Tracking to plan
Avon Rubber’s (LONDON:AVON) AGM update highlighted that trading has tracked to plan. With Protection and Defense focused on deliveries to the US DoD following the high level of exports in H114, we expect a well-flagged bias in operating profits to H2. The overall strategy continues, with a high level of export quote activity and further progress in the fire market with strong interest in the Deltair SCBA. Likewise, momentum in Dairy has continued driven by the Cluster Exchange service take up, while the Brazilian sales and distribution facility is up and running. With strong cash generation, we believe Avon has the balance sheet to pursue its growth strategy as highlighted in our July 2014 note.
Avon’s divisions delivered as expected in Q1 while the group continues to be strongly cash generative, with net cash at 31 Dec 2014 of £6.4m (30 Sept £2.9m). Protection & Defence has focused on deliveries to the US DoD following the high level of exports in FY14, which we expect to continue throughout H1 although the quote book for higher-margin exports remains strong.
There has been further Y-o-Y progress in the fire market with strong enquiry levels for the new Deltair SCBA. The AEF business has secured more orders that support production into H2, suggesting this will be a positive profit contributor yet again. In Dairy, Avon has demonstrated that its service differentiation through the Cluster Exchange programme has yielded further strong momentum in the business both in North America and Europe, where easing at-the-farm-gate milk prices are being offset by reduced input costs. The strategy to expand in BRIC countries continues, with the sales and distribution facility now set up in Brazil to service the South American market.
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