Small talk: Avon Rubber mixes defence with dairy to engineer growth
Monday 09 May 2011
It's been a busy couple of years for Avon Rubber, the engineering group which issued half-yearly results last week. Once known for making tyres, today the company bills itself as leader in the design and manufacture of hi-tech gas masks and related accessories to buyers from the military, law enforcement agencies and the like.
The tough image is tempered by the company's dairy – yes, dairy – business, which supplies liners and tubing that come in handy for milking cows. Last week's results showed that revenues at the dairy arm were up a healthy 16 per cent over the six months to March, with the business benefiting from improving market trends, although it did have to deal with rising raw material costs.
Defence and protection revenues were lower, with the figures being hit by the timing of filter spares shipments and lower revenues at its Avon Engineered Fabrications arm in the US, which makes flexible storage tanks and skirt systems for hovercraft. Things should improve over the second half, however, as the recently agreed US defence budget is expected to support activity.
John Cummins, an analyst at Altium Securities, dates the change in Avon's fortunes to 2000, when it secured a development contract with the US Department of Defence (DoD) to design and manufacture gas masks for the army, navy, air force and the special forces.
"This was the first time all the US armed forces came under a single contract," he said. "After a number of false starts, in 2008, Avon secured a full rate production contract with the DoD worth $112m (£68.4m) over a five-year period for 100,000 masks per annum, with an option for this to rise to a total of 300,000 masks over a 10-year period. This option was invoked in 2009, meaning that a significant proportion of the currently forecast protection and defence revenue is underpinned to at least 2017."
Not bad. But while the defence business is more eye-catching, Mr Cummins said investors should also take note of the potential for the company's dairy arm, which he suggests is "more than just a cash cow". Indeed.
"The new dairy lines brought to market provides farmers with the ability to increase milk production, and has been proved to reduce the infection rate in cows from the milking processes," he explained.
"This not only attracts a higher selling price, but also subsequent margin improvement for Avon." Besides, the company has ample scope for growth, with three quarters of the world's cows still being milked manually.
The picture is a good one, and should support sentiment as the company gears up to welcome a new chairman. David Evans, the former chief executive of Chemring, will shortly step up to take over from Sir Richard Needham, who is to stand down at the next annual meeting. Given the positive buzz around Avon he seems to have found an opportune time to move in.
HaloSource strikes another India deal
A couple of weeks ago, we looked at Origo Partners, the China-focused private equity firm whose investments span everything from electric batteries to mining to clean water technologies of the kind promoted by HaloSource, the AIM-listed group which unveiled a major deal with India's Bajaj Electricals last week. Origo owns 4.3 per cent of HaloSource, which has invested heavily in ways to purify drinking water. And although that business currently accounts for a relatively small proportion of overall revenues, the company's finance chief James Thompson says HaloSource is focused on growing its activities in the area to capitalise on the opportunities in emerging markets such as India and China.
The rationale is straightforward. Countries like India boast an increasingly affluent urban middle class which is often wary of drinking water straight from the tap. Urban households often install water filters, and in many cases boil tap water before drinking.
HaloSource offers what it calls a breakthrough technology that doesn't simply filter out visible impurities but also purifies the water of harmful viruses and bacteria without depending on electricity. Its gravity-driven HaloPure cartridges cleanse the water of micro-organisms such as poliovirus and rotavirus, all the while boasting low operating costs.
"Purifying drinking water at very low cost has been identified by many consumer appliance OEMS [original equipment manufacturers] around the world as a major growth market opportunity," Liberum Capital said in a report ahead of the company's listing on AIM in October last year.
The technology meets both the safety and disinfection guidelines laid down by the World Health Organisation, and the standards of the US Environmental Protection Agency. The latter is notable, as it leaves HaloPure well placed to meet rising regulatory standards in its target markets.
"Outside of HaloPure, the principal appliances that address waterborne diseases are categorised as ultraviolet light and reverse osmosis devices," Liberum explained. "However, these devices commonly cost several hundred US dollars."
HaloPure devices, in contrast, are available in the $40 (£24) to $50 range, according to Mr Thompson, with replacement cartridges costing around $7 apiece, making them far more affordable than the alternatives. The group has made significant inroads in India, forging agreements with Bajaj and Eureka Forbes, both of whom are major players and know the local market extremely well.
The Bajaj relationship began last year, and last week's announcement marks HaloSource's second supply agreement with the group.
HaloSource will supply Bajaj with its HaloPure Waterbird gravity water purifiers, which will be branded the Bajaj XTP 21 and XTP 21 DX. The company will also supply replacement cartridges for the devices, which are expected to be launched later this month.
Although India dominates for now, the company is also targeting Brazil and is set to sell its products in China, where it is awaiting regulatory approval. Once it has all the requisite clearances, Mr Thompson says HaloSource has a number of partners in mind to roll out the products across the country.
- 1 Autistic teenager beaten up by bullies makes them watch 20-minute video about autism
- 2 Nick Kyrgios calls former Olympian Dawn Fraser a 'blatant racist' after she tells Wimbledon star to 'go back where their parents came from'
- 3 World learns of app that shows you who unfriended you on Facebook, app promptly crashes
- 4 Chris Moyles reportedly set to make radio comeback with new breakfast show on XFM
- 5 The Greece debt crisis explained in less than 100 words
Florida man sentenced to two-and-a-half years for having sex on the beach in front of a child
Autistic teenager beaten up by bullies makes them watch 20-minute video about autism
Tube strike July 2015: Is it still on? Everything you need to know about the industrial action
Eiji Tsuburaya: Godzilla co-creator honoured in today's interactive Google Doodle
Florida teacher sentenced to 22 years in prison for sexually abusing three pupils
More Britons believe that multiculturalism makes the country worse - not better, says poll
Osborne to cap family benefits at £23,000 – announced ahead of his post-election Budget
Nathan Collier: Montana man inspired by same-sex marriage ruling requests right to wed two wives
Forget little green men – aliens will look like humans, says Cambridge University evolution expert
Girl, 7, stares down hate preacher at Ohio festival with pro-LGBT rainbow flag gesture
Sickness and disability benefits could be reduced by £30 a week as part of £12bn welfare cuts
iJobs Money & Business
£40000 - £95000 per annum: Recruitment Genius: This is an exciting opportunity...
competitive: SThree: Are you passionate about sales?Do you have a keen interes...
£17000 - £30000 per annum: Recruitment Genius: This is an exciting opportunity...
£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...