War may be ravaging through parts of the Middle East and Ukraine, prompting many contract wins over the past 12 months but that hasn’t translated into profit for body armour and ballistics manufacturer HighCom (ASX: HCL) which has confirmed large losses are now anticipated.
The profit downgrade, which HighCom announced after the market closed on Monday afternoon, is a major surprise given the Company’s recent wins have coincided with the Ukraine invasion and Israeli–Palestinian conflict.
Despite those events, HighCom confirmed it expected its H1 FY24 losses to be in the range of $13 million to $15 million.
This is in stark contrast to the Company’s financial trajectory after its FY23 results were headlined by a 54% increase in revenue to $89.4 million which delivered $6.1 million in net profit after tax.
This unexpected downturn has compelled the company’s Board to recognise a non-cash write-down, particularly in its Ballistics Division, citing the level and duration of inventory held.
In response to the profit downgrade, HighCom’s Board is initiating a comprehensive review of its operations, analysing the sales pipeline and order backlog to determine strategies for an improved second-half performance. This includes implementing cost reduction measures and optimising the cost-base to achieve a positive EBITDA position for the latter half of FY24.
Furthermore, HighCom’s Chairman, Mark Stevens, emphasised the Board’s acknowledgment of the business’s underperformance and its commitment to swift action to address the situation.
“We are unhappy with current business performance, recognise the need to act swiftly and wish to assure shareholders that we remain focused on doing what is needed to enable HighCom Group to be a world-class company servicing the Defence and Law Enforcement industries,” said Stevens.
“Whilst the 1HY performance is disappointing, the Board is taking decisive action. Given our current sales order book and the planned cost reduction initiatives arising from the Board’s review, we are highly confident that the business will deliver improved results in future periods.”
HighCom’s decision to close its facility in Poland and consolidate operations in North America underscores the company’s commitment to streamlining operations and maximising efficiency amid challenging market conditions.
The announcement comes as a surprise to many industry observers, given the heightened demand for protective gear amid geopolitical tensions worldwide.
The profit downgrade is a blow for HighCom, which recently rebranded from its previous name XTEK, whose shares had been trading around $0.75 just 12 months earlier.
HCL shares closed at $0.32 prior to their after-market profit downgrade, and are expected to open lower today.
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, a bloodstock enthusiast and former equities analyst.
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