Avon Rubber wobble on US contract delays

Melksham, UK – Shares in Avon Rubber plc are still recovering almost a week after the company announced 17 Dec that product-approval issues would delay its delivery of ballistic protection contracts to the US.

Avon shares subsequently fell by almost 20% to reach £3.020 on 21 Dec, before recovering slightly to £3.145 yesterday – perhaps reflecting investor confidence in the positive business outlook presented in the company’s trading update.

Processes to approve ‘enhanced small arms protective inserts’ (DLA ESAPI) for the US Defense Logistics Agency and ‘vital torso protection’ (VTP) body armour plates for the US Army were to conclude in the first half of Avon’s fiscal year 2021 – ended 30 Sept. 

However, the UK manufacturer stated 17 Dec that “disappointingly, these approval processes have been delayed as a result of a failure encountered in first article testing.” 

While it is working with customers to expedite the approvals, Avon said the initial delay meant that initial deliveries under the contracts would not now occur until the first half of its 2022 financial year.

“We are working collaboratively with our customers to resolve the delays to product approval for the DLA ESAPI and VTP contracts as quickly as possible.,” said Paul McDonald, CEO of Avon Rubber.

Separately, Avon revealed that a protest had been made against t a contract, announced  24 Sept, to supply the US Army’s ‘next generation integrated head protection system’. 

“Whilst the delay created by this protest is unwelcome, its outcome is not currently expected to have any material impact on Group expectations for FY21, said the company.

Trading update

The contract delays were announced alongside a business update stating that trading had “continued as expected in the first quarter of FY21, with good order intake across our portfolio of life critical personal protection systems for the world’s militaries and first responders.”

Within the military business, Avon added that it had received first orders under the NATO Support & Procurement Agency Contract totalling $33 million. 

There were also follow-on orders from the US department of defense (DOD) under a mask and powered air system contract in addition to continued strong demand for spares and accessories from the DOD and rest-of-world military customers. 

So, while the contract-delivery delays “will reduce overall expectations for FY21,” Avon said it is “confident in achieving its medium-term expectations given the momentum we are seeing across the business.”