of the US government partial shutdown.

Analysts at Peel Hunt kept their full-year forecasts unchanged despite the first-half revenue setbacks and upgraded earnings per share forecasts for 2020 by 2% due to the contracts with the US DOD being larger than they had expected.

"Given the upgrade and the increased underpin to our medium term revenue outlook, the positive momentum from new products hitting the market, and the strength of the balance sheet giving estimated firepower of >£130m for acquisitions we are increasing our TP to 1600p from 1500p," said analysts.

Avon Rubber's shares were down 5.22% at 1,384.50p at 1045 BST.