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An introduction to Avon Rubber p.l.c.
The Group has transformed itself over the past five years into
customer base now includes military forces, civil and first
an innovative design and engineering group specialising in two
line defence troops, emergency service teams and industrial,
core markets, Protection & Defence and Dairy. With a strong
marine, mineral and oil extraction site personnel. All put their
emphasis on research and development we design, test and
trust in Avon’s advanced respiratory solutions to shield them
manufacture specialist products from a number of sites in the
from every possible threat.
US and UK, serving markets around the world. We achieve this
through nurturing the talent and aspirations of our employees
to realise their highest potential.
Our world-leading Dairy supplies business and its Milkrite
brand have a global market presence. With a long history of
manufacturing liners and tubing for the dairy industry, we have
Avon Protection is the recognised global market leader in
become the leading innovator and designer for products and
advanced Chemical, Biological, Radiological and Nuclear (CBRN)
services right at the heart of milking.
respiratory protection systems technology for the world’s
military, homeland security, first responder, fire and industrial
markets.
Our ultimate goal is always to improve and maintain animal
health. Working with the leading scientists and health
specialists in the global dairy industry we continue to invest in
With an unrivalled pedigree in mask design dating back to the
technology to further improve the milking process and animal
1920s, Avon Protection’s advanced products are the first choice
welfare. Our products provide exceptional results for both the
for Personal Protective Equipment (PPE) users worldwide and
animal and the milker, making the milk extraction process run
are placed at the heart of many international defence and
smoothly. As our market share and milking experience continue
tactical PPE deployment strategies. Our expanding global
to grow, so does our global presence.
Delivering our strategy
“The implementation of our strategy has delivered exceptionally strong growth
in 2013. We expect to make further progress in both our Protection & Defence and
Dairy divisions in 2014.”
Peter Slabbert, Chief Executive
The execution of our strategy is delivering results. The success of
and further growth from the launch of our innovative cluster
the investments we have made is demonstrated by the growth in
exchange service under our market-leading Milkrite brand.
revenue and profits in our 2013 results.
Our Protection & Defence business has developed through
our prime contractor status with the US DOD and the resultant
sales into other military and first responder markets. We are the
CBRN respiratory protection systems provider of choice for users
worldwide with a unique modular personal protection system
offering multiple functionality for military, fire and first responder
communities.
Our Dairy business has made significant progress in recent years,
gaining market share in existing territories and expanding into
China. Our future plans include expansion into emerging markets
Through our investment in products, technologies, systems and
people, Avon is well positioned to deliver further growth.
Peter Slabbert
Chief Executive
20 November 2013
IFC
delivering our strategy
Avon Rubber p.l.c. Annual Report and Accounts 2013
Financial Report
GROUP
Revenue
£124.9m £18.3m
Operating Profit*
£14.2m £2.6m
PROTECTION & DEFENCE
DAIRY
Revenue
£93.2m £18.6m
Operating Profit*
£11.0m £3.5m
Revenue
£31.7m £0.3m
Operating Profit
£5.2m
£0.8m
Operating Profit* (£m)
Operating Profit* (£m)
Operating Profit* (£m)
£14.2m
£11.6m
£11.1m
£9.3m
£5.5m
£11.0m
£7.5m £7.5m
£6.5m
£4.5m
£5.5m
£6.0m
£5.2m
£4.6m
£3.5m
£3.0m
09 10
11
12
13
09 10
11
12
13
08 09 10
11
12
13
08
(£4.8m)
08
(£6.3m)
Contents
* = before exceptional items and the amortisation of
acquired intangibles, see page 19 for a reconciliation to
non-adjusted measures
Overview of the year
How we performed
IFC
01 - 07
08 - 10
11 - 31
32 - 38
Delivering our strategy
72 - 110
Financial results
Who we are, where we are and what we do
111 - 116
Independent Auditors' Reports
Chairman's Statement
Strategic Report
117 - 126 Parent Company Financial Statements
127
Five year record
Environmental and Corporate Social Responsibility
How we run our business
Shareholder information
39
40 - 43
44 - 48
49
50 - 51
52 - 71
Board of Directors
Directors' Report
Corporate Governance
Nominations Committee Report
Audit Committee Report
Remuneration Report
128 - 133 Notice of Annual General Meeting
IBC
Shareholder information
Avon Rubber p.l.c. Annual Report and Accounts 2013
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Delivering results in our Protection & Defence business
WE ARE DELIVERING RESULTS FROM OUR
NIOSH approval of the PC50 mask designed for the
MARKET-LEADING PROTECTION & DEFENCE
correctional services market
BUSINESS:
Delivering in new markets
We are protecting troops in over 60 countries. Our rapidly
growing global customer base now includes military
forces, civil and first line defence troops, emergency service
teams and industrial, marine, mineral and oil extraction
site personnel
We continue to broaden our global sales teams and
partnerships with national distributors to improve our
channels to market
We have expanded into new geographical markets such as
South America and additional markets in the Middle East
which are already delivering orders as customers experience
our advanced products
Delivering brand recognition
We have expanded our product management team to
deliver greater focus to each product category
We have increased brand loyalty through customer
satisfaction and a commitment to sales and marketing to
drive revenue growth
Delivering new products and services
Through Project Fusion, we continue to develop a new and
unique modular system offering multiple functionality for
the military, fire and first responder communities
What we have delivered:
Deltair, the firefighting industry’s first new self contained
breathing apparatus (SCBA) innovation in years
National Institute for Occupational Safety and Health
(NIOSH) certification for our unique MiLCF50 conformal filter
Our development of new technology for application
in products for the US Air Force and Navy has resulted in
the award of a $6.7m DOD development contract with
potential follow-on production contracts of up to $74m
Protection innovation delivering results
"Avon Protection has a long-standing history of offering
industry firsts and innovations in every category where it
does business."
Deltair by Avon Protection is an SCBA designed for the fire service
industry as a result of extensive investment in development
as part of Project Fusion. It has been developed in response
to changes in US National Fire Protection Association (NFPA)
standards. As the industry’s first new innovation in this category
in years, Deltair offers superior air management, a single power
supply, clearer communication and optimal weight distribution
for firefighters and other first responders.
Rugged and robust, Deltair is built with Avon’s military pedigree
to withstand the harshest environments.
By talking directly to the end user, Avon Protection learned that
firefighters demand a simplified SCBA power system.
While others continue to make adjustments to meet new
standards, Deltair uses a completely new platform. Avon
Protection visualised and developed a product that provides
the features and benefits that are most important to the
firefighting community.
Deltair is superior to other SCBAs with its unique features and
ergonomic design, allowing users more time to focus on fire and
rescue efforts. With the Deltair mask, users can see and be seen
more clearly in dark, smoky environments and can manoeuvre
better in tight spaces.
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delivering our strategy
Avon Rubber p.l.c. Annual Report and Accounts 2013
“Deltair uses a completely new
platform, while others simply
continue to make adjustments
to meet new standards"
FEATURES AND BENEFITS
Patented air management system
Deltair features a patented user-friendly, tactical switch that allows
firefighters to instantly switch from ambient air to cylinder air.
The tactical switch allows firefighters and other first responders to
keep their masks on at all times and only use cylinder air when it’s
needed. More efficient use of air equates to more time spent in the
environment focused on the mission and fire and rescue efforts.
One power source
Deltair runs on six C-cell batteries encased in one power pack,
simplifying storage and maintenance.
Lightweight and ergonomic design
Deltair meets NFPA weight requirements and is designed to evenly
distribute the weight of the cylinder on a firefighter’s hips.
The ergonomic design alleviates stress on the back and shoulders.
Weight distribution is similar to how a mountain climber carries
a heavy backpack, therefore minimizing risk of over-exertion and
improving a firefighter’s ability to manoeuvre.
Lower profile
The low profile mask design provides the greatest field of vision in
the marketplace, which is critical when users are navigating dark,
smoky environments.
The cylinder sits lower so that it doesn’t hit the firefighter’s helmet
or get in the way when the operator moves through tight spaces.
Adaptable
Deltair adapts to accommodate technology upgrades.
Compatible with EchoTracer, a field-proven technology that
enables the quick and accurate location of missing, lost or
trapped firefighters.
Quick disconnect option
Enables firefighters to replace their cylinders in seconds
without removing their gloves.
Tested for toughness
Packs withstood a three-hour tumble test
Masks resisted radiant heat temperatures of up
to 500° Fahrenheit
The back frame has been tested at 1,000 lb.
pull strength
Integrates with personal protective
equipment, for example turnout clothing,
helmets, personal issued items
Avon Rubber p.l.c. Annual Report and Accounts 2013
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Delivering results in our Dairy business
WE ARE DELIVERING RESULTS FROM OUR
MARKET-LEADING DAIRY BUSINESS:
‘We develop innovative products
with unique designs’
Delivering in new markets
After entering China in 2012, our sales and distribution
facility has continued to grow revenue throughout the year
and provides a strong platform for the future
Over the next 24 months we are continuing
to focus on South America and India and expect these
to provide continued growth opportunities for the future
Delivering brand recognition
Our '
' logo and '
' strapline reflect
our brand values and quickly inform our customers
of our products and capabilities
To strengthen our global positioning we have
continued to invest in our external communications
strategy through trade exhibitions and digital
communication channels
Delivering new products and services
Our cluster exchange programme, recently launched in
is a complete solution provider,
the US, means
saving farmers time on low-value tasks, securing our
relationship with our customers and managing the
change cycle. Further opportunities are available for this
exciting concept
We already have a vast product range including liners, milk
tubing and other essential components of the milking process
but we are constantly looking at ways we can further improve
efficiency for the farmer.
We have many products that are under development – all
providing milking improvements that the farmer has come to
expect from
.
‘We use the latest technology to improve
milking efficiency and improve teat health’
Our goal is always to improve and maintain animal health.
Our products provide exceptional results for both the animal
and the milker, making the milk extraction process run smoothly.
Recently an independent milking organisation in Belgium,
MCC-Vlaanderen, carried out a study on our ImpulseAir liner over
12 months and found:
Reduced somatic cell count on all farms
Reduction in clinical mastitis (udder inflammation
characterised by visible abnormalities in the udder or milk)
in over 50% of the farms
Reduction in teat damage on all farms
Reduction in teat-end hyperkeratosis, which is a thickening
of the skin that lines the teat canal and surrounds its
external opening, on all farms
‘Our customers feel the difference’
We want our customers to receive more. With improved
milking efficiency, improved teat health and superior on-farm
performance, we generate value for our customers through our
products, support and advice. We want to satisfy our customers’
needs and demands and give them a positive experience
whenever they work with
.
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Avon Rubber p.l.c. Annual Report and Accounts 2013
IP20 Range
The Next Generation
we believe in
At
thinking differently; challenging
the status quo to develop
innovative products which
improve on-farm milking
efficiency, providing practical
benefits for the farmer.
Our belief in research and
innovation shapes our product
development.
This year we were presented with the 2013 Prince Phillip Award,
for the most practical, relevant and best-presented technical
exhibit/demonstration at the Livestock dairy exhibition.
This is industry recognition of how our innovative products
are improving on-farm milking performance.
IP20 range of liners is a revolutionary product
The
that enables on-farm performance that no other conventional
liner can match. Widely recognised around the world for its
innovative approach to liner design, Milkrite’s IP20-AIR has
been designed with high-yielding herds in mind. It features
a narrow bore which helps reduce liner slip, increase milking
speed and delivers a gentler automatic cluster removal.
This is a great example of our innovative pedigree and is
supported by independent third party tests, confirming the
additional benefits that provide comfort to the cow, through
the continuous long-term use of Milkrite products on the farm.
IP20 range also comes with new shells and weights specially
The
designed to fit the new liners. Ergonomic and lightweight in design, the new Impulse
shell and weights facilitate improved handling.
Avon Rubber p.l.c. Annual Report and Accounts 2013
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Global investment
AvonRubber p.l.c.
Corporate Headquarters
Melksham, UK
Avon Protection
Melksham, UK
Avon Dairy Solutions
Melksham, UK
ARTIS
Melksham, UK
Avon Protection
Cadillac, MI
Avon Protection
Baltimore, MD
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Avon Protection
Kuala Lumpur, Malaysia
Avon Protection
Brussels, EU
Avon Dairy Solutions
Johnson Creek, WI
Milkrite
Modesto, CA
Avon Protection
Atlanta, GA
10
Milkrite
Rudnik, Czech Republic
Avon Protection - AEF
Picayune, MS
11
Milkrite
Shanghai, China
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1
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Agents and Distributors
Distribution countries
Avon Rubber p.l.c. Annual Report and Accounts 2013
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229885
Chairman's Statement
“2013 has delivered strong results and the investments
we have made have started to bring innovative new
products and technologies to market. We are
well positioned to achieve further growth”
David Evans, Chairman, Avon Rubber p.l.c.
Introduction
I am pleased to report that the implementation of our strategy has
delivered exceptionally strong growth in 2013.
We have recorded significant increases in revenue, operating
margins, profits and earnings per share. Revenue increased by 17%
to £124.9m (2012: £106.6m), operating margins have increased by
0.5% to 11.4% with an operating profit of £14.2m (2012: £11.6m) and
diluted earnings per share were up 34% at 34.0p (2012: 25.4p).
In addition to the good financial performance, we have continued
to make strategic progress in 2013. Last year I told you that after
three years of ‘turnaround’, the Board implemented a strategy to
accelerate investment in new products, technologies, systems
and people. In Protection & Defence this has meant reducing
our reliance on US Department of Defense (DOD) expenditure
through increased access to the North American first responder
market, greater focus on growing global markets, in particular
the Middle East, and significant investment in broadening our
product offering. In Dairy we are developing technologically
superior new products, building our Milkrite brand to reduce
dependence on our Original Equipment Manufacturer (OEM)
customers and expanding into rapidly developing new markets.
This phase of Avon’s development, commenced in 2012, is already
delivering a more robust business model and has contributed to
the growth this year. With the first new product
approvals being granted in the second half
of our 2013 financial year we are well
positioned to see the financial benefit
of these continuing investments in
our 2014 financial year and beyond.
In Protection & Defence, our order
intake totalled £77m with increased
orders from Rest of World and non-
DOD customers. Our long-term contract
with the DOD is now in its sixth year. We
supplied 223,000 M50 mask systems during the year
(and have supplied nearly 1,050,000 systems in total) and
enter 2014 with an order book covering the first quarter of the year,
with follow-on orders expected in the first quarter. As explained in
previous Annual Reports, the consumable filter business has less
visibility, but we enter 2014 with orders for 80,000 pairs of filters
which cover the first quarter. Whilst uncertainty remains in the
US regarding budget cuts and sequestration, initial DOD budget
proposals for 2014 and beyond indicate an increase in spend on
our long-term contract. This, together with the fact that we are an
established programme, delivering to schedule and with the largest
user, the Army, having just started taking our product, gives us a
reasonable degree of comfort.
During the year we won a significant design, development and
testing contract with the DOD, under the Joint Service Aircrew Mask
(JSAM) programme, to develop and test a variant of our special forces
M53 mask, to be known as the MM53 type 2, to provide respiratory
protection to a wide range of operators on the DOD’s fleet of fixed
wing aircraft. This $6.7m development contract will take 2 years and
should lead to a production contract which could be worth up to
$74m. In addition to this success, which takes us into the aerospace
arena, we also made a small rebreather technology acquisition in the
military underwater diving market. The integration of this business
is progressing well and recent development contract wins provide
confidence that this will create further opportunities for growth.
The non-DOD side of the business includes the North American
first responder market and the Rest of World military and law
enforcement market. Both markets are currently being driven by an
increasing need to provide improved protection against growing
global CBRN threats as recently seen in the Syrian chemical
weapons attack.
In the US, while budget pressures certainly exist, we offer the
respirator of choice for law enforcement which enables us to displace
incumbent product and grow our market share in particular as less
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Avon Rubber p.l.c. Annual Report and Accounts 2013
effective equipment procured post 9/11 is replaced. Competition is
more intense in the fire market, but we expect that our investment
in an upgraded SCBA product meeting new industry regulatory
standards will create enhanced opportunities in 2014 and beyond.
In Rest of World markets, again we are the CBRN respiratory
protection provider of choice and we continue to build business,
particularly in the Middle East. The timing of end-user procurement
remains difficult to predict, but we enter 2014 with a strong non-
DOD order book of £16m for delivery in 2014.
Our proven ability to convert profit into cash has enabled us to
continue investment in our innovative new product development
programmes, laying the foundation for further growth. During 2013
we have invested in new products and technologies and operational
improvements. Our programme to expand and enhance our product
range (Project Fusion) remains on track with the first new products
receiving regulatory approval in 2013 and a pipeline of further
products submitted for approval which should allow further product
launches in our new financial year.
In Dairy, revenues have fallen slightly, as we become less dependent
on OEMs and continue to grow our own Milkrite branded products,
with increased Milkrite sales in our established North American
and Western European markets and the rapidly emerging Chinese
market offset by a planned decrease in revenues from our OEM
customers.
Market conditions have also been difficult with farmer margins
under pressure from the combination of lower milk prices and
higher feed costs. Milk price movements tend to be cyclical and feed
prices are driven by the crop harvest and the level of demand from
alternative uses for crops such as biofuels. The combination of
these factors leads to farmers extending the use of our consumable
product, resulting in lower market demand.
In recent years the business has demonstrated through the launch
of its Impulse Mouthpiece Vented Liner (now branded ImpulseAir)
that the industry is receptive to new technology which improves
farm efficiency and animal health, with our proprietary product now
enjoying a 19% market share in the US. Only three years ago OEM
customers represented 47% of our revenue; at the end of this year
this has fallen to 34%, reflecting the success of the Milkrite brand.
This success has given us the confidence to invest further in
product development resource and to commence work on the
next generation of products. The first example of this, our cluster
exchange service, was successfully launched in the key Californian
market late in the financial year and will be rolled out to the rest
of the US and Europe in 2014. Under this programme farmers
effectively outsource to us their liner change process, which we
deliver through service centres which have been established in our
existing facilities, with the support of our dealers and third-party
logistics specialists.
We have also identified the opportunity that exists in emerging
markets, especially in Brazil, Russia, India and China (the BRIC
nations), where the growing demand for food and the expanding
middle class has led to an increase in demand for dairy products,
driving demand for our consumable product. We established a
sales and distribution facility in China during 2012 and added sales
resource in Eastern Europe, Brazil and India during 2013.
We are also investing £2m across the Group in upgrading our IT
systems. The Group selected Sage X3 in 2012 and the first site went
live successfully in 2013, with the remaining sites to follow in 2014
and 2015. This will deliver a single Group-wide ERP infrastructure
to provide better business integration and support our growing
global business.
We have been able to make this investment because of our strong
cash conversion during the year with operating cash flow at
114% of operating profit reflecting the efficient management of
our businesses. Despite the £11m investment in fixed assets and
development expediture we ended the year with net debt of only
£10.9m (2012: £8.7m). Our balance sheet is robust and, with
long-term funding in place, the Group has the debt capacity to
support further organic and acquisitive growth.
Group results
Revenue increased by 17% to £124.9m (2012: £106.6m) with
Protection & Defence up 25% to £93.2m (2012: £74.6m) due to
growth in sales to the DOD, non-DOD sales, and AEF sales. Dairy was
down 1% to £31.7m (2012: £32.1m).
Operating profit before depreciation and amortisation (EBITDA)
rose 22% to £20.0m (2012: £16.4m) and operating profit rose 22% to
£14.2m (2012: £11.6m).
Although volatile during the year, foreign exchange translation has
not had a material impact on the Group’s results in 2013 with the US
$/£ average rate being $1.56 (2012: $1.58).
Operating profit in Protection & Defence grew strongly to £11.0m
(2012: £7.5m) reflecting the revenue growth in non-DOD markets
and improved operational performance. Dairy operating profit fell
13% to £5.2m (2012: £6.0m) reflecting difficult markets in the US and
Europe together with a planned increase in the overhead base as we
invested in strengthening our infrastructure to position the business
for further growth.
Interest costs were £0.3m (2012: £0.2m) reflecting the higher levels of
average net debt during the year.
The Group effective tax rate fell from 29% to 27% due to a more
favourable geographic mix of profits to give a profit for the year
of £9.6m (2012: £7.8m) which equates to earnings per share of 35.4p
(2012: 26.9p). On a fully-diluted basis earnings per share rose 34%
to 34.0p (2012: 25.4p).
Avon Rubber p.l.c. Annual Report and Accounts 2013
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Chairman's Statement
Net debt increased to £10.9m (2012: £8.7m), reflecting the high
level of investment made in the year. Committed bank facilities of
£23.9m run to 30 March 2015.
Meeting on 7 February 2013. I would like to express my sincere
thanks to Sir Richard for his significant contribution to the success
of the Company during his tenure.
I am delighted that Richard Wood joined the Board on 1 December
2012. Richard retired as Chief Executive of Genus p.l.c. in 2011
having led their expansion into new markets over the previous
decade. Richard has brought substantial experience of the industry
in which our Dairy business operates and has proved to be a
valuable addition to the Board.
Outlook
We expect to make further progress in both our Protection &
Defence and Dairy divisions in 2014 as our clear strategic direction
takes further effect.
In our global Protection & Defence business, we are the technology
leader and we are continuing to invest in people and products to
maintain and improve our market leadership. Our lean cost base has
helped to deliver substantial profit growth in the weak economic
environment that has prevailed since 2008. We will continue to
benefit from the security of the long-term DOD contract which
is now supported by an increased market share in the US first
responder and foreign military and law enforcement markets.
The Dairy business is well positioned in a market with long-term
growth potential and improving short-term market conditions.
After a year of investment in business development our potential
for growth is strong. The cost base of this business is appropriately
sized and there will be opportunities to enhance profitability
through development of the strong Milkrite brand through our
global distribution capability, augmented by new product and
service offerings.
David Evans
Chairman
20 November 2013
Dividend
Based on the Group’s improved
profitability, cash generation
and the confidence the
Board has in the Group’s
future prospects, the Board
is pleased to propose a 20%
increase in the final dividend
to shareholders of 2.88p per ordinary share (2012: 2.4p).
This, combined with the 2013 interim dividend of 1.44p, makes
a full year dividend of 4.32p (2012: 3.6p), up 20%.
Employees
We have challenged our employees to develop significantly
over the last few years. This has been required to support the
Group’s progression from a traditional manufacturing business
to a customer and technology driven, sales and marketing led
organisation. As we progress, we are succeeding in creating
a culture of innovation to ensure the Group is able to take full
advantage of opportunities in developing new technology and
new markets while maintaining the manufacturing excellence for
which the Group is so highly regarded. We recognise that this is
not an easy process but our people have continued to respond
positively and I thank all of them for this on behalf of the Board.
Opportunities
Over recent years we have successfully focused the business in our
chosen areas of Protection & Defence and Dairy, realigned our cost
base and dealt with a number of legacy issues. The nature of our
challenge has changed with management now firmly focused on
growth and margin enhancement, which is clearly reflected in the
2013 results.
Looking forward we see that the global leading positions we
already have in our markets are delivering strong financial results
as well as further opportunities for growth. We continue to invest
in innovative new technologies and products and in building our
brand and market reach to bring these opportunities to fruition
as well as to identify acquisitions where our skills can create
synergistic benefits.
Board changes
After retiring as Chairman in February 2012, the Rt. Hon. Sir Richard
Needham remained as a Board Director to ensure a smooth
transition but retired from the Board at the Annual General
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delivering our strategy
Avon Rubber p.l.c. Annual Report and Accounts 2013
Strategic Report
Strategic overview
Group objectives
Group strategy
We have two strategic priorities at Group level:
Expanding our Protection & Defence business in military
and first responder markets globally; and
Developing our Dairy operation through its Milkrite brand
in traditional and emerging markets with both existing
and innovative new products.
We measure progress against our strategic priorities by reference
to our financial performance (as shown on page 1) and a broader
set of key performance indicators (KPIs) which are shown on
pages 24 to 25.
The Group is committed to generating shareholder value through
developing new products and serving global markets that can
deliver long-term sustainable revenues at higher than average
margins.
Business overview
Thr Group has transformed itself over the past five years into an
innovative design and engineering group specialising in two
core business markets, Protection & Defence and Dairy. With a
strong emphasis on research and development we design, test
and manufacture specialist products from a number of sites in
the US and UK, serving markets around the world. We achieve this
through nurturing the talent and aspirations of our staff to realise
their highest potential.
Avon Protection is the recognised global market leader in
advanced CBRN respiratory protection systems for the world’s
military, homeland security, first responder, fire and industrial
markets. With an unrivalled pedigree in mask design dating
back to the 1920s, Avon Protection’s advanced products are the
first choice for PPE users worldwide and are placed at the heart
of many international defence and tactical PPE deployment
strategies. Our expanding global customer base now includes
military forces, civil and first line defence troops, emergency
service teams and industrial, marine, mineral and oil extraction
site personnel. All put their trust in Avon’s advanced respiratory
solutions to shield them from every possible threat.
Our world-leading Dairy business and its Milkrite brand have a
global market presence. With a long history of manufacturing
liners and tubing for the dairy industry, Milkrite has become the
leading innovator and designer for products and services right at
the heart of milking.
Our goal is always to improve and maintain animal health.
Working with the leading scientists and health specialists in the
global industry, we continue to invest in technology to further
improve the milking process and animal welfare. Our products
provide exceptional results for both the animal and the milker,
making the milk extraction process run smoothly. As our market
share and milking experience continue to grow, so does our
global presence.
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Strategic Report
Protection & Defence strategy
We have a world-leading range of military respirators, developed
over many years and funded partially by our customers, where
we own the intellectual property. Our strategy is to build on this
strong position in the military market, initially through our long-
term sole-source mask systems contract to supply the US military,
and subsequently through sales to, and further contracts with,
other governments. Our range of filters and capacity for filter
manufacture is increasing. Developing through-life revenues
with greater consumable sales and service revenue is also a prime
objective. Our status as a prime contractor to the DOD, which
regards us as experts in our field, brings further development
opportunities in other areas of respiratory protection. We believe
that our expanding product range and customer base, together
with our credibility and development expertise, will put us in a
prime position to supply into all accessible global markets.
Strategic imperatives for success in Protection & Defence
We are simultaneously targeting homeland security markets with
non-military versions of these products. Our SCBA products have
the potential for greater integration with our other respiratory
protection products and this has been initially demonstrated
with the ST53 product. We aim to increase our range of modular
product offerings, widen our routes to market and aggressively
pursue further product approvals and certifications in new
markets. In addition, successfully integrating our respiratory
products with other CBRN protection products such as helmets
and suits will provide further integrated solutions to our customer
base. These developments will primarily be through organic
growth in the short term although the Group’s strengthened
balance sheet now enables the acquisition of complementary
technologies such as the acquisition of VR Technology Holdings
in 2013.
Leverage our relationship with the DOD to aid
Ensure customers and stakeholders recognise
and facilititate next generation products for
the Avon brand as synonymous with
commercialisation.
advanced CBRN / respiratory protection.
Develop a global operating platform to
Maximise profitable growth through new
support business demands.
business development and products.
Create stable organic growth by ensuring our
Attract, retain and develop our employees.
core products exceed customer expectations.
ONE MASK , T WO MODES,
SE AMLESS PROTEC TION
HMK150 is a revolutionary Helmet Mask Kombination system
specifically designed for CBRN respiratory protection and riot
control, combining two cutting edge products.
Based on the widely-deployed 50 Series mask platform, the HM
system brings the pedigree of a face mask proven for use in the
harshest environments.
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delivering our strategy
Avon Rubber p.l.c. Annual Report and Accounts 2013
Dairy strategy
Our strategy for long-term sustainable profit growth is to
continue to grow our market-leading Milkrite brand in the US
and to replicate that position in our European business. We are
also investing in opportunities in developing markets such as
China, Brazil, India, Russia and Eastern Europe to expand our
global distribution capability to deliver growth in the longer
term and we are expanding our in-country sales network
around the world. Following its opening in February 2012,
our sales and distribution facility in China has seen significant
growth. Innovative new product and service offerings and
continued world-class low-cost manufacturing excellence
should enable this business to sustain continued growth,
profitability and cash generation.
Strategic imperatives for success in Dairy
Expansion of our product range.
Expansion of in-country sales presence.
brand development and positioning.
Expansion of distribution and dealer network.
Leverage the benefit of our world class
Attract, retain and develop our employees.
manufacturing operations.
2013 PRINCE
PHILIP AWARD
The 2013 Prince Philip Award was presented to Milkrite
in recognition of the company’s continued research,
development and innovation in respect of the introduction of
the new IP20-AIR liner, which is aimed at bringing health and
productivity benefits to dairy cattle.
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Group business model
Our management structure is decentralised and decision-making is delegated to the appropriate executive team. Our Board manages
overall control of the Group’s affairs and is responsible for delivering the Group’s overall objective of generating shareholder value
through developing new products and serving global markets that can deliver long-term sustainable revenues at higher than average
margins. The Group Executive team which comprises the Executive Directors and three key members of our senior management team
is responsible for assisting the Chief Executive in implementing our strategy and the day-to-day management of the Group. This team is
supported by three executive teams, covering Protection & Defence, Dairy and Business Development.
Protection & Defence business model
Markets
Our respiratory protection products are sold direct to military markets where our primary customer is the DOD (Army, Navy, Marines,
Coastguard and Air Force) as well as a number of approved governments globally. Other significant markets are categorised under the
first responder banner and include the police and other emergency services and are addressed either directly or through distribution
channels. SCBA and thermal imaging equipment is targeted at fire services and other industrial users, primarily through a distribution
network in the US. All of these products are safety critical and the markets are consequently highly regulated with the approval standards
creating significant barriers to entry. Product life cycles are long and standardisation to a particular product by users is typical.
US DOD
We have a long-term sole-source
contract with the US DOD for the
supply of mask systems. Our products
have earned a reputation for quality
and comfort and the business was
recently awarded a DOD $6.7m aircrew
development contract.
OTHER
MILITARY
LE & FR
Orders for our respiratory protection
products from foreign military, law
enforcement (LE) and first responder
(FR) customers have continued to grow,
demonstrating that we are delivering
results from our investment strategy.
FIRE
AEF
We provide a total solutions option,
manufacturing a broad portfolio of
high-performance, timesaving respiratory
personal protection equipment as well
as thermal-imaging cameras that employ
the most advanced features in the
fire-service industry.
We continue to provide the US Army and
Navy with hovercraft skirting assemblies.
We also have a number of US and foreign
military contracts supplying a wide range
of collapsible storage tanks for static fuel
and water storage with applications from
the deserts of Iraq and Afghanistan
to the polar arctics.
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Avon Rubber p.l.c. Annual Report and Accounts 2013
Products
Our Protection & Defence business consists of a growing range of respiratory products. The main products are respirators or gas
masks (product names M50, C50, ST53, M53 and FM12) together with a range of spares and accessories; the CE-approved emergency
hood (EH20) and NIOSH-approved emergency hood (NH15); and SCBA (primarily the Z7 and Deltair product ranges). We can also
manufacture the consumable filters used by these products and thermal-imaging camera equipment. The respirators and escape hoods
offer breathing protection to varying degrees against CBRN threats while the SCBA equipment offers protection in oxygen depleted
environments. We also have a flexible fabrications business which manufactures fuel and water storage tanks and hovercraft skirts.
Our product development programme, Project Fusion, combines the skills and expertise of our design and engineering teams to
M50
C50
The most advanced general service
respiratory protection mask to date,
offering advanced comfort, usability,
operational effectiveness and
protection.
Developed using the same platform as
our M50 based US military mask. The
innovative design features optimise the
user’s time in the operational arena for
CBRN protection in law enforcement or
counter terrorism operations.
M61
Pioneering conformal filter technology
for closer integration and designed
with bayonet quick fit for use only with
the M50 mask.
MILCF50
The filter has a unique conformal
shape providing a low profile close
fit with the mask. The filter design
minimises snag and pull hazards as
well as a reduction in neck loading.
ST53
One system for all missions combining
the FM53 mask technology with an
advanced modular breathing apparatus
for specialist operations.
AEF
Offering design and manufacture
of tanks, containers and other
air-supported rubber structures.
NH15
The smallest NIOSH-certified CBRN
air purifying escape respirator on the
market ideal for police, emergency
medical services and fire officers seeking
immediate or emergency respiratory
protection in a CBRN scenario.
DELTAIR
As the firefighting industry’s first
new SCBA innovation in years, Deltair
offers superior air management, single
power supply, clearer communication
and optimal weight distribution for
firefighters and other first responders.
Avon Rubber p.l.c. Annual Report and Accounts 2013
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Strategic Report
Product development
produce a modular personal protection system comprising smaller modules with multiple functionalities that can be combined or used
independently in different threat scenarios.
We launched the first components of this system in 2013:
AvonAir, our new range of Powered Air Purifying Respirators (PAPRs) (NIOSH-approved, compact, battery-powered modular
airflow units which reduce breathing resistance).
Extending our own range of filters. The M61 filter supplied to the DOD provides CBRN protection to the US warfighter. We have
extended our range of NIOSH and CE-approved filters to cover a wider variety of threat scenarios for military and LE users. The first
NIOSH product approval was received late in 2013 and further approvals are expected in 2014.
Deltair, our new fire service offering, designed to meet the new 2013 NFPA standard, was first shown at the major US fire show in April
2013 and was well received. The product is currently in the NIOSH certification and approval process and is expected to be approved
for sale during the first half of our 2014 financial year.
Further development activity is also expanding our respiratory product offering into the aerospace market (with an aircrew version of
our existing M53 respirator) and the underwater diving market through a variety of breathing and monitoring technologies.
We expect this modular approach to further extend our market reach into the military, law enforcement and first responder protective
equipment market.
Avon’s PC50 respirator, derived from our successful C50 respirator, is specifically
designed for the correctional facility market. PC50 has been awarded NIOSH
certification. It also combines with our EZAir powered air blower for which
approval is expected in early 2014.
The Deltair is our new fire service SCBA product designed to meet the new NFPA
2013 standard and incorporates Avon’s military pedigree in design and quality as a
result of extensive investment in research.
We were awarded NIOSH certification for our own MiLCF50 unique conformal
filter. Avon’s own range of filters creates the opportunity to win new business and
increase margins as we become less dependent on third party suppliers.
Our plans to launch FM54, our law enforcement SCBA and the remaining
components of our modular personal protection equipment system remain on
track for the 2014 financial year.
PRODUCT
DEVELOPMENT
We have been awarded a $6.7m sole-source contract as part of the DOD’s strategy
to provide its aircrew community with upgraded CBRN respiratory protection
equipment under the JSAM-FW programme.
Rebreather technology capability has been greatly expanded with our development
of an Emergency Escape Breathing Device (EEBD) which forms part of a US DOD
Navy bid this year.
In April 2013 Avon acquired VR Technology Holdings who bring high level capability
in underwater breathing equipment which we believe we can target at military
users. This acquisition has already proved fruitful with two new contracts won.
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Avon Rubber p.l.c. Annual Report and Accounts 2013
Dairy business model
Markets
Our Dairy business designs, manufactures and sells products and services used in the automated milking process, primarily rubberware
such as liners and tubing. These consumable products come into direct contact with the cow and are replaced regularly to ensure
product hygiene, animal welfare and to maximise milk quality. Our customer base is split between OEM customers and customers buying
our own brand Milkrite products.
The global market is concentrated in high consumption automated markets in North America and Western Europe where we have
significant market shares. Potential exists outside these traditional markets, in particular in China, India, Russia, Eastern Europe and
South America, all of which are currently experiencing rapidly increasing demand for dairy products which is being satisfied through
mechanised milking. During 2012 we established our first sales and distribution facility in Shanghai to enable us to service the Asian
market more efficiently.
US
EU
Our Milkrite brand has established
a 37% market share
ImpulseAir has 19% share of
the market
CHINA
Contracts secured with China’s
largest milk suppliers and
distributors Mengui and Yili
Dealer network established
Milkrite market share is increasing
Investment made in sales resource
OTHER
MARKETS
We now have sales resource in India,
Brazil and Eastern Europe which will
allow further opportunity for growth
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BRAZIL
RUSSIA
INDIA
MARKET SHARE NO. OF COWS OPPORTUNITY
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Products
Our products are manufactured for major OEMs as well as being sold through distributors under our own Milkrite brand. We excel in
product design, materials specification and manufacturing efficiency. We are working to bring a wider range of dairy products to market
under our Milkrite brand, enhancing the farmer’s view of Milkrite as the primary technical solutions provider in this area. The success of
the innovative Milkrite Impulse Mouthpiece Vented Liner, ImpulseAir, continues and this product has claimed a 19% market share in the
US since its launch in 2010.
Milkrite liners
Milkrite’s Impulse and ImpulseAir (previously Impulse Mouthpiece Vented Liner) range provides triangular
liners designed for less slip and improved animal health benefits in their own unique interlocking anti-twist
shell design. ImpulseAir takes innovation one step further using a unique air flow to draw the milk away quickly.
Milkrite’s ULTRALINER LT and TLC offer value for money and the latest in technological innovation.
Milkrite tubing
Milkrite Ultraclean dairy tubing is the first to combine a smooth sanitary interior surface with a durable, flexible
rubber exterior which is chemically cross-linked, resulting in long-lasting tubing that will clean better and
maintain milk purity like no other product on the market today.
OEM liners and OEM tubing
We manufacture liners and tubing for milking machine manufacturers.
Product development
We have invested considerably in product development resource.
Our cluster exchange programme, recently launched in the US, means Milkrite is a complete solution provider, saving farmers time on
low-value tasks, securing our relationships with our customers and managing the change cycle. Further opportunities are available for
this exciting concept.
The ImpulseAir IP20 range of liners is a revolutionary product that enables on-farm performance that no other conventional liner can
match. Widely recognised around the world for its innovative approach to milking machine and liner design, Milkrite’s IP20-AIR has been
designed with high-yielding herds in mind.
NE W ERP SYS TEM
L AUNCHED IN JOHNSON CREEK
We are investing £2m across the Group in implementing a new
global Enterprise Resource Planning (ERP) system. The first site,
Avon Dairy Solutions in Johnson Creek, went live successfully in
2013. The team is enjoying the benefits of the new system which
has streamlined many existing procedures and allows real-time
data capture using tablets and barcode scanners.
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Avon Rubber p.l.c. Annual Report and Accounts 2013
Business review – the year under review
Group performance
Avon has delivered a strong set of financial results, building on the substantial financial and operational progress delivered in the
previous four years. The growth in revenue and profitability, which has stemmed from the investments made in sales and marketing
resource in previous years, has enabled the Group to continue to invest in product development to position itself to deliver further
growth in the future.
The Group’s key achievements in 2013 have been:-
EBITDA growth of 22% to £20.0m
Operating profit growth of 22% to £14.2m
In Protection & Defence, increased non-DOD order intake
Award of $6.7m DOD JSAM design, development and
Operating margins improved by 0.5% to 11.4%
testing contract
Profit before tax up 27% to £14.0m
Diluted earnings per share up 34% to 34.0p
Dividend increase of 20% to 4.32p reflecting
business growth and confidence
Cash generated from operating activities of
£15.3m, representing 114% of operating profit
Market share of newly introduced ImpulseAir
(mouthpiece vented liner) reached 19% in the US
Investment of £6.4m in new products and new markets
NOTE: The Directors believe that adjusted measures provide a more useful comparison of business trends and performance.
Adjusted results exclude exceptional items and the amortisation of acquired intangibles. The term adjusted is not defined under
IFRS and may not be comparable with similarly titled measures used by other companies.
All profit and earnings per share figures in the Chairman's Statement and this Strategic Report relate to adjusted business
performance (as defined above) unless otherwise stated.
A reconciliation of adjusted measures to non-adjusted measures is provided below:-
Non-Adjusted
Adjustments
Adjusted
Group EBITDA (£m)
Group Operating profit (£m)
Group Profit before Taxation (£m)
Group Profit for the year (£m)
Basic Earnings per Share (pence)
Diluted Earnings per Share (pence)
Protection & Defence EBITDA (£m)
Protection & Defence Operating profit (£m)
Dairy EBITDA (£m)
Dairy Operating profit (£m)
19.6
13.4
13.2
9.6
32.7p
31.4p
15.7
10.2
5.8
5.2
The adjustments, both of which relate to Protection & Defence, comprise:
amortisation of acquired intangibles of £0.4m
exceptional items relating to the relocation of the AEF facility of £0.4m
Further details are provided in note 3 of the financial statements.
0.4
0.8
0.8
0.8
2.7p
2.6p
0.4
0.8
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-
20.0
14.2
14.0
10.4
35.4p
34.0p
16.1
11.0
5.8
5.2
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Results
Earnings per share
Basic earnings per share were 35.4p (2012: 26.9p) and
diluted earnings per share were 34.0p (2012: 25.4p).
Segmental performance
Protection & Defence performance
Protection & Defence represented 75% (2012: 70%) of total Group
revenues. The business saw revenues rise by 24.9% from £74.6m
to £93.2m due to growing commercial mask and filter sales and
orders won by AEF, the division’s flexible fabrications business.
Our strong manufacturing capability and existing capacity
allowed us to quickly meet this increase in customer demand.
2012
£74.6m
2013
£93.2m
EMEA/NA LE
Fire
DOD Masks and Filters
AEF/DOD Spares
Avon has made considerable progress during 2013. Revenue
increased by 17.1% to £124.9m (2012: £106.6m) with Protection
& Defence up 24.9% from £74.6m to £93.2m and Dairy revenues
down 1.0% from £32.1m to £31.7m. Operating profit increased
to £14.2m (2012: £11.6m) and earnings before interest, taxation,
depreciation, amortisation and exceptional items (EBITDA)
were £20.0m (2012: £16.4m). This represents a return on sales
(defined as EBITDA divided by revenue) of 16.0% (2012: 15.3%).
After net interest and other finance costs the profit before tax was
£14.0m (2012: £11.0m). After tax, the profit for the year was £10.4m
(2012: £7.8m).
Finance expenses
Net interest costs increased to £0.3m (2012: £0.2m) reflecting
the investments made in acquisitions, facilities and product
development throughout the year. Other (non-cash) finance
expenses associated with the Group’s UK retirement benefit
scheme and the unwinding of discount rates on provisions were
£0.1m income (2012: £0.4m expense).
Taxation
The tax charge totalled £3.6m (2012: £3.2m) on a statutory profit
before tax of £13.2m (2012: £11.0m). In 2013 the Group paid tax in
the US, but not in the UK due to brought forward tax losses. The
effective tax rate for the period was 27% (2012: 29%). In 2013 the
US Federal tax rate was 34% and the Group’s adjusted effective
tax rate reflects the predominance of US revenues and earnings.
Unrecognised deferred tax assets in respect of tax losses in the
UK amounted to £2.8m (2012: £3.8m).
VR TECHNOLOGY
We have acquired the business and assets of VR Technology
Holdings, a market leader in diving rebreather systems and dive
computers.
Military diving is changing and becoming more technology
based as mission requirements extend. Avon will be at the
forefront of this change.
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Avon Rubber p.l.c. Annual Report and Accounts 2013
Sales of mask systems and filter spares to the DOD increased from
£42.6m to £45.2m, despite the uncertainty and delays associated
with the US budget process. We delivered 223,000 mask systems
and 429,000 pairs of filter spares, compared with 193,000 mask
systems and 520,000 pairs of filter spares in 2012. We have orders
in hand to deliver 40,000 mask systems and 80,000 pairs of
filter spares in early 2014 and, as part of our 10 year sole-source
contract to supply the DOD with mask systems, we expect further
orders as 2014 DOD budgets are released in the first quarter of
the new financial year.
Mask Systems
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Operating profit increased 47% to £11.0m (2012: £7.5m) and
EBITDA was £16.1m (2012: £11.6m), representing a return on sales
(as defined above) of 17.3% (2012: 15.6%). This reflects a richer mix
of non-DOD sales and progress on reducing operational costs,
slightly offset by continued investment in the infrastructure of
the business.
Dairy performance
Dairy revenues fell 1% to £31.7m (2012: £32.1m) and operating
profit decreased by 13.4% to £5.2m (2012: £6.0m). EBITDA was
£5.8m (2012: £6.5m), giving a return on sales (as defined above) of
18.4%, down from 20.3% in 2012.
Market conditions have been a significant headwind in 2013.
Farmer margins have been under pressure from the combination
of lower milk prices and higher feed costs. Milk price movements
tend to be cyclical and feed prices are driven by the crop harvest
and the level of demand from alternative uses for crops such as
biofuels. The combination of these factors has led farmers to
extend the use of our consumable product, resulting in lower
sales volumes. These cyclical trends are expected to correct
themselves as the long-term demand for milk products continues
to grow, especially in emerging markets.
18
16
14
12
10
8
6
4
2
)
m
£
(
E
U
N
E
V
E
R
2008 2009 2010
2011
2012
2013
2014 2015
2016
2017
DELIVERED ORDERS
While DOD sales have grown in monetary terms, they are a lower
proportion of the division’s sales as, in line with our strategy,
we have successfully grown our non-DOD sales. Sales to US law
enforcement and non-US military and law enforcement increased
from £17.2m to £25.0m as a result of higher order intake in 2013
as we are seeing the benefit of the increased sales and marketing
resource added in prior years. Positive order intake in the second
half of the year results in non-DOD orders in hand of £16.4m, all of
which are for delivery in 2014.
Fire sales have remained flat due to challenging market
conditions as purchasers put procurement decisions on hold
pending release of the new NFPA standard. The release of
our new Deltair SCBA product designed to meet these new
regulations in the US, and to enhance operational performance,
provides an opportunity in this market for 2014.
AEF and DOD spares have grown this year, and whilst contributing
to profit, these are margin dilutive at a divisional level. AEF, which
has been a historically volatile business, won hovercraft skirt and
fuel and water storage tank business which was largely supplied
during the year. This allowed AEF to increase its revenue by £4m
and contribute £1m to divisional operating profit.
FY11 H1 FY11 H2 FY12 H1 FY12 H2 FY13 H1 FY13 H2
OEM MILKRITE TOTAL
Avon Rubber p.l.c. Annual Report and Accounts 2013
delivering our strategy
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Milkrite product market share has continued to grow in our
traditional markets of North America and Western Europe. We
have seen OEM revenues decline as a result of increases in Milkrite
revenues and as our OEM customers review their procurement
strategies in what has been a challenging market and in some
cases they have chosen to insource or dual source part of their
product range.
In line with our strategy, our higher-margin own brand Milkrite is
becoming a larger proportion of our business.
In the US, our premium innovative ImpulseAir vented liner
product ended the year with a 19% market share, an increase of
3% on the prior year.
0
0
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$
'
60
50
40
30
20
10
0
US Market Share
US CLUSTER EXCHANGE REVENUE
O ct-12
N ov-12
D ec-12
Jan-13
Feb-13
M ar-13
A pr-13
M ay-13
Ju n-13
Jul-13
A u g-13
Sep-13
CLUSTER EXCHANGE REVENUE
In Europe we have invested in our sales resource which enabled
us to launch ImpulseAir in this market in the second half of 2013,
establishing a 1% market share by the end of the year. We also
plan to expand our cluster exchange service into Europe in 2014.
Our China sales and distribution facility, opened in February
2012, has delivered spectacular growth, albeit from a low starting
point. We have secured contract awards from the two large milk
processors, Yili and Mengnui, and have developed a network of
dealers. The Chinese government continues to invest in a dairy
infrastructure and this, together with the long-term growing
demand for milk products, means we are well positioned in
this market.
The profitability of the Dairy division has been impacted by a
number of factors in 2013. On the positive side, the growth in
Milkrite as a proportion of total revenue provided a richer sales
mix. This was offset by the softer traditional markets being
replaced by sales in China, the investment in sales resource in
Europe, investment in a product development team and the full
year effect of the cost base of our Chinese operation.
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Sep
09
Mar
10
Sep
10
Mar
11
Sep
11
Mar
12
Sep
12
Mar
13
Sep
13
US IMPULSEAIR MARKET SHARE
The launch of our ground-breaking new cluster exchange service
in California in the final quarter was successful and will provide
the opportunity for further growth in 2014 as it penetrates
the key Californian market and is launched in the mid-West.
This service benefits the farmer by reducing liner change time,
permitting higher utilisation of capital equipment. For the Group
this results in a higher and repeatable revenue stream and a
launch platform for future new products.
MODERN DAIRY GROUP
We have started to approach the leading Chinese farms,
who are adopting the latest milk extraction techniques and
are delighted to announce the Modern Dairy Group has
converted their farms to ImpulseAir liners.
22
delivering our strategy
Avon Rubber p.l.c. Annual Report and Accounts 2013
Research and development
Intangible assets totalling £16.5m (2012: £13.3m) form a
significant part of the balance sheet as we invest in new product
development. This can be seen from our expanding product
range, particularly respiratory protection products. The annual
charge for amortisation of intangible assets was £1.9m
(2012: £1.6m).
Our total investment in research and development (capitalised
and expensed) amounted to £6.4m (2012: £6.6m) of which £2.1m
(2012: £1.4m) was customer funded and has been recognised as
revenue.
In Dairy we have started to expand our product range under the
Milkrite brand beyond liners and tubing into non-rubber goods
such as liner shells and claws.
We expect to begin to see the benefits of these efforts, which
underpin the long-term prosperity of the Group, during our 2014
financial year.
Research and development expenditure
Protection & Defence
£m
Dairy
£m
Total expenditure
Less customer funded
Group expenditure
Capitalised
Income statement impact
of current year expenditure
Amortisation
Total income statement impact
Revenue
R&D spend as % of revenue
6.0
(2.1)
3.9
(3.0)
0.9
1.8
2.7
93.2
6.4%
0.4
-
0.4
(0.3)
0.1
-
0.1
31.7
1.3%
Total
£m
6.4
(2.1)
4.3
(3.3)
1.0
1.8
2.8
124.9
5.1%
Group position
Net debt and cashflow
Net debt at the year end was £10.9m (2012: £8.7m). Total
bank facilities were £23.9m, the majority of which are US $
denominated and all are committed to 30 March 2015.
In the year we invested £11.1m (2012: £9.5m) in property, plant and
equipment and new product development. In the Protection &
Defence business this focused on our new product development
programme, Project Fusion, and on purchasing a building for AEF,
which was prompted by the expiry of the lease of its previous
premises. In Dairy we invested in the development of our cluster
exchange service offering.
Operating activities generated cash of £15.3m (2012: £14.7m),
representing 114% of operating profit (2012: 127%). Receivables
at 30 September 2013 were higher than the previous year due to
the busy final quarter, particularly in Protection & Defence, and
this resulted in an increase in the ratio of trade working capital to
revenue to 20.8% (2012: 19.0%).
UK retirement benefit obligations
The balance, as measured under IAS 19, associated with the
Group’s UK retirement benefit obligation, which has been closed
to future accrual, has moved from a £2.2m deficit at 30 September
2012 to an £11.3m deficit at 30 September 2013. This movement
has resulted from an increase in the inflation assumption derived
from real and normal gilt yields. As market expectations of
inflation have risen this has not been offset by an equivalent
increase in the discount rate because IAS 19 specifies the use of
AA corporate bond (rather than gilt) yields to set the discount rate
and these rates are unchanged at 30 September 2013.
The last triennial actuarial valuation took place on 31 March 2011.
That valuation showed the scheme to be 98.4% funded on a
continuing basis and the Company reached an agreement with
the Trustee on future contributions to address the deficit.
During 2013, the Company paid total contributions of £0.6m.
Annual deficit recovery contributions will reduce to £0.3m for
2014 to 2016. In addition the Company will contribute £0.2m
towards scheme expenses.
114%
OPERATING PROFIT
CONVERTED TO CASH
Avon Rubber p.l.c. Annual Report and Accounts 2013
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Key Performance Indicators (KPIs)
The Group uses a variety of performance measures which are detailed below.
12 MONTH MOVING TOTAL REVENUE
130
125
120
115
110
£m
105
100
95
90
REASON FOR CHOICE
This looks at revenue for a cumulative 12 month period and is
used to identify the directional trend in revenue.
HOW WE CALCULATE
This is measured at sales value.
COMMENTS ON RESULTS
Revenue has increased by 17% in 2013 with growth in P&D of
25% being the main driver. In Dairy, softer traditional markets
have been offset by growth in China.
Sep
Oct
Nov Dec
Jan
Feb Mar
Apr May
Jun
Jul
Aug
2012
Sep
2013
I N C R E A S E D BY
17%
PROTECTION & DEFENCE ORDERS IN HAND
REASON FOR CHOICE
This demonstrates the orders in hand for fulfilment and future sales.
£34m
£31m
£3m
2011
£46m
£31m
£15m
2012
£31m
£15m
£16m
2013
DOD
NON DOD
RETURN ON SALES
14.6%
15.3%
16.0%
2011
2012
2013
HOW WE CALCULATE
This is measured at sales value.
COMMENTS ON RESULTS
Our non-DOD order book is growing and although we consumed
the final tranche of our original five year DOD fixed order, we
maintained our DOD order book with additional orders under the
‘requirements’ option of the ten year contract.
D E C R E A S E D T O
£31m
REASON FOR CHOICE
This measure brings together the combined effects of procurement
costs and pricing as well as the leverage of our operating assets.
HOW WE CALCULATE
Earnings before interest, taxation, depreciation, amortisation and
exeptional items (EBITDA) divided by revenue.
COMMENTS ON RESULTS
We have succeeded in growing profit in our Protection & Defence
business through increased revenue and improved operating
margins. This has been slightly offset in 2013 by a lower return in
Dairy as softer markets have coincided with a period of investment in
resource in that division.
I N C R E A S E D T O
16.0%
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TRADE WORKING CAPITAL
TO REVENUE RATIO
21.0%
19.0%
20.8%
REASON FOR CHOICE
Management of working capital ensures that profit growth
converts into cash generation.
HOW WE CALCULATE
Trade working capital is defined as inventory + trade receivables
- trade payables, expressed as a percentage of revenue.
COMMENTS ON RESULTS
Working capital, in particular receivables, has risen in the final quarter
reflecting the higher level of activity in Protection & Defence.
2011
2012
2013
I N C R E A S E D T O
20.8%
DILUTED EARNINGS PER SHARE
23.3p
25.4p
34.0p
REASON FOR CHOICE
This measure is designed to include the effective management
of interest costs and the tax charge and measure the total return
achieved for shareholders.
HOW WE CALCULATE
Profit after tax excluding the impact of the amortisation of acquired
intangibles and exceptional items divided by the number of dilutive
potential shares.
COMMENTS ON RESULTS
Higher operating profit and a lower Group effective tax rate in 2013
have contributed to an improved EPS position.
2011
2012
2013
I N C R E A S E D T O
34.0p
Our non-financial KPIs in relation to health and safety and employees are detailed in our Environmental and Corporate Social
Responsibility report on pages 32 to 38.
Avon Rubber p.l.c. Annual Report and Accounts 2013
25
delivering our strategy
Strategic Report
Principal risks and uncertainties
The Group has an established process for the identification and
management of risk across the two business divisions working
within the governance framework set out in our corporate
governance statement (see pages 44 to 48). Ultimately the
management of risk is the responsibility of the Board of Directors,
and the development and execution of a comprehensive and
robust system of risk management has a high priority at Avon.
The Board’s role in risk management includes promoting a culture
that emphasises integrity at all levels of business operations,
Risk management within the business involves:
embedding risk management within the core processes of the
business, approving appetite for risk, determining the principal
risks, (and ensuring that these are communicated effectively
across the businesses), and setting the overall policies for risk
management and control.
The principal risks affecting the Group are identified by the Group
Executive team and reviewed by the Board.
Identification and assessment of individual risk
Design of controls
Testing of controls through internal audits
Formulating a conclusion on the effectiveness of the control environment in place
TR ANSITION TO NE W
HOME COMPLE TE FOR AEF
The US business AEF have successfully transitioned into their
new facility located in Picayune’ s Industrial Park. The 72,600 sq.
ft. manufacturing facility was originally designed by the team
at AEF and is ideal for the type of large format products AEF is
accustomed to manufacturing. With the purchase of the larger
facility, we are now strategically poised for expansion
and embrace the new opportunities for growth.
26
delivering our strategy
Avon Rubber p.l.c. Annual Report and Accounts 2013
The process involves a quarterly risk assessment and a process
for ensuring that the Group’s approach to dealing with individual
risks is robust and timely. Each risk, once identified, has priority
tasks allocated to it that are the responsibility of the members of
the Group Executive to deliver during the financial year. Regular
sessions are held throughout the year to review progress in
delivery of the priority tasks at an operational level.
We identify three main risk areas:
Strategic risks – risks affecting the strategic aims of the business, or those issues
that affect the strategic objectives faced by the Group
Financial risks – issues that could affect the finances of the business both
externally and from the perspective of internal controls
Operational risks – matters arising out of the operational activities of the Group
relating to areas such as procurement, product development and interaction
with commercial partners
The principal risks identified through the risk management process are listed on the following page in order of severity and with the
categorisation given to them internally shown alongside. Mitigation, where possible, is shown by each identified risk area.
IMPUL SE AIR DELIVERS
IMPROVED ANIMAL HE ALTH
IN THE MIDDLE E AS T
Al-Safi, in the Kingdom of Saudi Arabia have converted their
remaining 14 parlours to ImpulseAir, resulting in greatly
improved teat ends and much calmer, more comfortable cows.
Avon Rubber p.l.c. Annual Report and Accounts 2013
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Principal risks and uncertainties (continued)
Type of Risk
Business Risk
Mitigation
1
STRATEGIC
2
STRATEGIC
Product development
Failure to meet regulatory
product/system requirements
Lack of investment in new products
Lack of expertise and skills
Failure to identify and implement new products
e.g. protection equipment and dairy products
require regulatory approvals in each market in
which they are sold. Obtaining approval can
lead to delays in product launches or significant
rework for different markets
Publication of and adherence to a
technology roadmap, intellectual
property manual and New Product
Introduction (NPI) process
Focus on delivery of projects in the
roadmap on time, to budget and cost
Sales and product development
have the objective of delivering
external funding and new
revenue streams
Market threat
Lack of sales growth
Safety approvals and sole source supply contracts
Loss of major
contract or business to
competitor e.g. price
competition in the
dairy market and the
impact of milk prices
and feed costs
provide significant barriers to entry
Continued investment in product development to ensure
competitive advantage e.g. our ImpulseAir dairy liners which
offer superior quality and milk yield and our innovative protection
project to integrate our suite of masks and breathing apparatus
Setting the strategy for
i) securing US Government funding;
ii) winning additional business from existing customers; and
iii) capturing new customers and revenue streams
Continuing recruitment of sales personnel
Business interruption – supply chain
Dependency on sole supplier/subcontractor
Availability/quality of raw materials
Failure to manage distributors and
dealers correctly
3
OPERATIONAL
Proactive approach to the approval
of second sources and reducing cost
through purchasing initiatives
Robust supplier quality
management procedures
Negotiations with customers to pass
on increases in raw materials prices
Key
Arrows indicate whether the level of risk relative to the other risks of the business has increased (), decreased () or remained the same() during the year.
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Avon Rubber p.l.c. Annual Report and Accounts 2013
Type of Risk
Business Risk
Mitigation
Quality risks and product recall
Poor quality systems allow faulty product
to reach customer
Process/material/equipment inadequacy
e.g. our protection products are safety critical
therefore all product reaching the end
consumer must meet specification
Focus on Six Sigma manufacturing
disciplines, site quality procedures
and employee engagement
Focus on product development to
improve design of products
Continue with equipment and
process improvements
Customer dependency
Over reliance on a few customers
e.g. US Government, Dairy OEMs
Poor customer relationships
and communication due to
incomplete understanding
of customers or failure to
meet expectations
Talent management
Insufficient skills
of employees
Poor engagement
and morale
Dysfunctional organisational
structure/reporting lines
Focus on customer service (internal and external)
Growing sales to other customers e.g. continuing to
expand protection sales into new countries and markets
and expanding dairy sales into developing markets
Setting and regular monitoring of sales budgets
and major sales prospects by the Group Executive
and the Board
Focus on celebrating and rewarding achievements
and promoting positive action by empowering our
people and engaging and involving them through
effective communication, including CEO annual
presentations to each location
Continue to realign teams and structures, recruiting
where appropriate to ensure that as the business
grows the structure remains fit for purpose
Active management by succession planning,
the annual performance management process
and the reward and incentives structure
Non-compliance with legislation
Failure to comply with export controls,
the International Traffic in Arms Regulations
(ITAR), Bribery Act and product approvals
Regular focus and review of the ITAR
control framework, NPI process and
the internal control procedures
Internal and external audit
4
OPERATIONAL
5
STRATEGIC
6
OPERATIONAL
7
OPERATIONAL
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Trends affecting the future
Protection & Defence – DOD spending
Our Protection & Defence business is well placed to meet the
challenges of a continuing period of instability in the global
defence market. Providing safety-critical equipment to the
warfighter under a long-term sole-source contract with the DOD
provides a degree of certainty in our biggest market, while our
rapid growth in homeland security and military markets around
the globe demonstrates the success of our strategy of investing
in sales, marketing and product development.
In May 2008 we were successful in obtaining a single-source
$112m, five year full rate production (FRP) contract from the DOD
for the M50 military respirator at the supply rate of 100,000 mask
systems per annum. The DOD also exercised its ‘requirements’
option to extend the order for a further five years allowing it to
take up to a further 200,000 mask systems per annum, resulting
in total potential quantities of up to 300,000 mask systems per
annum over a ten year period.
Budget funding for our ten year sole-source respirator
programme with the DOD has been largely unaffected by the
current economic instability although the procedural process
of doing business with the US Government has slowed. Despite
continued downward pressure on military budgets globally
and in particular uncertainty about the size and timing of the
approval of DOD budgets, we expect spend on PPE for the
warfighter to remain stable, although the timing of orders may
again be unpredictable. At the year-end we carried forward
orders for 40,000 M50 masks for delivery in 2014. We also expect
further mask orders in 2014 from 2014 DOD budgets.
The buying patterns of filter spares has been less stable and
predictable as is often the case when a new product is first
fielded to the front line. The combination of filling the logistics
chain and replacement of filters which have been used or where
the shelf-life has expired provides a long term source of demand
for filter spares. We expect Avon to be one of two sources for
filters for the DOD from 2014 should the other source receive
approval for its product. At the year-end we carried forward
orders for 80,000 filter pairs for delivery in 2014 and expect
further filter orders.
Dairy – market conditions
The market for our consumable product can be affected by
macro issues that impact farmers’ short-term cash flow and thus
their purchasing patterns. The milk price, which determines the
farmer’s revenue, is impacted by both short-term commodity
markets (it is a traded item in the US) and the medium-term
cycle of cow population, as herds are bred or culled. Feed is the
farmer’s major input cost and the price of feed is determined by
the success or otherwise of the harvest and competing demand
for the crops.
AWARD OF
$6.7m
DOD JSAM DESIGN,
DEVELOPMENT
AND TESTING CONTRACT
30
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Avon Rubber p.l.c. Annual Report and Accounts 2013
At the end of the year the asset exposure was 5% hedged (2012:
17%). As a result of the remaining balance sheet exposure after
hedging, the Group was exposed to the following:
Based on the 2013 results a 5¢ movement in the average
US Dollar rate would have impacted Group assets by £1.1m
(2012: £0.9m).
The Group is exposed to interest rate fluctuations and with net
debt of £10.9m (2012: £8.7m), a 1% movement in interest rates
would impact the interest costs by £0.1m (2012: £0.1m). The
Group assesses the need to obtain the best mix of fixed and
floating interest rates in conjunction with the maturity profile of
its debt. None of the Group’s borrowings were fixed at the year
end (2012: £nil).
Peter Slabbert
Chief Executive
20 November 2013
Andrew Lewis
Group Finance Director
20 November 2013
Group – treasury and exchange rates
The Group uses various types of financial instruments to manage
its exposure to market risks which arise from its business
operations, full details of which are included in note 19 of the
financial statements. The main risks continue to be movements
in foreign currency and interest rates.
The Group’s exposure to these risks is managed by the Group
Finance Director who reports to the Board. The Group faces
translation currency exposure on its overseas subsidiaries and is
exposed in particular to changes in the US Dollar.
Each business hedges significant transactional exposure by
entering into forward exchange contracts for known sales
and purchases. The Group reports trading results of overseas
companies based on average rates of exchange compared
with sterling over the year. This income statement translation
exposure is not hedged as this is an accounting rather than cash
exposure and as a result the income statement is exposed to the
following:
Based on the 2013 results a 5¢ movement in the average
US dollar rate would have impacted reported operating
profit by £0.4m (2012: £0.4m) and profit after tax by £0.3m
(2012: £0.3m).
The balance sheets of overseas companies are included in
the consolidated balance sheet based on the local currencies
being translated at the closing rates of exchange. Balance sheet
translation exposure has been partially hedged by matching
either with foreign currency borrowings within the subsidiaries
or with foreign currency borrowings which are held centrally.
EOS 2013 EMPLOYEE
OPINION SURVE Y
Engagement with our employees and two-way communication
is key to the success of the Group. Each year the Company runs
an EOS, with online access for every employee.
EOS 2013 was conducted anonymously via an online tool.
In addition hard copies were placed in HR departments, break
out areas and site entrances to encourage participation.
Avon Rubber p.l.c. Annual Report and Accounts 2013
delivering our strategy
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Environmental and Corporate Social Responsibility
Annual report on environmental
and corporate social responsibility
The Directors recognise the importance placed on how businesses
take account of their economic, social and environmental impact
with the aim of addressing their own competitive interests at the
same time as those of wider society. The Directors acknowledge
that this involves balancing the interests of shareholders,
employees, customers, suppliers and the wider communities in
which our businesses operate.
As we continue to work to strengthen our position as the world
leader in the markets in which we do business we will also seek
to honour our obligations to society by being an economic,
intellectual and social asset to each community in which we
operate.
At many of our sites we are one of the largest employers in the
local area. As an integral part of the community we are aware
of the impact the Group has on its local environment and
seek to contribute to its economic, social and environmental
sustainability.
We also strive to:
Manage the Group as a sustainable business for the benefit
of shareholders and other stakeholders
Aim for the highest standards of health and safety in
the workplace
These areas continue to receive focus as part of our aim to
uphold the strictest standards of business conduct throughout
the Group and to ensure that the Group would be able to show
that it had adequate procedures in place designed to prevent
bribery from being committed by those performing services on
its behalf. For example, all agents and third parties who act on
behalf of the Group are obliged to comply with the standards set
out in the Policy & Code, which is incorporated into all written
arrangements. The Policy & Code also contains a whistleblowing
procedure which enables any employee or individual working for
the Group to raise concerns about breach of policy or malpractice.
Human rights
Avon always seeks to respect the human rights of all staff,
customers and suppliers. A programme of supplier audits exists to
ensure suppliers adhere to Avon’s standards.
Environmental report
Whilst Avon’s facilities and manufacturing processes are low in
environmental impact, the Group is committed to ensuring that
its businesses are as efficient as possible and conduct business
in ways that are sensitive to the environmental needs of the
communities in which we operate.
Our environmental objectives focus on the activities of:
Energy consumption
Waste and recycling
Develop and motivate our employees, ensuring they are fully
Supplier environmental development
engaged in the Group’s strategy
Minimise waste and emissions that contribute to
climate change
Business conduct
Our Policy & Code on Business Conduct requires our employees
to carry on their business activities in a way that will attract
the respect of those they deal with and will not bring Avon’s
reputation into disrepute. This includes complying with the laws
and regulations in the countries in which we operate and do
business. The Policy & Code also contains guidance on avoiding
conflicts of interest and managing relationships with third parties.
Our aim is to ensure our operations and products comply
with relevant environmental legislation and are committed to
continuous improvement in environmental sustainability through
recycling, conservation of resources and prevention of pollution
whilst keeping our suppliers informed of our environmental
expectations. As technology improves we expect to be able to
reduce waste further and increase the level of recycling.
All manufacturing sites have complied with local, State and
Federal requirements during the year.
We have undertaken a number of kaizen programmes this year
which have been implemented to reduce waste and increase
efficiency.
A copy of the Policy & Code is available to all employees in
addition to being placed on our Group website.
Energy consumption
Ethics and anti-corruption
The Policy & Code contains material on bribery and corruption
further to the introduction of the UK Bribery Act 2010, which
includes the corporate offence of failing to prevent bribery.
Across the Group we have implemented a number of energy-
saving initiatives.
We have removed a number of inefficient metal halide
hi-bay lights, saving an estimated 45% in electricity used
for lighting
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Avon Rubber p.l.c. Annual Report and Accounts 2013
We conducted energy studies throughout Hampton Park
West using external resources and implemented
recommended action
The Group has instilled a philosophy of “cradle to cradle”
when designing new products which considers rebirth of the
material used in products at the end of its initial life stage
We have engaged employees in energy questionnaires
produced to gather ideas and gain information regarding
potential savings
Energy management training courses have been organised
to show where energy reduction information has been
implemented on sites
140W fluorescent tubes have been replaced with 60W high
efficiency LEDs without affecting the luminance of the area
An advanced thermostat was installed for the HVAC system
at Hampton Park West at a cost of £5,000 recovering 6% of
future electricity costs
Scrap paper and metal are recycled at all sites
We continue to work with our power supplier to identify
savings and opportunities
We have concentrated the working environment to
incorporate cell manufacturing units, therefore further
reducing unwanted lighting, heating and space
Waste and recycling
The Group recycles all waste thermoplastic elastomers
(TPE) used in the manufacturing of the NH15 Hood
Hampton Park West has changed recycling companies
to receive a payment for certain types of waste rather than
pay a charge
We break down items for recycling rather than discarding in
general waste
Recycling bins for cans, bottles and plastics are provided
for employees throughout sites
Hampton Park West has become involved with a disabled
riding school which uses our waste granulated rubber for
its equestrian ring
We have increased the use of our video, telephone and
web conferencing facilities reducing the need for car and
air travel
In the UK we set a waste recycling target for the 2013 year
of 85% and this year we saw the figure reach an impressive
87% of all waste being recycled with only general waste
now being sent to landfill. This compares with 82% recycled
in 2012. Staff at HPW have set themselves a tough but very
admirable target of reducing the amount sent to landfill still
further for the 2014 reporting year
Supplier environmental development
We are committed to working with suppliers in mutually
beneficial ways, and so far as is practicable require that
suppliers and contractors act in accordance with the Group’s
values and policies
ISO 14001
Hampton Park West has successfully retained its ISO 14001
certification throughout 2013, with no deficiencies being raised
on either audit by external LRQA auditors. Avon also had a clean
bill of health with no external environmental concerns raised
throughout the year.
AVON PROTEC TION
AWARDS $10 K TO NOR TH CL AY
FIRE PROTEC TION DIS TRIC T
WINNERS OF FIREHOUSE
REMODEL CONTES T
North Clay Fire Protection District in Louisville, Illinois, was the
winner of Avon’s 2013 firehouse remodel contest in which it was
awarded $10,000 funding to upgrade facilities used by volunteer
firefighters.
This giveaway was a small token of Avon Protection's appreciation
for the hard work and dedication shown by US firefighters.
Avon Rubber p.l.c. Annual Report and Accounts 2013
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Environmental and Corporate Social Responsibility
ARTIS continues to have a significant input in 'green technology'
areas. Having completed a funded programme on tyre recycling
ARTIS is now working to commercialise a full scale continuous
microwave pyrolysis unit for the production of carbon, oil and
gas from waste tyres. ARTIS has also agreed to work with another
commercial pyrolysis company to provide technical support
and evaluation of the end materials and their applications. We
will continue to evaluate treatment processes for the recycled
materials with a view to increasing the value and applicability of
recycled products.
Our carbon footprint
Reducing emissions is the right thing to do for a responsible
business seeking sustainable profits. It conserves energy, saves
money and helps deliver energy security and better resource
efficiency.
Our gross greenhouse gas (GHG) emissions for the year ended 30
September 2013 totalled 9,250 tonnes of CO2e.
We have calculated our carbon footprint according to the
World Resources Institute (WRI) and World Business Council
for Sustainable Development (WBCSD) GHG Protocol, which is
the internationally-recognised standard for corporate carbon
reporting.
We break down our emissions into three categories which you can
see in the table below.
We have used emission factors from Defra/DECC’s GHG
Conversion Factors for Company Reporting.
Our carbon data is collected by managers in each of the countries
in which we operate and entered into an internet-based
reporting tool that has been designed specifically for our carbon
footprinting process. This tool has been developed to reflect
the requirements of the GHG protocol. The tool calculates
CO2e emissions.
The year ended 30 September 2013 was set as the base year as this
Description
GHG emissions
(tonnes CO2e)
Scope 1
Emissions arise directly from our
operations and comprise fuel
used in our vehicles
Scope 2
Indirect emissions that come from
our use of electricity, gas and water
Scope 3
Emissions are other indirect
emissions, such as business travel
Total
7
8,496
747
9,250
is the first year the Group has reported detailed greenhouse gas
emissions. The appropriateness of the base year will be reviewed
on an annual basis.
Health and safety
The Board recognises the importance of health and safety to the
business. Not only does a safe working environment contribute
to employee well-being, but the prevention of accidents and
personal injury contributes to the running of an efficient business.
The Group’s stated policy is that management practices and
employee work activity will, so far as reasonably practical,
ensure the health, safety and welfare at work of its employees,
contractors and visitors, together with the health and safety of all
other persons affected by the business activities of the Group’s
operations.
All of the Group’s businesses maintain health and safety systems
that are both compliant with Group policy and appropriate to
the business, with the overall objective of providing a safe and
healthy working environment. Accident rates continue to be low
across the Group.
Accident rates across the 5
manufacturing sites during 2013
OSHA
TOTAL CASE
INCIDENT REPORT
RATE FOR THE YEAR*
OSHA
RECORDABLE
ACCIDENTS
FOR THE YEAR
Target
2013
2012
Target
2013
2012
NIL
1.6
1.1
NIL
NIL
1.6
1.0
NIL
NIL
3.0
3.0
NIL
NIL
10.9
NIL
NIL
NIL
2.8
3.9
NIL
3
2
4
2
1
2
2
4
NIL
1
Hampton Park
West, Melksham
Avon Protection
Systems, Cadillac
Avon Dairy
Solutions,
Johnson Creek
Avon Protection
Systems,
Atlanta
AEF,
Picayune
*the number of Occupational Safety and Health Administration (OSHA) recordable injuries
per 200,000 man hours worked
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Avon Rubber p.l.c. Annual Report and Accounts 2013
Monitoring of our safety performance is an integral part of
the Group’s operations and is one of the non-financial key
performance indicators reviewed regularly by local management.
Investment in our employees
The Group recognises the importance of our employees in
helping us to achieve our corporate goals and one of our
corporate values is to motivate our people through appropriate
recognition and reward programmes. We are committed to
equality of opportunity in all employment practices, policies and
procedures regardless of race, nationality, gender, age, marital
status, sexual orientation, disability, religious or political beliefs.
We seek to be a modern, flexible, customer service driven
organisation whose employees operate in an engaged
environment of trust and empowerment. The Group’s core values
are embodied by the acronym CREED, a set of principles and
cultural values which are rigorously pursued and adhered to
across the Group.
C
Understanding and delivering our CUSTOMER
(internal or external) needs and expectations
R
Motivating our people through appropriate
RECOGNITION and reward programmes
Avon is committed to recognising, developing and recruiting new
talent across the businesses. We encourage talented employees
by matching the right people to the right roles and by ensuring
professional development opportunities are available throughout
their employment within the Group.
In the UK we support student engineers by enabling a second
year university student to spend a year as a member of our
design team, working on new product development. In the
US, we support a number of student summer placements and
internship placements where students are able to alternate school
semesters with full-time work semesters from their freshman year
to graduation.
The students help us tackle real-world engineering problems as
they learn about the engineering profession as well as having the
potential for long-term employment within Avon. A number of
our student placements have taken up full time employment with
the Group following their graduation and contribute significantly
to company achievements.
We operate Group-wide employee share plans to encourage
our staff to participate in the future of the Group through share
ownership. All UK employees are entitled to participate in
the Share Incentive Plan (SIP) whilst US employees are invited
to join the Employee Stock Purchase Plan (ESPP). Both provide
the opportunity to purchase shares through accumulated
payroll deductions.
Providing responsibility through meaningful
employee EMPOWERMENT
The gender of our staff at 30 September 2013 was as follows:
E
E
Ensuring a friendly and ENGAGED environment
that embraces worthwhile communications
where innovation is encouraged
Non-Executive Directors
Executive Directors
D
Recognising the value of cultural DIVERSITY
and talent across our business
Senior Managers
Other Employees
Total
Male
Female
2
2
16
451
471
1
-
4
274
279
Our CREED values are fundamental to Avon’s employee
performance management process.
Six of the senior managers (four male, two female) are also
directors or officers of subsidiary undertakings.
The Group recognises outstanding individuals through its
‘CREED Heroes’ programme, a quarterly award scheme whereby
employees can nominate colleagues whom they believe embody
the CREED values in their job performance. Each CREED Hero
receives a tangible financial award, wide recognition across the
Group and is then shortlisted to receive the annual accolade of
being Avon’s group-wide CREED Hero.
Avon Rubber p.l.c. Annual Report and Accounts 2013
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Environmental and Corporate Social Responsibility
The survey results are another of the Group’s key
performance indicators. This year, due to a number of
initiatives to encourage participation, the response rate
increased significantly. This in turn has resulted in a slight
drop in the overall score.
Target
2013
2012
2011
Response rate
>50%
71%
52%
54%
Overall score (out of 5)
>3
3.4
3.7
3.6
I have pride in being
an employee of the
company (out of 5)
>3
4.0
4.3
4.2
The EOS helps to ensure Avon listens to its employees
and strives for continuing improvement. The survey will
continue to be an annual forum that helps Avon invest in
its people and drive success.
Engagement of our employees and two-way communication
is key to the success of the Group. Each year the Company
runs an Employee Opinion Survey (EOS), with online access
for every employee. The EOS gives each employee an
opportunity to provide feedback and suggest ways in which
Avon could improve.
EOS 2013 was conducted anonymously via an online tool.
In addition hard copies were available from HR departments,
break out areas and site entrances to encourage participation.
The EOS is a clear driver for change and responses are
evaluated on a site and global level. The Chief Executive and
site management teams review each idea and suggestion and
publish responses and plans for improvement. Results and
recommendations for change are presented at the annual
CEO Roadshow.
WORK ING
BE AUTIFULLY
We are proud of our extremely hardworking and highly
skilled workforce, and were pleased to have been captured
‘working beautifully’ by these talented artists and have the
opportunity to provide sponsorship for the exhibition.
TIMOTHY CUMMING AND NIGEL HUDSON CAPTURED AVON EMPLOYEES ‘WORKING BEAUTIFULLY’ AT HAMPTON PARK WEST
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Avon Rubber p.l.c. Annual Report and Accounts 2013
Community and charitable contributions
We aim to work together with the communities in which we
operate. We actively encourage our sites to engage positively
with the local community in their areas.
At many of our sites we are one of the largest employers in
the local area and we recognise the part we play in those
communities. We are aware of the impact the Group has on its
local environment and seek to contribute to its economic, social
and environmental sustainability.
We recognise the value provided to local and wider
communities by members of the reserve forces and those in
public service. We are proud to have employees in service and
support their commitment.
In the US we support extracurricular activities through
sponsoring our employees and their children participating in
local bowling leagues, soft ball leagues, high school athletics
and ski teams. In addition, our sites have contributed to a
number of charitable causes:
Employees collected non-perishable items for
Project Christmas
Jeans Day Fridays raised $4,294 which was distributed to
12 local societies and charities
Avon Protection sponsored a team to walk in the Relay for
Life cancer walk
Avon Protection sponsored a number of local activities
including the Labor Day race, Firefighter Basketball game and
YMCA camperships
Avon Protection donated money to help students in the
Cadillac area to work side by side with Haitian people to
better their community
The Avon Protection Cadillac team continue to support their
local hospital to update its facilities
This is the 4th year that Avon Protection has sponsored
the food distribution truck for “Feeding America” in Cadillac.
Volunteers help to distribute food to approximately
145 families
Avon Protection donated $1,000 to the Stehouwer Free Clinic,
a community based, not-for-profit organisation providing
free primary health care to the uninsured
Avon Protection donated $5,000 to the Cadillac Rotary to
update the Pavilion and the Cadillac Lakefront
Avon Protection donated $2,000 to the United Way for
non-profits in the Cadillac community
In the UK we provide support to a number of charities including
Dorothy House Hospice Care, Barnardos and the National Blind
Childrens’ Society through sponsored events and collections.
Additional charitable activities included:
WEAR IT PINK Fridays for Breast Cancer Campaign
Avon Dairy Solutions sponsored a local farmer undertaking
a 24 hour milking marathon
Avon Protection provided sponsorship to Stress’in Out, who
raise funding for military personnel with Post Traumatic
Stress Disorder (PTSD)
Avon Rubber p.l.c. Annual Report and Accounts 2013
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Cake Sale for Children in Need
Avon Protection made a donation to the Little Sister of the
Poor who provide care for the elderly in the latter years
of their lives
Wiltshire Mind who operate four 'You in Mind' social
support centres across Wiltshire that offer both group and
one-to-one advice and support sessions for people with
mental health issues
Avon Protection provided annual sponsorship to Everywhere
Without Delay, raising funding for The Soldiers Charity
Comic Relief Red Nose cake sale
Raffles for The Blind Children’s Society
Hampton Park West continue to participate in the Poppy
Appeal on an annual basis
The Group sponsored ‘Working Beautifully’, an exhibition
following a visit to Hampton Park West to capture our skilled
employees at work
The Group maintains a fund with the Community
Foundation for Wiltshire and Swindon, a charity dedicated
to strengthening local communities in West Wiltshire by
targeting its grants to make a genuine difference to the lives
of local people. Avon’s fund provided grants to:
Wiltshire Music Centre based in Bradford-on-Avon for
support towards the 15th Wiltshire & Swindon Special
Schools Festival in July 2013. Every year the project gives up
to 500 young disabled people aged 9-19 from special schools
the chance to work with skilled professional artists
Miles Ingrey-Counter
Company Secretary
20 November 2013
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Avon Rubber p.l.c. Annual Report and Accounts 2013
Board of Directors
David Evans
Chairman
Peter Slabbert
Chief
Executive
Stella Pirie OBE
Non-Executive
Director
“2013 has delivered strong results and the investments we have made have
started to bring innovative new products and technologies to market. We
are well positioned to achieve further growth.”
Aged 67. David took up the position of Chairman of the Board in February 2012 having served on the
Board from the time of his appointment in June 2007. He has been working in the defence sector for
over 30 years with extensive knowledge of the US market. David spent 17 years with GEC-Marconi before
joining Chemring Group PLC in 1987 and was appointed Chief Executive in 1999. He remained on the
Chemring Board as a Non-Executive Director following his retirement in April 2005 but stood down from
this role during 2012 to focus on his role as Chairman of Avon Rubber p.l.c. He was previously a Non-
Executive Director of Whitman PLC.
Aged 51. Peter became Avon
Rubber p.l.c.’s Chief Executive in
April 2008. Peter was awarded the
Chief Executive of the Year Award
at the Grant Thornton Quoted
Company Awards in January 2011.
He joined Avon as Group Financial
Controller in May 2000 and he was
appointed Group Finance Director
on 1 July 2005. A Chartered
Accountant, Peter joined from
Tilbury Douglas where he was
Divisional Finance Director and
Group Financial Controller. Prior to
that, he worked at Bearing Power
International as Finance Director.
Aged 63. Stella was appointed to
the Board in March 2005. She began
her career as an auditor at KPMG
before becoming Divisional Finance
Director and Group Treasurer of
Rotork p.l.c. and then Finance
Director of GWR Group Plc. Stella
has held various non-executive
positions in both the private and
public sectors. She is currently a
Non-Executive Director and Audit
Committee Chairman of Schroder
UK Growth Fund p.l.c. and Highcross
Limited. She is also Chairman of
Bath Spa University. Stella was
awarded the OBE in 1999.
Andrew Lewis
Group Finance
Director
Richard Wood
Non-Executive
Director
Aged 42. Andrew joined Avon in
September 2008 as Group Finance
Director. He holds a 1st Class joint
honours degree in Mathematics
and Accounting from the University
College of North Wales, Bangor
and is a Fellow of the ICAEW.
Andrew was awarded the Young
Finance Director of the Year Award
at the ICAEW Financial Director’s
Excellence Awards in May 2011. He
gained a wide range of international
experience as a Director at
PricewaterhouseCoopers in Bristol
and New Zealand before joining
Rotork p.l.c. as Group Financial
Controller.
Aged 68. Richard joined the Board in
December 2012. Richard is a graduate
Chartered Chemical Engineer. He
worked for ICI for 23 years and is
a former Managing Director of ICI
Seeds UK. Following this time he
entered the pharmaceutical industry,
firstly as Chief Executive of Daniels
Pharmaceutical Limited until it was
acquired by Lloyds Chemist plc,
and then as Managing Director
of a Lloyds division. He was Chief
Executive of Genus plc for 15 years
until his retirement in September
2011. He is currently Chairman of
Atlantic Pharmaceuticals Limited and
of Innovis Limited.
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Directors' Report
for the year ended 30 September 2013
T he Directors submit the annual report and audited financial statements of Avon Rubber p.l.c. (‘the Company’) and the Avon Rubber
group of companies, ('the Group') for the year ended 30 September 2013. The Company is registered in England and Wales with company
registration number 32965.
Strategic Report
The Strategic Report, which contains a review of the Group’s
terms which provide voting rights to the Trustee and, in certain
business (including by reference to key performance indicators),
circumstances under the terms of joint ownership awards, to the
a description of the principal risks and uncertainties facing the
recipient of the awards.
Group, and commentary on likely future developments is set
out on pages 11 to 31.
Financial results and dividend
The only significant agreements to which the Company is
a party which take effect, alter or terminate upon a change
of control of the Company following a takeover bid are the
bank loan agreements and the Performance Share Plan. The
The Group statutory profit for the year after taxation amounts
agreements relating to the £5,000,000 and US$15,500,000
to £9,628,000 (2012: £7,829,000). Full details are set out in the
revolving credit facility made available to the Company by
consolidated statement of comprehensive income on page 72.
Barclays Bank PLC and the $15,000,000 revolving credit facility
An interim dividend of 1.44p per share was paid in respect of
the year ended 30 September 2013 (2012: 1.2p).
made available to the Company by Comerica Bank would
become repayable upon a change of control of the Company
and are therefore considered significant in terms of potential
The Directors recommend a final dividend of 2.88p per share
impact on the business of the Group as a whole if there was a
(2012: 2.4p) resulting in a total dividend distribution per share
change of control. A change of control will be deemed to have
for the year to 30 September 2013 of 4.32p (2012: 3.6p).
occurred if any person or persons acting in concert (as defined
Share capital
Details of the Company’s share capital, including rights and
obligations attaching to the shares, are set out in note 20 of
the financial statements. The issued share capital consists of
ordinary shares with a nominal value of £1, all of which are fully
paid up, rank equally in all respects and are listed on the Official
List and traded on the London Stock Exchange. The rights
and obligations attaching to the Company’s shares are set out
in the Company’s Articles of Association ('Articles'), copies of
which can be obtained from Companies House or by writing
to the Company Secretary. Shareholders are entitled to receive
the Company’s reports and accounts and to attend, speak and
exercise voting rights (including by proxy) at general meetings.
There are no restrictions on the transfer of issued shares or on
the exercise of voting rights attached to them, except where
the Company has suspended their voting rights or prohibited
their transfer following a failure to respond to a notice to
shareholders under section 793 of the Companies Act 2006, or
where the holder is precluded from transferring or voting by
in the City Code on Takeovers and Mergers) at any time is/
are or become(s) interested in more than 50% of the issued
ordinary share capital of the Company. Under the rules of the
Performance Share Plan, on a takeover a proportion of each
outstanding grant will vest. The number of shares that vest is
to be determined by the Remuneration Committee, including
by reference to the extent to which the performance condition
has been satisfied and the number of months that have passed
since the award was made. The employment contracts for
the Executive Directors do not contain any specific right to
compensation for loss of office on a takeover bid.
Substantial shareholdings
At 7 November 2013, the following shareholders held 3% or
more of the Company’s issued ordinary share capital:-
Schroder Investment Management
BlackRock Investment Management
20.7%
12.3%
6.1%
4.2%
4.0%
the Financial Services Authority’s Listing Rules or the City Code
Cazenove Capital Management
on Takeovers and Mergers. The 1,242,111 shares held in the
names of the two Employee Share Ownership Trusts on a jointly
owned basis or as a hedge against awards previously made or
to be made pursuant to the Performance Share Plan are held on
Henderson Global Investors
Avon Rubber p.l.c. Trustees
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Avon Rubber p.l.c. Annual Report and Accounts 2013
Acquisition of own shares
During the year the Directors had the power to make purchases
succession plan for Mrs Pirie in the coming year. Each Non-
of up to 4,608,492 of the Company’s own shares in issue on the
Executive Director has a service agreement and details of these
basis as set out in the explanatory note on page 133. No share
are contained in the Remuneration Report on page 64.
purchases were made by the Company during the year but it
did fund the purchase of 521,539 shares with a nominal value
of £1 each by one of the Employee Share Ownership Trusts as
described in note 20. The Directors also had the authority to
allot shares up to an aggregate nominal value of £10,241,097
which was approved by shareholders at the 2012 annual
general meeting (AGM). In addition, shareholders approved a
resolution giving the Directors a limited authority to allot shares
for cash other than pro rata to existing shareholders. These
resolutions remain valid until the conclusion of this year’s AGM
when resolutions to renew these authorities will be proposed.
Dividends on shares held by the Employee Share Ownership
Trusts have been waived.
Directors
The names of the Directors as at 20 November 2013 are set out
on page 39.
The Company’s rules about the appointment and replacement of
Directors, together with the powers of Directors, are contained in
the Articles. Changes to the Articles must be approved by special
resolution of the shareholders.
During the year there have been two changes to the
membership of the Board. Mr R K Wood was appointed as a
Director on 1 December 2012. Sir Richard Needham retired from
the Board on 7 February 2013 at the AGM. None of the Directors
have a beneficial interest in any contract to which the Company
or any subsidiary was a party during the year. Beneficial interests
of Directors, their families and trusts in ordinary shares of the
Company can be found on page 68.
The Board is satisfied that Mr D R Evans, Mrs S J Pirie and Mr R K
Wood are independent Non-Executive Directors. Mrs Pirie’s term
of appointment will reach nine years in March 2014. The Board
has considered the factors set out in Code provision B.1.1 in order
to make a determination of independence for Mrs Pirie for the
2014 financial year. The only relevant factor from those set out
in provision B.1.1 is that, from March 2014, Mrs Pirie will have
served on the Board for more than nine years from the date of
her first election. In addition her period of tenure will have been
concurrent with that of Mr Slabbert as an Executive Director.
The Board is comfortable that Mrs Pirie will remain independent
in character and judgement notwithstanding this and should
continue to chair the Audit Committee and be a member of
the Remuneration Committee. The Board will consider the
Mr P C Slabbert retires by rotation and, being eligible, offers
himself for re-election.
The Board confirms that Mr Slabbert has contributed
substantially to the performance of the Board. The Chairman
gives his full support to Mr Slabbert’s offer of re-election and
draws the attention of shareholders to his profile on page 39.
Mrs S J Pirie retires by rotation and, being eligible, offers herself
for re-election.
The Board confirms that Mrs Pirie has contributed substantially
to the performance of the Board. The Chairman gives his
full support to Mrs Pirie’s offer of re-election and draws the
attention of shareholders to her profile on page 39. Mrs Pirie will
put herself forward for annual re-election in future.
As part of the Board’s annual evaluation process, each
Director undertook a performance evaluation which included
considering the effective contribution of Board members and
the effectiveness of the Board committees.
All Executive Directors’ service contracts with the Company
require one year’s notice of termination, subject to retirement,
currently at age 60 for Mr P C Slabbert and 65 for Mr A G Lewis.
Neither of the Executive Directors is currently appointed as a
non-executive director of any limited company outside
the Group.
Directors’ and officers’ indemnity insurance
Subject to the provisions of the Companies Act 2006 ('the
Act'), the Articles provide for the Directors and Officers of
the Company to be appropriately indemnified. In accordance
with section 233 of the Act the Company has arranged an
appropriate Directors and Officers insurance policy to provide
cover in respect of legal action against its Directors.
In 2006 the Company’s Articles were amended to allow the
Company to provide the Directors with funds to cover the
costs incurred in defending legal proceedings. The Company is
therefore treated as providing an indemnity for its Directors and
Company Secretary which is a qualifying third party indemnity
provision for the purposes of the Act.
DIVIDEND UP
20%
Avon Rubber p.l.c. Annual Report and Accounts 2013
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Directors' Report
for the year ended 30 September 2013
Research and development
The Group continues to utilise its technical and materials
expertise to further advance its products and remain at the
forefront of technology in the field of polymer technology and
materials engineering. The Group maintains its links to key
universities in the US and UK and continues to work with new
and existing customers and suppliers to develop its knowledge
and product range. Total Group expenditure on research and
development in the year was £6,407,000 (2012: £6,627,000)
further details of which are contained in the Strategic Report on
pages 11 to 31.
Through ARTIS, the Group’s research and development arm,
the Group is recognised as a world leader in understanding the
composition and use of polymer products.
Environmental and corporate
social responsibility
Matters relating to environmental and corporate social
responsibility are set out on pages 32 to 38.
Political and charitable contributions
No political contributions were made during the year or the
prior year. Contributions for charitable purposes amounted to
£15,305 (2012: £17,725) consisting exclusively of numerous small
donations to various community charities in Wiltshire, Maryland,
Michigan, Wisconsin, Georgia and Mississippi.
Financial instruments
An explanation of the Group policies on the use of financial
instruments and financial risk management objectives are
contained in note 19 of the financial statements.
Post balance sheet events
adopted by the European Union, and the parent company
financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom
Accounting Standards and applicable law). In preparing the
Group financial statements, the Directors have also elected
to comply with IFRSs issued by the International Accounting
Standards Board (IASB). Under company law the Directors must
not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the
Group and the Company and of the profit or loss of the Group
for that period. In preparing these financial statements, the
Directors are required to:
Select suitable accounting policies and then apply
them consistently
Make judgements and accounting estimates that are
reasonable and prudent
State whether IFRSs as adopted by the European Union
and IFRSs issued by the IASB and applicable UK Accounting
Standards have been followed, subject to any material
departures disclosed and explained in the Group and parent
company financial statements respectively
Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any
time the financial position of the Company and the Group and
enable them to ensure that the financial statements and the
Remuneration Report comply with the Companies Act 2006
and, as regards the Group financial statements, Article 4 of the
IAS Regulation. They are also responsible for safeguarding the
assets of the Company and the Group and hence for taking
reasonable steps for the prevention and detection of fraud and
There have been no significant events affecting the Company or
other irregularities.
Group since the year end.
Statement of Directors’ responsibilities for
preparing the financial statements
The Directors are responsible for preparing the Annual Report,
the Remuneration Report and the financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the Group financial statements in accordance
with International Financial Reporting Standards (IFRSs) as
REVENUE UP
17%
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Avon Rubber p.l.c. Annual Report and Accounts 2013
The Directors are responsible for the maintenance and integrity
of the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Having taken advice from the Audit Committee, the Board
considers that the annual report and accounts, taken as a
whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company’s
performance, business model and strategy.
Each of the Directors, whose names and functions are listed on
page 39 confirm that, to the best of their knowledge:
Independent auditors
Each Director confirms that on the date that this report was
approved so far as they are aware, there was no relevant audit
information of which the auditors are unaware; and each
Director has taken all the steps they ought to have taken as a
Director in order to make themselves aware of any relevant
audit information and to establish that the Company’s auditors
are aware of that information.
The auditors, PricewaterhouseCoopers LLP, have indicated
their willingness to continue in office and a resolution
concerning their reappointment will be proposed at the annual
the Group financial statements, which have been prepared
general meeting.
in accordance with IFRSs as adopted by the EU, give a true
and fair view of the assets, liabilities, financial position and
Corporate governance
The Company’s statement on corporate governance can be
found in the corporate governance report on pages 44 to 48.
The corporate governance report forms part of this Directors’
Report and is incorporated into it by cross-reference.
Annual general meeting
The Company’s annual general meeting will be held at its
Hampton Park West facility, Semington Road, Melksham,
Wiltshire SN12 6NB on 6 February 2014 at 10.30am. The Notice of
Meeting can be found on pages 128 to 133. Registration will be
from 10:00am.
Miles Ingrey-Counter
Company Secretary
20 November 2013
profit of the Group; and
the Strategic Report contained on pages 11 to 31 includes
a fair review of the development and performance of
the business and the position of the Group, together with
a description of the principal risks and uncertainties that
it faces.
Creditor payment policy
Operating businesses are responsible for agreeing the terms
and conditions under which business transactions with their
suppliers are conducted. It is Group policy that payments
are made in accordance with these terms, provided that
the supplier is also complying with all relevant terms and
conditions. For the year ended 30 September 2013, the number
of days' purchases outstanding at the end of the financial year
for the Group was 19 days (2012: 24 days) based on the ratio of
trade creditors at the end of the year to the amounts invoiced
during the year by trade creditors. At 30 September 2013 there
were no trade creditors in the balance sheet of the parent
company (2012: nil).
PROFIT BEFORE TAX UP
27%
Avon Rubber p.l.c. Annual Report and Accounts 2013
43
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Corporate Governance
Statement of compliance with the UK Corporate Governance Code
T he Board of Directors believes in high standards of corporate governance, notwithstanding the Company’s position outside the
FTSE500, and is accountable to shareholders for the Group’s performance in this area. This statement describes how the Group is
applying the relevant principles of governance, as set out in the UK Corporate Governance Code (the Code) which is available on the
website of the Financial Reporting Council (FRC).
The Company is a smaller company for the purposes of the Code
and in consequence certain provisions of the Code either do not
apply to the Company or may be judged to be disproportionate
or less relevant in its case.
The Board considers that, subject to the Senior Independent
Director not attending meetings with the major shareholders
to listen to their views (which is explained further below)
the Company met the requirements of the Code throughout
the year ended 30 September 2013. This statement will
address separately the main subject areas of the Code namely
Leadership, Effectiveness, Accountability and Relations with
Shareholders. Remuneration is dealt with in the Remuneration
Report on pages 52 to 71.
The Board confirms that it has been applying the procedures
necessary to implement the Turnbull Guidance on how to apply
the section of the Code dealing with internal control.
Leadership and effectiveness
During the year the Board of Avon Rubber p.l.c. comprised a
Chairman, two Non-Executive Directors ('the Non-Executive
Directors'), and two Executive Directors who are the Chief
Executive and the Group Finance Director. The Board treats the
two Non-Executive Directors as independent. Richard Wood
was appointed as a Non-Executive Director on 1 December
2012 and Sir Richard Needham retired from the Board at the
conclusion of the 2013 annual general meeting.
Rules concerning the appointment and replacement of
Directors of the Company are contained in the Articles of
Association. Amendments to the Articles must be approved
by a special resolution of shareholders. Under the Articles all
Directors are subject to election by shareholders at the first
annual general meeting following their appointment, and to
re-election thereafter at intervals of no more than three years.
The Board is aware of the FRC’s suggestion that companies
outside the FTSE 350 should consider the annual re-election of
all directors. On the basis that this is not a requirement of the
Code and it has not been raised as an issue by any shareholders
the Board has chosen not to change its existing practice.
Non-Executive Directors submit themselves for annual
re-election if they have served for more than nine years since
first election, as will be the case for Stella Pirie from the next
annual general meeting. Additionally, the Non-Executive
Directors are appointed by the Board on terms which allow for
termination on three months’ notice.
Biographies of the Directors appear on page 39. These illustrate
the range of business and financial experience upon which
the Board is able to call. The intention of the Board is that its
membership should be balanced between executives and non-
executives and have the appropriate skills and experience. The
special position and role of the Chairman under the Code is
recognised by the Board and a written statement of the division
of responsibilities of the Chairman and Chief Executive has
been agreed. The Chairman is responsible for the leadership
of the Board and ensuring its effectiveness on all aspects of its
role and the Chief Executive manages the Group and has the
prime role, with the assistance of the Board, of developing and
implementing business strategy.
One of the roles of the Non-Executive Directors under
the leadership of the Chairman is to undertake detailed
examination and discussion of strategies proposed by the
Executive Directors, so as to ensure that decisions are in the best
long-term interests of shareholders and take proper account of
the interests of the Group’s other stakeholders. The Chairman
ensures that meetings of Non-Executive Directors without the
Executive Directors are held.
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Avon Rubber p.l.c. Annual Report and Accounts 2013
How the Board operates
The Chairman ensures through the Company Secretary that the
Board agenda and all relevant information is provided to the
Board sufficiently in advance of meetings and that adequate
time is available for discussion of all agenda items, in particular
strategic issues. The Chief Executive and the Company Secretary
discuss the agenda ahead of every meeting. At meetings
the Chairman ensures that all Directors are able to make an
effective contribution throughout meetings and every Director
is encouraged to participate and provide opinions for each
agenda item. The Chairman always seeks to achieve unanimous
decisions of the Board following due discussion of agenda
items. The Non-Executive Directors fully review the Group’s
operational performance and the Board as a whole has, with
a view to reinforcing its oversight and control, reserved a list
of powers solely to itself which are not to be delegated to
management. This list includes appropriate strategic, financial,
organisational and compliance issues, including the approval
of high level announcements, circulars and the report and
accounts and certain strategic and management issues.
Examples of strategic and management issues include
the following:
Approval of the annual operating budget and the three
year plan
The extension of the Group’s activities into new business
and geographic areas (or their cessation)
Changes to the corporate or capital structure
Financial issues, including changes in accounting policy,
the approval of dividends, bank facilities and guarantees
Changes to the constitution of the Board
The approval of significant contracts, for example the
acquisition or disposal of assets worth more than £1,000,000
or the exposure of the Company or the Group to a risk
greater than £1,000,000
The approval of unbudgeted capital expenditure
exceeding £250,000
The approval of quotations and sale contracts where the
sales commission payable to an intermediary exceeds 10%
of the net invoice price
Each Director has full and timely access to all relevant
information and the Board meets regularly with appropriate
contact between meetings. All Directors receive an induction
from the Company Secretary on joining the Board. When
appointed, Non-Executive Directors are made aware of and
acknowledge their ability to meet the time commitments
necessary to fulfil their Board and Committee duties. Procedures
are in place, which have been agreed by the Board, for Directors,
where necessary in the furtherance of their duties, to take
independent professional advice at the Company’s expense
and all Directors have access to the Company Secretary. The
Company Secretary is responsible to the Board for ensuring
that all Board procedures are complied with. The removal of the
Company Secretary is a decision for the Board as a whole.
Performance evaluation
An internal annual performance evaluation was undertaken
by the Board during the year and there are no plans to
move towards an externally facilitated evaluation (which is
compulsory for FTSE 350 companies) at this time. The Chairman
acted as the sponsor of the evaluation process and each
Director was required to score a questionnaire for review by the
Board. The Company Secretary acted as facilitator to the Board
and issues arising from the process were incorporated into the
Board’s business as appropriate. Within the evaluation exercise,
the Board addressed three key areas: the extent to which the
Board focuses on the right issues, interacts effectively and
has the right mechanics in place. The evaluation prompted a
discussion which covered the consideration given to social and
environmental issues and whether the Board communicated
effectively with the management team, employees and
shareholders. The evaluation concluded that the Board operates
well and the Board Committees operate effectively. In particular
the Board contributes valuably to strategy, has appropriate
matters reserved to it for its decision and commits the necessary
time to be effective.
114%
OF OPERATING
PROFIT CONVERTED
TO CASH
Avon Rubber p.l.c. Annual Report and Accounts 2013
45
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Corporate Governance
Committees of the Board
Of particular importance in a governance context are three
committees of the Board, namely the Remuneration Committee,
the Nominations Committee and the Audit Committee. The
members of the Committees comprise the Chairman and all
the Non-Executive Directors. The Non-Executive Directors
continue to regard the Chairman as adding significant value to
the deliberations of the Audit Committee and his membership
is ratified by Provision C.3.1. of the Code, which permits listed
companies outside the FTSE 350 to allow the chairman to
sit on the audit committee where he or she was considered
independent on appointment. Mrs S J Pirie remains Chairman
of the Audit Committee and Senior Independent Non-Executive
Director. The Board is satisfied that Mrs Pirie has recent relevant
financial experience and her profile appears on page 39. Mr D
R Evans is Chairman of the Nominations Committee and Mr R K
Wood took over as Chairman of the Remuneration Committee
following the retirement of Sir Richard Needham from the Board
in February 2013.
The Remuneration Committee’s principal responsibilities are
to decide on remuneration policy on behalf of the Board and
to determine remuneration packages and other terms and
conditions of employment, including appropriate performance
related benefits, for the Executive Directors and other senior
executives. The Chief Executive and the Company Secretary
attend meetings of the Committee by invitation, but are absent
when issues relating to each of them are discussed. More details
of the activities of the Remuneration Committee are set out in
the Remuneration Report on pages 52 to 71. The Board schedules
eight regular meetings per year.
Meetings during year ended 30 September 2013
Board
Committee
Audit Remuneration Nominations
Committee
Committee
S.J. Pirie
Sir Richard Needham
R.K. Wood
D.R. Evans
P.C. Slabbert
A.G. Lewis
* Attendance by invitation
8
3
6
8
8
8
3
1
2
3
3*
3*
4
2
2
4
4*
-
1
1
-
1
1*
1*
This year two further meetings have been held on an ad hoc
basis, including by telephone conference, in connection
with amendments to banking facilities, bid pricing and
internal transactions. In addition, between them, the three
Non-Executive Directors visited the Cadillac, Johnson Creek,
Lawrenceville and Belcamp facilities accompanied by the Chief
Executive to meet management at these sites and receive
presentations from them.
Copies of the terms of reference of the Nominations,
Remuneration and Audit Committees and the terms and
conditions of appointment of the Non-Executive Directors
are available on the Company’s website or from the Company
Secretary.
Relations with shareholders
The Directors regard communications with shareholders as
extremely important. All members of the Board receive copies
of analysts’ reports of which the Company is made aware. In
terms of published materials the Company issues a detailed
annual report and accounts and, at the half year, an interim
report. Interim management statements have been issued
during the year, together with a number of other event updates.
Dialogue takes place regularly with institutional shareholders
and general presentations are given following the preliminary
and interim results. The Board receives comments from analyst
meetings and shareholder meetings after both interim and final
results and at other times during the year. Shareholders have
the opportunity to ask questions at the annual general meeting
and also have the opportunity to leave written questions with
the Company Secretary for the response of the Directors.
The Directors meet informally with shareholders after the
annual general meeting and respond throughout the year to
correspondence from individual shareholders on a wide range
of issues. Annual general meetings provide a venue for the
shareholders to meet the Non-Executive Directors in addition to
any other meetings shareholders may request.
The Non-Executive Directors, having considered the Code with
regard to relations with shareholders, are of the view that it is
most appropriate for the shareholders to have regular dialogue
with the Executive Directors. The results of all dialogue with
shareholders are communicated to the Board and reviewed
by the Senior Independent Non-Executive Director. However,
should shareholders have concerns, which they feel cannot be
resolved through normal shareholder meetings, the Chairman,
Senior Independent Non-Executive Director and the remaining
Non-Executive Director may be contacted upon request
through the Company Secretary.
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Avon Rubber p.l.c. Annual Report and Accounts 2013
At the annual general meeting on 6 February 2014, the Board
will be following the recommendations in the Code regarding
the constructive use of annual general meetings; as usual,
the agenda will include a presentation by the Chief Executive
on aspects of the Group’s business and an opportunity for
shareholders to ask questions. The Board has no plan to
introduce poll voting on all business at general meetings as a
substitute for using proxy votes as this is not a requirement of
the Code and could, in the Company’s case, reduce the voting
on resolutions as it would require attendance at the annual
general meeting by a representative of each major shareholder.
Accountability
The Code requires that Directors review the effectiveness
of the Group’s system of internal controls. The scope of this
review covers all controls including financial, operational and
compliance controls as well as risk management. As indicated
earlier, the Board has put in place the procedures necessary to
implement the Turnbull Guidance on internal control and the
Audit Committee has responsibility to review, monitor and
make policy and recommendations to the Board upon all
such matters.
The Directors acknowledge their responsibility for the Group’s
system of internal control. The Board, through the Audit
Committee, keeps this system under continuous review and
formally considers its content and its effectiveness on an annual
basis. Such a system can provide only reasonable, and not
absolute, assurance against material misstatements or losses.
The section on internal control in the Audit Committee Report
on pages 50 to 51 and the following paragraphs describe
relevant key procedures within the Group’s systems of internal
control and the process by which the Directors have reviewed
their effectiveness.
Systems exist throughout the Group which provide for the
creation of three year plans and annual budgets; monthly
reports enable the Board to compare performance against
budget and to take action where appropriate.
Procedures are in place to identify all major business risks and
to evaluate their potential impact on the Group. These risks are
described within the Strategic Report on pages 28 and 29.
Assessment
and analysis
Identification
Risk register
Elimination /
minimise / control
or transfer
Review of
effectiveness
of control
Risk management
Risk is managed by the Group Executive management team
at its quarterly meetings during the year, led by the Company
Secretary and the Chief Executive. At each meeting the Group
Executive team sets its key priorities for successfully managing
the Group’s businesses in the coming quarter. This process
inherently addresses risk and the Company Secretary sponsors
an exercise that ensures the known risks to the businesses,
together with any newly identified risks, are assessed and
analysed effectively and that the priorities eliminate, minimise,
control or transfer risk (or the effect thereof) as appropriate. The
Company Secretary also sponsors a review of the continuing
effectiveness of other aspects of the control environment by the
executive team.
The Board carried out quarterly reviews of the key risks facing
the Group during the year, following the quarterly reviews
conducted by the Group Executive management team.
The Board also carried out an annual review of the major
business risks affecting the Group, including the macro risks.
In the year under review, the risk assessments carried out both
at business level and at Board level continue to be reviewed and
strengthened as part of the Board’s ongoing response to the
Turnbull Guidance.
EBITDA UP
22%
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47
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Corporate Governance
The risk management process
Disclosure and transparency rules
Disclosures in respect of the DTR requirements under DTR 7.2.6
are given in the Directors’ Report on page 40 and have been
included by reference.
Going concern
After making appropriate enquiries, the Directors have, at
the time of approving the financial statements, formed a
judgement that there is a reasonable expectation that the
Company and Group have adequate resources to continue in
operational existence for the foreseeable future. For this reason,
the Directors continue to adopt the going concern basis in
preparing the financial statements.
Stella Pirie OBE
Chairman of the Audit Committee
20 November 2013
There is a clearly defined delegation of authority from the
Board to the business units, with appropriate reporting lines
to individual Executive Directors. There are procedures for the
authorisation of capital expenditure and investment, together
with procedures for post-completion appraisal.
Internal controls are in existence which provide reasonable
assurance of the maintenance of proper accounting records and
the reliability of financial information used within the business
or for publication.
The Group finance department manages the financial reporting
process to ensure that there is appropriate control and review
of the financial information including the production of the
consolidated annual accounts. Group Finance is supported
by the operational finance managers throughout the Group,
who have the responsibility and accountability for providing
information in keeping with our policies, procedures and
internal best practices as documented in the internal finance
manual.
The Board has issued a Policy and Code on Business Conduct
which reinforces the importance of the internal control
framework within the Group. The Policy and Code includes
a whistle-blowing procedure whereby individuals may
raise concerns in matters of financial reporting or other
matters directly with the Audit Committee which will ensure
independent investigation and follow up action. The Policy and
Code is reviewed annually.
Although the Board itself retains the ultimate power and
authority in relation to decision making, the Audit Committee
meets at least three times a year with management and, on
two occasions, external auditors to review specific accounting,
reporting and financial control matters. This Committee also
reviews the interim, preliminary and annual statements and has
primary responsibility for making a recommendation on the
appointment, reappointment and removal of external auditors.
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Avon Rubber p.l.c. Annual Report and Accounts 2013
Nominations Committee Report
The Nominations Committee, to which the Chief Executive
is normally invited, reviews the Board structure, leads the
process for Board appointments and makes recommendations
to the Board, including on Board succession planning. The
Nominations Committee evaluates the balance of skills,
knowledge and experience on the Board and, in the light of
this evaluation, prepares a description of the role for new
appointments. In identifying potential candidates for positions
as Non-Executive Directors, the Committee has full regard to
the principles of the Code regarding the independence of Non-
Executive Directors.
The main responsibilities of the Committee are as follows:
To lead the process for identifying and nominating
candidates for the approval of the Board, to fill Board
vacancies as and when they arise
To put in place plans for succession
To regularly review the Board's structure, size and
composition taking into account the challenges and
opportunities facing the Group and the skills, knowledge
and experience needed by the Board and make
recommendations to the Board with regard to any changes
The Committee met once during the year in connection with
identifying a replacement for Sir Richard Needham, who retired
from the Board at the 2013 AGM. Richard Wood was appointed
to the Board on 1 December 2013.
The Board acknowledges the importance of diversity within the
Company and supports management in their commitment to
provide equality of opportunity in all employment practices,
policies and procedures. Further information, including the
number of women in senior management and within the
organisation is shown in the Environmental and Corporate
Social Responsibility Report on page 35.
David Evans
Chairman
20 November 2013
Avon Rubber p.l.c. Annual Report and Accounts 2013
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Audit Committee Report
Main responsibilities
Reviewing the effectiveness of the Company’s financial
reporting, internal control policies and procedures for the
identification, assessment and reporting of risk
Reviewing significant financial reporting issues
and judgements
Monitoring the integrity of the Company’s
financial statements
Keeping the relationship with the auditors under review,
including their terms of engagement, fees and independence
Monitoring the role and effectiveness of the internal
audit function
Advising the Board on whether the Committee believes
the annual report and accounts, taken as a whole, is fair,
balanced and understandable and provides the
information necessary for shareholders to assess the
Company’s performance, business model and strategy.
Activities during the year
The Audit Committee meets three times a year. Meetings are also
attended by the Executive Directors and on at least two occasions
by representatives of the Group’s external auditors. At meetings
attended by the external auditors time is allowed for the Audit
Committee to discuss issues with the external auditors without
the Executive Directors being present. An annual rolling agenda is
reviewed to ensure that all matters within the Audit Committee’s
Terms of Reference during the year are appropriately covered. The
Committee operates under formal terms of reference and these are
reviewed annually. The Committee considers that it has discharged
its responsibilities as set out in its terms of reference to the extent
appropriate during the year. There were no changes to the terms of
reference in the year under review.
Financial reporting
During the year the Committee reviewed the appropriateness of
the Group’s half year and full year financial statements including
considering significant financial reporting judgments made
by management, taking into account the reports of the Group
Finance Director and the external auditors. The main areas of focus
considered by the Committee during 2013 were as follows:
The presentation of the financial statements and in particular,
the presentation of adjusted performance and the adjusting
items, including the exceptional item in respect of the
relocation of the AEF business and the amortisation of acquired
intangibles and agreed with management’s judgement that
these should be treated as adjusting items
Review of the key judgements made in estimating the Group’s
tax charge. The Committee agreed that the position taken in
the financial statements is appropriate
The need to perform an impairment review in respect of
intangible assets. The Committee concurred with management's
assessment that there were no triggering events in 2013
requiring an impairment review
Review of the on-going funding level of the defined benefit
pension scheme. The Committee agreed this was being
managed appropriately
At the request of the Board the Committee considered whether
the 2013 annual report was fair, balanced and understandable
and whether it provided the necessary information for
shareholders to assess the Company’s performance, business
model and strategy. The Committee was satisfied that, taken as a
whole, the annual report was fair, balanced and understandable
The Committee was content after due challenge and debate with
the assumptions made and the judgements applied and therefore
agreed with management’s recommendations.
In addition the Committee reviewed and recommended the
approval of the statements on corporate governance, internal
control and risk management in the annual report and the half year
and interim management statements.
External auditors
The Committee oversees the relationship with the external auditors
and monitors all services provided by and fees payable to them, to
ensure that potential conflicts of interest are considered and that an
objective and professional relationship is maintained.
In particular the Committee reviews and monitors the
independence and objectivity of the external auditors and the
effectiveness of the audit process. At the outset of the audit process,
the Committee receives from the auditors a detailed audit plan,
identifying their assessment of the key risks and their intended areas
of focus. This is agreed with the Committee to ensure coverage is
appropriately focused. Feedback on the audit process is requested
from management and for the 2013 financial year, management
were satisfied that there had been appropriate focus and challenge
on the primary areas of audit risk and assessed the quality of the
audit process to be satisfactory. The Committee concurred with the
view of management. The Committee also keeps under review the
nature, extent, objectivity and cost of non-audit services provided
by the external auditors.
PricewaterhouseCoopers LLP ('PwC') have been the Company’s
external auditors for a number of years. In November 2012 the
Committee reviewed the external audit mandate and confirmed
the continuing appointment of PwC. This was on the basis that the
Committee was comfortable that the PwC audit team remained
objective and independent on the basis of the regular rotation of
the audit partner and specific assurance provided by PwC to the
Committee on the arrangements it has in place to maintain its
independence. It was also noted that during the year the provision
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Avon Rubber p.l.c. Annual Report and Accounts 2013
to positively confirm, on a bi-annual basis, that the controls as
documented in the internal control manual are in place and are
being adhered to, with specific reference to key controls such as
bank and control account reconciliations. This process has been in
place for the year under review and up to the date of approval of
the annual report and financial statements. It has been reviewed
by the Board and continues to be monitored by the Committee,
which remains satisfied with the arrangements.
During the year, a new business management software system
was introduced at one site and will be rolled out throughout
the rest of the Group in 2014 and 2015. The 2013 internal audit
programme included two post-implementation reviews to ensure
the new system was operating effectively and assess the need for
any modification prior to implementation at the next site.
No significant failings or weaknesses were identified by the
internal audit process but several minor improvements were
identified and implemented.
As part of its work, and in line with its terms of reference,
the Committee also considers the discharge of the Board’s
responsibilities in the areas of corporate governance,
financial reporting and internal control, including the internal
management of risk, as identified in the Turnbull Guidance.
Risk management activities are dealt with in more detail in the
Corporate Governance Report on pages 44 to 48.
Stella Pirie OBE
Chairman of the Audit Committee
20 November 2013
of external audit and tax compliance were separated and that
tax compliance services are no longer provided by the external
auditor. The Committee considers the reappointment of the
external auditor and their independence on an annual basis.
Whilst there is currently no regulatory or governance
requirement requiring the Company to rotate the external audit
mandate, in order to ensure the independence and objectivity
of the external auditors and avoid a situation where the auditor’s
familiarity with the Group’s affairs results in excessive trust, the
Committee maintains a formal Auditor Independence Policy
which was also reviewed in November 2012. This policy provides
clear definitions of services that the external auditors can and
cannot provide. They may only provide non-audit services where
those services do not conflict with their independence, for
example previous tax compliance work. A formal authorisation
policy is in place for the provision of non-audit services to ensure
that appropriate pre-approval is obtained as necessary. The latest
version provides that non-audit services with a value of more
than £50,000 or which cumulatively exceed the annual audit fee
require the approval of the Board. This approach was preferred
to capping the value of non-audit services performed by the
external auditor by reference to the external audit fee. The policy
also establishes guidelines for the recruitment of employees or
former employees of the external auditor. To ensure compliance
with this policy the Audit Committee carried out a review during
the year of the remuneration received by PwC for audit services,
audit-related services and non-audit work. The breakdown of
the fees paid to the external auditor, including the split between
audit and non-audit fees, is included in note 5 on page 85 of
the financial statements. These reviews ensure a balance of
objectivity, value for money and compliance with this policy.
The outcome of these reviews was that no conflicts of interest
existed between such audit and non-audit work.
During the year the Audit Committee considered the effect of the
claim for compensation against PwC in relation to tax services as
referred to in note 5 of the financial statements. The Committee
concluded that it did not affect the Group Auditor's objectivity
or impartiality.
Internal control
The Committee regularly reviews the effectiveness of the Group’s
system of internal controls and risk management. This involves
the monitoring and reviewing of the effectiveness of internal
audit activities, which included a review of the audits carried
out and the results thereof, the management response and the
programme and resourcing for 2013 and 2014.
The Board believes it is appropriate that the internal audit
process is undertaken by members of the finance team who
conduct financial reviews of the sites on a rotational basis.
In addition, site controllers and plant managers are obliged
Avon Rubber p.l.c. Annual Report and Accounts 2013
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Remuneration Report
for the year ended 30 September 2013
Letter from the Chairman of the Remuneration Committee
As the new Chairman of the Remuneration Committee, I am
writing to inform shareholders that we are changing company
remuneration policy to reflect the very different challenges that
lie ahead for the executive team. Having achieved a substantial
turnaround for the Company and delivered significant growth
in 2013, we can look ahead with some optimism. We believe that
the executive team now needs to drive sustained high levels of
growth to improve total shareholder return.
In making the changes set out in this report, we are aiming to
reward executive success not failure. There will thus be a greater
proportion of pay associated with achievement and we will be
introducing measures that will better align remuneration policy
with current City guidelines on the principles of remuneration.
The report covers the remuneration of both Executive and
Non-Executive Directors and is presented in a way that is
consistent with the new remuneration disclosure regulations
that came into effect for the year ended 30 September 2013.
The report has been split into a policy section that provides
details for remuneration in future years and an annual
remuneration section that provides the historical details of
remuneration for the reporting year under the previous policy.
As in previous years, the section on annual remuneration will be
subject to an advisory vote by shareholders. However, the policy
for future years will be subject to a binding shareholder vote
in line with the new regulations and will remain in force for the
next three years or until shareholders are asked to approve an
amended version.
Remuneration policy for 2011 to 2013
Now that the business has been stabilised after a period
of turnaround, this reporting year has seen strong growth
delivered from a new strategy introduced by the new Chairman.
We thus feel that it is an appropriate time to implement the final
phase of the existing remuneration strategy, the expectation
of which was to increase salaries to the median level when
performance justified it and the Company could afford to pay
at that level. This will bring the Executive Directors' salaries up
to the median in the Ernst & Young benchmarking review dated
September 2011 and revalidated by the recent market survey
published in March 2013 by Deloitte on directors' remuneration
in smaller companies. Basic salaries were therefore increased
with effect from 1 October 2013 from £280,000 to £330,000
for the Chief Executive and from £200,000 to £252,000 for the
Group Finance Director.
Remuneration policy for 2014 and beyond
In setting the remuneration policy for the next three years,
the Committee has aimed to review executive remuneration
with the objective of ensuring that it promotes the attraction,
motivation and retention of the high quality executives
necessary to deliver the Company's forward strategy for growth
in sustainable earnings and a high level of shareholder return.
1. Base salaries
1.1 Executive Directors
The new remuneration policy for Executive Directors will freeze
basic salaries for the forthcoming three years. Salaries will
then be benchmarked on 1 October 2016 with the objective of
making an adjustment if they are no longer tracking the median
of a relevant comparator group. The annual cost of living
increases awarded to the wider workforce will not be paid to the
Executive Directors.
Details of the comparator group used in the 2011 Ernst & Young
benchmarking study have been set out later in this report.
Future comparator groups will be slightly different to reflect
changes in the circumstances of the comparator companies and
the Company's development. Except where roles have been
significantly widened, the Committee believes the median
salary of the benchmark group to be an appropriate target
for the Company's Executive Directors given its size, industry
sectors and geographical positioning and the Committee's
belief that above normal performance should be rewarded
through variable pay.
1.2 Non-Executive Directors
No changes were made to the fees paid to Non-Executive
Directors in 2013. In future, these will be reviewed on a three
year cycle based on a benchmark study with the next review
being on 1 October 2014.
2. Executive Directors' variable pay
With basic salaries for Executive Directors having recently been
brought into line with the median market benchmark, the
Committee believes it should seek to recognise exceptional
future performance by increasing the quantum of variable pay
that can be earned. Enhancements have therefore been applied
to annual bonus awards but counterbalanced by measures that
protect against under or variable performance.
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Avon Rubber p.l.c. Annual Report and Accounts 2013
For the financial year commencing 1 October 2013 an additional
annual bonus element has been introduced that aims to
accelerate bonus accrual for sustained truly exceptional
performance that is above existing targeted levels. To enable
this to work, the cap for the percentage awards has been
increased for the Chief Executive from 100% to 150% of salary,
and for the Group Finance Director from 80% to 150% of salary.
These maximum award levels will only be payable for truly
exceptional performance. For the first 100% of salary, the split
of targets will be consistent with those used in the 2012/13 year.
The additional 50% of salary will be calculated according to a
ratchet based on earnings per share growth occurring in excess
of 20% growth over the previous year earnings per share and
is set out in more detail in the remuneration policy report. The
Committee believes that the ratcheted performance condition
and the increased level of the bonus cap counter balance the
restriction of basic salaries to the median benchmark when the
team is being challenged to perform at above median levels.
This new annual bonus policy will be fixed for the next three
years to reflect the challenge placed on the team of achieving
sustainable high growth in a non-turnaround situation.
To protect against latent underperformance, there will be a
new claw back rule that applies if the Group's financial results
are restated due to an error during the two years following
their release.
A new deferral rule will require 25% of all future annual bonus
payments to be deferred into shares to be held for two years,
and then treated as shares that are not subject to the executive
shareholding guidelines. In this way, if earnings are not
sustained for the period, any reduction in the share price will
reduce the value of the bonus.
3. Long-term incentives for Executive Directors
No change is proposed to be made to the size of conditional
awards made under the Performance Share Plan approved by
shareholders in 2010. Grants for both the Chief Executive and
Group Finance Director will therefore be limited to 100% of
salary until 1 October 2016.
There are no proposals to change the type or operation of
the performance conditions although the Committee may
reduce the minimum vesting level from 30% to 25% during the
three-year life of the policy in line with market practice.
With regards to the three-year performance period under the
Performance Share Plan which ended on 30 September 2013,
100% of the awards will vest following the total shareholder
return target having been met in full and the Committee
concluding that there has been a sustained improvement in the
underlying financial performance of the Group over that period.
4. Other matters
This year's Remuneration Report contains, for the first time, a
single figure of remuneration for the Chief Executive and Group
Finance Director. Shareholders will note the significant impact
of the vesting of the performance share plan awards made in
2008 and 2009. During the same period, base salaries have
lagged behind the median benchmark and a significant return
has been delivered to shareholders, as can be seen in the Total
Shareholder Return graph at the end of this report.
No changes are proposed to be made to letters or contracts
of employment for existing Directors but, as with my letter
of appointment, all new contracts will be made on terms that
reflect current City guidelines.
5. Conclusions
The Committee believes that the new remuneration structure
will incentivise the executive team to deliver strong and
sustainable double-digit percentage levels of growth while
offering increased reward for exceptional performance. We
are comfortable that the proposed policy will not encourage
undue risk taking as the performance metrics are fully aligned
with targeted improvements in the Company's key performance
indicators, incentive bonuses will now be subject to claw back
provisions and part of the annual bonus must be deferred into
Company shares. These features, allied to our share ownership
guidelines, ensure that the new remuneration policy is aligned
with short and long-term shareholder interests.
Richard Wood
Chairman of the Remuneration Committee
20 November 2013
Avon Rubber p.l.c. Annual Report and Accounts 2013
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Remuneration Report
for the year ended 30 September 2013
Remuneration Policy Report
Executive Directors
Remuneration Committee
The Remuneration Committee is responsible for developing
and implementing remuneration policy and for determining
the Executive Directors' individual packages and terms of
service together with those of the other members of the Group
Executive management team.
The Committee comprises Mr R K Wood (Chairman), Mr D R
Evans and Mrs S J Pirie. Mr Wood became Chairman of the
Committee in February 2013 when Sir Richard Needham retired
from the Board. The Committee uses external independent
professional advisers when needed. KPMG are the Company's
independent actuarial advisor on pension matters and will
provide the Committee with information on executive pension
arrangements when this cannot be provided by the pension
scheme actuary AonHewitt. Ernst & Young provide annual
performance monitoring data and share award valuations
for review by the Committee in relation to the Performance
Share Plan. In September 2011, Ernst & Young conducted a
benchmarking review of the reward packages received by the
Executive Directors, the Group Executive and the fees received
by the Chairman and the other Non-Executive Directors.
This review and future reviews are central to the remuneration
policy set out below.
The Committee addressed the following main issues during the
last year:
Reviewed the remuneration of the Executive Directors, the
Chairman and the other members of the Group Executive
management team and decided to make no increases in
October 2012
Approved the annual bonus payments to the Executive
Directors in November 2012
Approved the annual bonus plan for the Executive Directors
for the 2013 financial year
Reviewed and confirmed the vesting of the 2009/10
Performance Share Plan awards in December 2012
Reviewed and approved the 2012/13 Performance
Share Plan awards made in December 2012 and monitored
the performance of the outstanding awards against their
performance targets
Reviewed the executive management succession and talent
management plan
Since the end of the 2013 financial year, the Committee has:
Agreed the future executive remuneration policy as set
out in this report for shareholder approval at the AGM in
February 2014
Approved salary increases for the Executive Directors for the
2014 financial year effective 1 October 2013
Approved the annual bonus plan for the Executive Directors
for the 2014 financial year
Made preparations for the 2013/14 Performance Share Plan
awards to be granted in December 2014
Guiding policy
The Remuneration Committee's terms of reference are available
on the Company's website and include:
Determining and agreeing with the Board the policy
for the remuneration of the Company's Chief Executive,
Group Finance Director, Chairman, the Company Secretary
and such other members of the senior management team as
it chooses to consider or is designated to consider (currently
the Group Executive management team)
Within the terms of the agreed policy, determining the
total individual remuneration package of each Executive
Director including, where appropriate, bonuses, incentive
payments, share options and pension arrangements.
The remuneration of Non-Executive Directors is a matter
for the Chairman and the Executive Directors
Reviewing the design of all share incentive plans for
approval by the Board and shareholders. For any such
discretionary plans, determining each year whether
awards will be made, the overall amount of such awards,
the individual awards to Executive Directors and the
Group Executive management team (and others) and
the performance targets to be used
Determining the targets for any performance-related bonus
schemes operated by the Company
Reviewing the remuneration trends across the Group,
including the salary increases proposed annually for
all Group employees
Agreeing termination arrangements for senior executives
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Avon Rubber p.l.c. Annual Report and Accounts 2013
policy. Employees have not been specifically consulted in this
regard. Consistent with this approach annual cost of living
increases granted to the wider workforce are not paid to the
Executive Directors or to the other members of the Group
Executive management team.
The Committee monitors the remuneration of the wider
workforce and, in particular, the divisional management teams as
well as other key employees. As with the proposed policy for the
Executive Directors, general practice across the Group is to recruit
employees at market rates and this tends to be at the median
salary level or above to attract them to the Group.
Because of the numbers involved and the need to absorb new
recruits at salaries comparable with those already employed,
salaries are normalised upwards over time to the median level
so that the pay level of the workforce is always kept close to
the median level and maintained at that level by cost of living
increases. Employees are then able to earn annual bonuses in
excess of the mid-market rate in return for delivering exceptional
performance.
In addition, the Group Executive management team maintains a
benchmarking survey of the top circa 40 employees in the Group
with the aim of ensuring that each is being paid at the median
benchmark level for their role and that each has a career and
associated salary progression plan. It is possible that some of the
more senior personnel within that group will be brought within
the Committee's benchmarking study but for now the Committee
is comfortable that the Group Executive management team sets
the remuneration for the divisional management levels beneath it
in the organisation structure.
Consideration of shareholder views
The Remuneration Committee has consulted with the three
largest Company shareholders with a combined holding of 40%
on the proposed remuneration policy outlined on pages 54 to 64.
Two of the shareholders indicated their support for the policy
without proposing any amendments. The third proposed some
wording changes to aid the understanding of the position
being taken on the increases to annual bonus, which have been
adopted.
The Committee aims to provide a remuneration structure that
supports the achievement of the Company's performance
objectives and, in turn, increases shareholder value. The
Company's guiding policy on executive remuneration is that:
Executive remuneration packages should take into account
the linkage between pay and performance by both rewarding
effective management and by making the enhancement
of shareholder value a critical success factor in the setting of
incentives, both in the short and the long term
The overall level of salary, incentives, pension and other
benefits should be competitive when compared with other
companies of a similar size and global spread to attract, retain
and motivate executive directors of superior calibre in order
to deliver continued growth of the business
Performance related components should form a significant
proportion of the overall remuneration package, with
maximum total potential rewards being earned through the
achievement of challenging performance targets based on
measures that represent the best interests of shareholders
Approach to recruitment remuneration
The Committee's policy on recruitment remuneration is that
new Executive Directors will be offered a base salary below the
median level in the applicable benchmarking report until proven,
at which point they will receive an uplift to the benchmark
median salary level determined and maintained by reference
to independent benchmarking studies carried out every three
years. Annual bonus awards, performance share plan awards and
pension contributions would not be in excess of the current levels
stated for the Chief Executive and the Group Finance Director.
In unusual circumstances it may be necessary to pay a joining
incentive to secure the right candidate. The Committee might
consider paying up to 2.5 times base salary in these circumstances
with the actual amount being defined by market requirements
at the time. However, any such payment would be subject to
performance conditions and a claw back on underperformance
during the first two years of employment. No joining incentives
were paid in connection with the promotion of Mr Slabbert to the
role of Chief Executive or for the recruitment of Mr Lewis as Group
Finance Director, both of which occurred in 2008.
Consideration of conditions elsewhere in the Company
The experience of Committee members and the benchmarking
report have been relied upon in setting the remuneration
packages for the Executive Directors and this remuneration
Avon Rubber p.l.c. Annual Report and Accounts 2013
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Remuneration Report
for the year ended 30 September 2013
Detailed policy
The table below summarises the main components of the remuneration policy proposed for Executive Directors for the three year period
commencing 6 February 2014 and highlights any changes to the policy when compared with the policy in operation for 2013.
The Remuneration Committee is seeking discretion to amend the remuneration policy in 2015 and 2016 to the extent described in the
table and the written sections that follow it below.
Element of
remuneration
Purpose and
link to strategy
Operation
Maximum
potential value*
Performance
targets
Changes
from 2012
Base
Salary
To provide
competitive fixed
remuneration
To attract and
retain Executive
Directors of
superior calibre
in order to deliver
growth for the
business
Intended to reflect
that paid to senior
management
of comparable
companies
Reflects individual
experience and role
Benefits
As above
Annual
Bonus
Rewards the
achievement of
annual financial
and strategic
business targets
and delivery of
personal objectives
Maximum bonus
only payable
for achieving
demanding targets
Deferred element
encourages long-
term shareholding
and discourages
excessive risk
taking
2012/13:
PC Slabbert £280,000
AG Lewis £200,000
2013/14:
PC Slabbert £330,000
AG Lewis £252,000
2014/15 and 2015/16:
No change
No increase in 2016
unless found to be below
the median level shown
in a benchmarking report
to be commissioned in
September 2016 and
any adjustments will
be effective from 1
October 2016
Full cost of healthcare
benefits is circa £2k per
Executive Director
Life assurance is
provided as part of a
Group-wide policy and
therefore a specific cost
cannot be attributed to
the Executive Directors.
2012/13 (% of salary):
PC Slabbert 100%
AG Lewis 80%
2013/14 (% of salary):
PC Slabbert 150%
AG Lewis 150%
2014/15 and 2015/16
(% of salary):
No change
Reviewed every three
years by the Remuneration
Committee
Individual salary
adjustments take into
account each Executive
Director's performance
against agreed challenging
objectives and the Group's
financial circumstances,
as well as relative to the
external market as identified
in a benchmarking study
based on an appropriate
comparator group
Executive Directors are
entitled to medicals every
two years and private health
insurance. Cash for car
payments were phased out
in 2009. Life assurance is a
benefit under the pension
scheme but paid for by the
Company. Small loans have
been made in connection
with the jointly owned
equity awards under the
Performance Share Plan
Paid in cash except 25% is
deferred into shares to be
held for two years
Not pensionable
Up to 100% of basic salary
for the CEO and up to 80%
of basic salary for the FD
in 2013
Deferral does not apply
to the percentage award
relating to achievement of
personal objectives
Claw back applies if the
financial results which led
to the bonus being paid are
restated due to an error in
the subsequent two years
Not applicable
No change made
between 2012 and 2013.
Increases between 2013
and 2014 (effective 1
October 2013) of 18%
for the Chief Executive
and 26% for the Group
Finance Director to bring
them to the median
salary level identified
in the 2011 Ernst &
Young benchmarking
report revalidated in
September 2013
Not applicable
None
The first 100%
is based upon a
combination of
Group profit budget
achievement (Group
PBITE), year on
year PBITE growth
and Group cash
generation (ratio
of operating cash
flow to operating
profit) plus
specific personal
performance targets
Any bonus in excess
of 100% of salary
is based upon EPS
growth occurring in
excess of 20% over
the previous year
No change made
between 2012 and 2013
Increases in award cap
between 2013 and 2014
(effective 1 October
2013) from 100% of salary
to 150% for the Chief
Executive and from 80%
of salary to 150% for the
Group Finance Director.
New bonus measure
based on exceptional EPS
growth introduced for
bonus in excess of 100%
of salary for 2014
Future bonus payments
now subject to deferral
of 25% into shares and
subject to claw back on
restatement of results
due to an error
56
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Avon Rubber p.l.c. Annual Report and Accounts 2013
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Element of
remuneration
Purpose and
link to strategy
Operation
Maximum
potential value*
Performance
targets
Changes
from 2012
Performance
Share Plan
Designed to
align Executive
Directors' interests
with both the
strategic objectives
of delivering
sustainable
earnings growth
and the interests of
shareholders
The Company has one
Performance Share Plan,
which was approved by
shareholders in 2010.
Annual grants of
conditional share awards
which vest after a three
year performance period,
subject to achievement of
performance targets and
continued service
2012/13 (% of salary)
PC Slabbert 100%
AG Lewis 80%
2013/14 (% of salary)
PC Slabbert 100%
AG Lewais 100%
2014/15 and 2015/16
(% of salary)
No change
50% TSR (of which
30% vests for
median increasing
to 100% vesting for
upper quartile of
the FTSE Small Cap
Index excluding
investment trusts)
50% EPS (which
starts vesting at nil
for RPI +3% rising to
100% at RPI +8%)
No change made
between 2012 and 2013.
No change made
between 2013 and 2014
for Mr Slabbert
Increase in award
granted to Mr Lewis
proposed for December
2013 award from 80% of
salary to 100% of salary
Share
ownership
guidelines
To increase
alignment between
executives and
shareholders
Executive Directors
are required to retain a
proportion of their net of
tax vested awards until
the guideline is met
Pension
To reward sustained
contribution
by providing
retirement benefits
Mr Slabbert is a deferred
member of the now closed
final salary section of the
Plan
Both Mr Slabbert and
Mr Lewis are members
of the money purchase
section of the Plan.
Where the promised
level of benefits cannot
be provided through
the money purchase
scheme the Company
provides benefits through
the provision of salary
supplements
Not applicable
No change
Not applicable
No change
150% of salary for
Executive Directors for
awards vesting up to
December 2013
200% of salary for
Executive Directors for
awards vesting from
December 2014
2012/13 (% of salary)
PC Slabbert 15%
AG Lewis 15%
2013/14 (% of salary)
PC Slabbert 15%
AG Lewis 15%
2014/15 and 2015/16
(% of salary)
No change
* All dates are for the year ending 30 September in any referenced year
Avon Rubber p.l.c. Annual Report and Accounts 2013
57
delivering our strategy
Remuneration Report
for the year ended 30 September 2013
There are no elements of remuneration other than basic salary,
benefits and pension that are not subject to performance
requirements. There are no new elements of remuneration.
The chart below illustrates how the composition of the Chief
Executive and Group Finance Director's remuneration packages
vary at different levels of performance under the new policy, both
as a percentage of total remuneration opportunity.
Basic salary and benefits
The basic salary for each Executive Director will in future be
reviewed every three years by the Remuneration Committee.
It is intended that basic salary levels should reflect the median
of a suitable comparator group selected according to size,
industry sector or location as a suitable benchmark group for the
Company and will be paid subject to the Group's wider financial
circumstances.
Current basic salary levels are as follows:
P C Slabbert
A G Lewis
Year ended 30 September 2012
£280,000
£200,000
Year ended 30 September 2013
£280,000
£200,000
Percentage increase
0%
0%
Year commencing 1 October 2013
£330,000
£252,000
Percentage increase
18%
26%
The Group's employees have received an annual cost of living
increase of approximately 2.25% over the same period, excluding
promotional increases and increases based on exceptional
performance.
The Committee used Ernst & Young to conduct a benchmarking
review of the reward packages received by the Executive Directors
and the Group Executive management team in 2011. The report
benchmarked these by reference to the directors and management
in a comparator group of 18 UK listed companies selected according
to size, industry sector or location as a suitable benchmark group
for the Company.
Comparator group of companies
for reward benchmarking:
Consort Medical plc
Renold plc
Cosalt plc
Diploma PLC
Hamworthy Plc
Scapa Group plc
Trifast plc
Victrex plc
Hampson Industries PLC
Corin Group PLC
James Latham plc
Future plc
Lonrho plc
Haynes Publishing Group PLC
Melrose Resources plc
Helphire Group plc
Renishaw plc
Latchways plc
The 2011 benchmarking report confirmed that both the Chief
Executive and Group Finance Director were being paid salaries at
a level below the minimum pay range found in the comparator
group. Based upon the report, the significant growth delivered and
the future prospects for growth, the Committee implemented a
new remuneration strategy in October 2011. This aimed to target
the median pay level identified in the Ernst & Young report, not by
a single large increase, but in stages when performance justified
a change that the Company could then afford to pay. The first
incremental step towards the target median was made with effect
from 1 October 2011 when Mr Slabbert's salary was increased from
£235,000 to £280,000 (a 19% increase) and Mr Lewis's salary was
increased from £162,000 to £200,000 (a 24% increase).
In September 2012, the Committee considered whether to grant
a further increase towards the median level for Mr Slabbert and
Mr Lewis but decided against this. No inflationary related salary
increase was made at that time either.
In September 2013, in recognition of the impressive revenue growth
and shareholder return delivered by the Executive Directors and
58
delivering our strategy
Avon Rubber p.l.c. Annual Report and Accounts 2013
the Group Executive management team, the Committee confirmed
that the final incremental step increase to salaries should be made
to achieve the median level identified in the Ernst & Young report.
However, before doing so the report was revalidated by referring to
the publicly available Deloitte report dated March 2013 on directors'
remuneration in smaller companies. With effect from 1 October 2013,
Mr Slabbert's salary was increased from £280,000 to £330,000 (an
18% increase) and Mr Lewis's salary was increased from £200,000 to
£252,000 (a 26% increase). These salaries will now be frozen until the
next benchmarking review to be carried out in 2016.
Details of the comparator group used in the 2011 Ernst & Young
benchmarking study are set out above. Future comparator groups
may be slightly different to reflect the Company's development.
Except where roles are significantly widened, the Committee believes
the median salary of the benchmark group to be an appropriate
target for the Company's Executive Directors given its size, industry
sectors and geographical positioning, notwithstanding the
spectacular growth delivered over the last five years.
Private medical insurance, life assurance and small loans in
connection with the jointly owned equity awards under the
Performance Share Plan are the only benefits in kind received by the
Executive Directors. Cash for car allowances were phased out in 2009
and rolled into basic salary.
Annual cash bonus
The Executives' annual bonus arrangements are focused on the
achievement of the Company's short-term financial objectives.
Before the start of each year, the Remuneration Committee sets
financial performance targets for the year. These are designed to be
stretching. Bonus payments are not pensionable.
2012/13
For the year ended 30 September 2013, 80% of Mr Slabbert's bonus
potential, capped at 100% of salary, was based on the achievement of
Group financial targets. The remaining 20% was based on achieving
measurable personal performance targets, as shown below. 70% of
Mr Lewis's bonus potential, capped at 80% of salary, was based on
the achievement of Group financial targets with the remaining 10%
being based on achieving measurable personal performance targets,
also as shown below:
PC Slabbert
AG Lewis
1. FINANCIAL TARGETS
(a) Group profit budget achievement (Group PBITE)
30%
25%
Less than 90% of budget pays nothing. Bonus is earned from 90% of budget pro-rata up to 110% of
budget on a straight line basis. Measured (for foreign exchange translation) at budget exchange rates.
(b) Profit growth on previous year (year on year PBITE growth)
30%
25%
Bonus will be earned for growth between 0% and 10% on a straight line basis. Measured (for
foreign exchange translation) at prior year exchange rates (i.e. constant currency measure).
(c) Group cash generation (ratio of operating cash flow to operating profit)
20%
20%
As reported in the Annual Report and Accounts each year. Pays on a straight line basis where the ratio
exceeds 80% up to a maximum of 100%. Excludes exceptional items as per IFRS from both measures.
2. PERSONAL PERFORMANCE TARGETS
A portion of bonus can be earned based on an individual reviewer's assessment of personal
20%
10%
performance against personal performance targets set at the beginning of the financial year.
TOTAL potential bonus 2013 as a percentage of basic salary
100%
80%
Avon Rubber p.l.c. Annual Report and Accounts 2013
59
delivering our strategy
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Remuneration Report
for the year ended 30 September 2013
These performance measures were the same as in 2011/12 and
closely align the performance of the Executive Directors with
the strategy of the Company's business and shareholder value
creation. The personal performance targets are a set of non-
financial personal targets which also support the delivery of the
strategy.
2013/14
The Committee has decided that the Executive Directors
should be able earn annual bonus in excess of 100% of salary in
return for delivering exceptional EPS growth in excess of 20%
each year.
For the annual bonus plan for the 2013/14 year (commencing 1
October 2013), the maximum bonus potential will be increased
to 150% of salary for Mr Slabbert and 150% of basic salary for Mr
Lewis. These percentages will be fixed for the next three years.
For the first 100% of salary, the split of targets will be consistent
with those used in the 2012/13 year. The additional 50% of
salary will only be payable for truly exceptional performance,
calculated according to a ratchet based on earnings per share
growth. The ratchet only applies to EPS growth in excess of 20%
over the previous year.
For an additional 10% of EPS growth above 20% over the
previous financial year EPS (i.e. up to a maximum of 30% EPS
growth over the previous financial year EPS) additional bonus
can be earned on a pro rata basis up to the maximum as follows:
Annual bonus award in
excess of 100% of salary up
to a further 50% salary
PC Slabbert
AG Lewis
EPS measure
5%
10%
15%
20%
5%
10%
15%
20%
for the first 2.5% of additional growth
for the second 2.5% of additional growth
for the third 2.5% of additional growth
for the fourth 2.5% of additional growth
"EPS" means, in relation to any year, the fully diluted earnings
per share of the Company as adjusted to exclude the charge/
credit in respect of exceptional items, the revaluation or
impairment of assets, the charge or credit related to IAS19 and
the amortisation of acquired intangible assets.
% ADDITIONAL BONUS EARNED
V EPS GROWTH %
Y
R
A
L
A
S
F
O
%
0
0
1
F
O
S
S
E
C
X
E
50
40
30
20
10
0
N
I
S
U
N
O
B
I
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A
N
O
T
D
D
A
%
I
22.5
25.0
27.5
30.0
EPS GROWTH %
% ADDITIONAL BONUS EARNED V EPS GROWTH %
The Committee strongly believes it is necessary to incentivise the
Executive Directors to deliver truly exceptional performance and
to counterbalance the restriction on salaries moving forward only
at the median level when the Committee is trying to implement
a strategy for growth well above the median in the comparator
group. It is expected that this bonus policy will be fixed for at
least the next three years to reflect the challenge placed on the
team of achieving sustainable high growth in a non-turnaround
situation.
At the same time the Committee has introduced a claw back rule
that applies if the Group's financial results are restated due to an
error during the two years following their release and a deferral
rule which provides for 25% of future annual bonus payments
to be deferred into shares to be held for two years, then treated
as shares which are not subject to the executive shareholding
guidelines.
Long-term incentive plan- Performance Share Plan (the
Plan)
The Remuneration Committee introduced this Plan with
shareholder approval at the AGM in 2002 and in 2010
shareholders approved a replacement. The existing Plan
therefore came into effect from 2 March 2010, with the aim of
motivating Executive Directors and other senior executives to
achieve performance superior to the Company's peers and to
maintain and increase earnings levels whilst at the same time
ensuring that it is not at the expense of longer-term shareholder
returns. This is reflected in the Plan's performance conditions
which are based on total shareholder return (TSR) and earnings
per share (EPS). The Committee believes that these financial
performance conditions remain appropriate for a growing
business and the expectations of shareholders over the next
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Avon Rubber p.l.c. Annual Report and Accounts 2013
three years and intends to apply them to the next cycle of awards
in December 2013. Non-financial performance conditions are not
considered appropriate at the current stage in the development
of the Group although this will be kept under review.
The TSR measure takes the total return received by the
Company's shareholders in terms of share price growth and
dividends over a period of time and compares it with the
total returns received by shareholders in companies within a
predetermined and appropriate comparator group.
The EPS measure is based on real growth in earnings over the
performance period where real growth is expressed as a % above
inflation.
Under the Plan, Executive Directors and a limited number of
other senior executives and employees receive conditional share
awards (which may be in the form of nil-cost options) in respect
of the Company's shares. The awards are split so that 50% vests in
accordance with the TSR target and 50% in accordance with the
EPS target. The Committee has considered whether to make the
targets apply concurrently but decided against this, preferring
the balance of measures relating to earnings growth and long
term strategic performance that are assessed independently of
each other. The actual number of shares that each participant
receives depends on the Company's performance over a three-
year performance period against the combined EPS/TSR target.
The Committee believes that a three-year performance period
remains appropriate for the Company and in line with market
practice amongst the FTSE Small Cap community.
For the TSR measure, the performance of the Company's
shares over the performance period is compared to the TSR
performance within a comparator group comprising the FTSE
Small Cap Index, excluding investment trusts. The Committee
has considered whether to create a bespoke comparator group
but concluded that there are insufficient direct comparator
companies of the right size and in the relevant industries
to warrant a specific peer group and the FTSE Small Cap
Index remains an appropriate comparator group. Over the
three-year period:
The above schedule reflects the Remuneration Committee's
intention to reward only TSR performance which outperforms
the comparator group and the Committee's view is that
measuring this by reference to median and upper quartile
placing remains appropriate. In 2011 the Committee reduced
the minimum TSR vesting target from 40% to 30%. While the
Committee has noted that market practice is moving towards
a 25% minimum vesting level it has decided not to implement
a further reduction this year, but this issue will be kept under
review and this change may feature in future awards.
Vesting according to the ranking of the Company's
TSR in the peer group
Below median
Median
Upper quartile
% of award vesting
Nil
30%
100%
For the EPS measure, the earnings per share over the
performance period are compared to a scale which provides
for nil vesting at RPI +3% and maximum vesting at RPI +8%,
with vesting on a pro rata basis for performance between
these two figures. This range was first introduced for the
awards made in December 2011 and the Committee believes
it remains appropriate. It is difficult to link the EPS target to
broker forecasts which only look out one year, but if inflation
is assumed at 3%, then under the EPS measure the Group has
to grow profits by 20% over three years to achieve minimum
vesting and by 35% to achieve maximum vesting. These
measures are ahead of expectations for businesses in the
Company's sector where longer-term forecasts are published.
If the Company's TSR performance is below the median TSR
EPS growth targets
of the comparator group, no shares will vest
If the Company's TSR performance is equal to the median TSR
of the comparator group, 30% of the shares may vest
If the Company's TSR performance is equal to, or exceeds,
the upper quartile TSR of the comparator group, 100% of the
shares may vest
If the Company's TSR performance is between the median
and upper quartile TSR of the comparator group, shares may
vest on a pro rata basis
At or less than RPI +3%
At or greater than RPI +8%
% of award vesting
Nil
100%
In addition, the Committee may reduce the number of shares
which will vest or decide that no shares will vest if it considers
that the financial performance of the Company or the
performance of the participant does not justify vesting.
Avon Rubber p.l.c. Annual Report and Accounts 2013
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Remuneration Report
for the year ended 30 September 2013
The maximum value that can currently be granted under the
Plan rules in any year remains 100% of salary.
The Committee's future policy is that both Mr Slabbert and
Mr Lewis should receive awards equal to 100% of salary,
being the median level identified in the 2011 Ernst & Young
benchmarking report. This will be fixed for the next three years
and reviewed again by reference to a new benchmarking report
in September 2016.
On a change of control, any vesting of awards will be pro-rated
by reference to time and performance.
Under the Plan as introduced in 2010 joint ownership awards
were permitted for the first time. In the Company's case, savings
in National Insurance Contributions resulting from this are
not offset by the loss of corporation tax credits because of the
presence of historic corporation tax losses in the UK.
The Company's practice has been to initially defer, and more
recently loan, recipients the small up-front cost of purchasing
their interest in the joint ownership award shares. For
consistency the Executive Directors have been treated in the
same way as other recipients and have therefore received small
loans in connection with their outstanding awards. The total
value of the loans received by the Executive Directors is capped
at £10,000.
As announced to shareholders in December 2012, joint
ownership awards, nil cost options and conditional awards
of shares were granted under the 2010 Plan to the Executive
Directors, members of the Group Executive management team
and other valued employees and a further award will be made in
December 2013 within the parameters of the Plan as described
above and at 100% of salary for both the Chief Executive and
Group Finance Director.
Shareholding guidelines
Under shareholding guidelines approved in 2004, executives
participating in the Performance Share Plan are required
to build up and retain a shareholding in the Company.
For Executive Directors the shareholding requirement is
equivalent to 1.5 times base salary and for other recipients
the shareholding requirement is equivalent to one times base
salary. The Executive Directors and other members of the Group
Executive management team are required to retain a portion
of any awards that vest under the Plan until their respective
shareholding guideline is met.
In September 2011 the Remuneration Committee amended
the shareholding guidelines so that for future awards (i.e. the
December 2011 award onwards) the Executive Directors are
obliged to build up and retain a shareholding equivalent to two
times base salary, after which they are not required to retain any
portion of future awards that vest.
Dilution
The Company reviews the awards of shares made under the
all-employee and executive share plans in terms of their
effect on dilution limits in any rolling ten-year period.
The current position is set out on page 69.
Other share plans
Shareholders approved the introduction of the Avon Rubber
p.l.c. Share Incentive Plan (the SIP) at the AGM in February
2012. All UK tax resident employees of the Company and
its subsidiaries are entitled to participate. Under the SIP
participants purchase shares in the Company monthly using
deductions from their pre-tax pay. The maximum contribution
each month under the SIP is £125, a sum which is set by the
Government. Both Mr Slabbert and Mr Lewis participate in the
SIP at the maximum level.
Shareholders also approved the introduction of the Avon
Rubber p.l.c. Employee Stock Purchase Plan (the ESPP) at the
AGM in February 2012. The ESPP is open to all US tax resident
employees and allows participants to accumulate deductions
from their post-tax pay over an offering period of 12 months.
At the conclusion of the offering period the accumulated funds
are used to purchase the Company's shares at a discount.
Neither Mr Slabbert nor Mr Lewis are eligible to participate in
the ESPP.
Pension arrangements
Mr Slabbert and Mr Lewis are both based in the UK and are
members of the Avon Rubber Retirement and Death Benefits
Plan. Until 30 September 2009, when the final salary section
of the Plan closed to future accrual of benefits, Mr Slabbert
was a member of the Senior Executive Section which provided
members with a defined level of benefit on retirement
depending on length of service and earnings. Members can
receive a pension of up to two-thirds of pensionable salary
on retirement from age 60, provided the minimum service
requirement of 20 years has been met. On death in service, a
lump sum of four times pensionable salary is paid, along with
a spouses' pension of one half of the member's prospective
pension. When an executive director dies after retirement, a
spouse's pension of one half of the member's pension is paid.
At the time the final salary section of the Plan closed to future
accrual of benefits, in return for Mr Slabbert giving up this
valuable benefit, the Company and the Trustee agreed to enter
into a special benefit arrangement. Under this arrangement for
each complete year subsequently worked by Mr Slabbert, the
age by reference to which a reduction would be applied to his
pension if he chose to draw it early would reduce by 5/8ths of
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Avon Rubber p.l.c. Annual Report and Accounts 2013
The Remuneration Committee may vary these terms if the
particular circumstances surrounding the appointment of a new
executive director demand it but this would be exceptional and
has never occurred. The parameters for varying the contractual
terms on recruitment are described in the guiding policy section
above. The Remuneration Committee strongly endorses the
obligation on an executive director to mitigate any loss on early
termination and will seek to reduce the amount payable on
termination where it is appropriate to do so. The Committee
will also take care to ensure that, while meeting its contractual
obligations, poor performance is not rewarded. The Executive
Directors' contracts contain early termination provisions
consistent with the policy outlined above.
The table below summarises key details in respect of each
Executive Director's contract.
Neither of the Executive Directors is currently appointed as a
Non-Executive Director of any limited company outside the
Group. The Remuneration Committee will establish a policy
on the treatment of any fees received by Executive Directors in
respect of such non-executive roles when required.
No payments were made during the year to former Executive
Directors as none left employment.
Contract
date
Years to
expected
retirement
Company
notice
period
Executive
notice
period
P.C. Slabbert
28 September 2009
A.G. Lewis
28 September 2009
9
23
12 months 12 months
12 months 12 months
a year, with the end result that after eight years, no reduction
would apply if Mr Slabbert retired on or after his 55th birthday.
Thus, each year over an eight year period the age at which Mr
Slabbert can retire early, on an unreduced basis, reduces by 7.5
months. The Company will fund this benefit on Mr Slabbert's
retirement.
During the year to 30 September 2013 Mr Slabbert has been a
member of the money purchase section of the Plan.
In line with Company policy, which dates back to 2003 for new
employees in the UK, any UK-based Executive Directors joining
the Company are offered defined contribution arrangements.
Mr Lewis is therefore a member of the money purchase section
of the Plan. Under this section members receive a pension
based upon the size of their retirement account on retirement
from age 65. On death in service, a lump sum of four times
pensionable salary is paid, along with a spouse's pension of one
quarter of the member's pensionable salary. Both Mr Slabbert
and Mr Lewis receive a company pension contribution of 15%
of salary.
In January 2012 Mr Slabbert's total pension benefits reached
the standard lifetime allowance of £1.8m and he ceased making
contributions into the money purchase section of the Plan. The
Company continued to set aside pension contributions on his
behalf during the year and these were subsequently paid as a
salary supplement. Monthly contributions are now paid to Mr
Slabbert as a salary supplement. Mr Slabbert remains covered
by the death in service insurance notwithstanding that he is no
longer an active member of the Plan.
Executive Directors' basic salaries are the only pensionable
element of their remuneration packages.
There is no intention to increase pension contributions to the
Executive Directors over the next three years.
Service contracts and policy on
payments for loss of office
The Company's policy is that Executive Directors should
normally be employed under a contract which may be
terminated by either the Company or the Executive Director
giving 12 months' notice and which otherwise expires on
retirement, currently at age 60 for Mr Slabbert and age 65
for Mr Lewis. The Company may terminate the contract early
without cause by making a payment in lieu of notice by monthly
instalments of salary and benefits to a maximum of 12 months,
with reductions for any amounts received from providing
services to others during this period. There are no obligations
to make payments beyond those disclosed elsewhere in
this report.
Avon Rubber p.l.c. Annual Report and Accounts 2013
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plan will be considered and communicated to shareholders
in the coming year. There are no provisions for compensation
payments on early termination in the Chairman's and the Non-
Executive Directors' letters of appointment. The date of each
appointment is set out below, together with the date of their
last re-election.
D.R. Evans
S.J. Pirie OBE
R.K. Wood
Date of initial
appointment
Date of last
re-election
1 June 2007
7 February 2013
1 March 2005
2 February 2011
1 December 2012
7 February 2013
Remuneration Report
for the year ended 30 September 2013
Chairman and Non-Executive Directors
The Chairman and Non-Executive Directors receive a fixed fee
for their services. Fee levels are determined by the Board in light
of market research and benchmarking advice provided by Ernst
& Young. Fee levels are reviewed from time to time. In future,
fee levels for the Chairman and Non-Executive Directors will
be benchmarked every three years and adjusted to the median
level of the comparator group. The next benchmarking will
take place in 2014 with any increase effective on 1 October
2014. The Chairman and the Non-Executive Directors do not
participate in any Board discussions or vote on their own
remuneration, nor do they participate in any incentive or
benefit plans.
Current fees are as follows:
2014
2013
% increase
Chairman
£100,000
£100,000
Base fee Non-Executive
Committee Chairman fee
£35,000
£10,000
£35,000
£10,000
No change
No change
No change
The Chairman and the Non-Executive Directors each have a
letter of appointment. The initial period of appointment for Mrs
Pirie was three years and this was extended for a further three
years on 1 March 2008 and on a rolling annual basis on 1 March
2011. The initial period of appointment for Mr Evans was also
three years and this was extended on a rolling annual basis on
31 May 2010. Mr Wood was appointed on a rolling annual basis
with effect from 1 December 2012.
Chairman and Non-Executive Director appointments are subject
to Board approval and election by shareholders at the AGM
following appointment and, thereafter, re-election by rotation
every three years. The Chairman and any Non-Executive Director
who has served for more than nine years since first election
are subject to annual re-election by shareholders. Mrs Pirie will
reach nine years' service on 1 March 2014 and a succession
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Avon Rubber p.l.c. Annual Report and Accounts 2013
Annual report on remuneration
The information that follows has been audited by the Company's auditors PricewaterhouseCoopers LLP.
Directors' remuneration for the year ended 30 September 2013 was as follows:
Executive Directors
A.G. Lewis
P.C. Slabbert (highest paid Director)
Non-Executive Directors
D.R. Evans (Chairman)
S.J. Pirie OBE (Non-Executive)
R.K. Wood (appointed 1 December 2012)
The Rt. Hon. Sir Richard Needham
(resigned 7 February 2013)
Total 2013
Total 2012
Basic salary
Pension/ other
and fees
£000
supplements
£000
Annual
bonus*
£000
Other
benefits**
£000
200
280
100
45
36
16
677
679
30
42
-
-
-
-
72
72
149
241
-
-
-
-
390
175
2
3
-
-
-
-
5
4
Total
2013
£000
381
566
100
45
36
16
1,144
Total
2012
£000
295
436
81
45
-
73
930
* 2013 bonus payments as a percentage of salary were 86% for Mr Slabbert and 75% for Mr Lewis, against maximum percentages of 100%
and 80% respectively.
** This is the cost of private health insurance, executive medical and the benefit of loans made in relation to PSP awards.
No Director waived emoluments in respect of the year ended 30 September 2013 (2012: nil).
Single total figure of remuneration
The following table gives a single total figure of remuneration for the Chief Executive and Group Finance Director for 2013 and 2012.
The principal additional component included in this single figure is the Performance Share Plan.
Fixed pay
Pay for performance
Basic
salary
£000
Pension/ other
supplements
£000
Benefits
in kind
£000
Subtotal
£000
Annual
bonus
£000
PSP*
Subtotal
£000
£000
P.C. Slabbert
2013
A.G. Lewis
2012
2013
2012
280
280
200
200
42
42
30
30
3
2
2
2
325
324
232
232
241
112
149
63
808
1,049
1,428
1,540
397
691
546
754
Total
Remuneration
£000
1,374
1,864
778
986
* Calculated by multiplying the number of shares that vested (in both cases the maximum number subject to the award) by the share
price on the day of vesting, which in 2013 was 351p and in 2012 was 310p.
The table of Directors' remuneration for the year ended 30 September 2013 above gives the single total figure for the Non-Executive
Directors for 2013 and 2012.
Avon Rubber p.l.c. Annual Report and Accounts 2013
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Remuneration Report
for the year ended 30 September 2013
Percentage change in remuneration of the CEO compared with other employees
The Committee believes that because the remuneration strategy since 2011 has been focused on bringing Executive Director salaries up
to the median level, a comparison with the wider workforce, who are largely already at the median level, is meaningless. The Committee
has therefore chosen a comparator group comprising the Group Executive management team and divisional management teams as set
out below:
Group Executive management
team (in addition to the
Chief Executive and Group
Finance Director)
Protection & Defence
divisional management team
(in addition to the Chief
Operating Officer)
Protection & Defence
business development
team (in addition to
the Chief Executive)
Dairy divisional
management team
(in addition to the
Managing Director)
Company Secretary
VP Global Manufacturing
Chief Technical Officer
VP Finance
Chief Operating Officer,
Protection & Defence
Managing Director, Dairy
Director of Sales North America
Commercial Director
VP Strategy,
Global Director of Marcom
and Product Management
VP Business Development
& DOD Sales
Sales & Marketing
VP Global Operations
Director of National Accounts
Director of Innovation and
Product Development
Finance Director
Sales Director Europe
& Asia Pacific
The following table sets out the percentage change in remuneration between the reported year and the preceding year in certain aspects
of the CEO's remuneration and the average of the above comparator group of employees:
CEO
Comparator Group
2011/2012
2012/2013
2011/2012
2012/2013
Salary
Benefits
Annual Bonus
+19%
+19%
-15%
0%
0%
+126%
+11%
+26%
-38%
+4%
+8%
+120%
Relative importance of spend on pay
The following table shows actual expenditure of the Group and change in spend between current and previous financial periods on
remuneration paid to all employees globally set against distributions to shareholders and other uses of profit or cash flow being profits
retained within the business and investments in research and development and property, plant and equipment:
Global
remuneration
spend
Other expenditure in £'000 and as a percentage of global remuneration spend
Dividends to
shareholders
Profit
retained
Research
and development
expenditure
Expenditure
on property, plant
and machinery
2013
2012
£'000
33,601
30,580
£'000
1,132
941
%
£'000
%
£'000
%
£'000
%
3.4%
3.1%
8,496
25.3%
6,407
19.1%
6,175
18.4%
6,888
22.5%
6,627
21.7%
4,789
15.7%
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Avon Rubber p.l.c. Annual Report and Accounts 2013
Annual bonus
The Remuneration Committee determined at its meeting on 19 November 2013 that the criteria for making an award under the annual
bonus scheme had been met. No discretion was exercised by the Committee to reduce or increase payments. The breakdown is as follows:
PC Slabbert
AG Lewis
Actual
Max.
Actual
Max.
1. Financial Targets
(a) Group profit budget achievement (Group PBITE)
(b) Profit growth on previous year (year on year PBITE growth)
26%
30%
(c) Group cash generation (ratio of operating cashflow to operating profit)
20%
2. Personal Performance Targets
10%
30%
30%
20%
20%
22%
25%
20%
8%
25%
25%
20%
10%
Total potential bonus as a percentage of basic salary
86%
100%
75%
80%
Actual performance against the targets has not been reproduced because it is commercially sensitive.
Pensions
The following information relates to the pension of Mr P C Slabbert under the defined benefit scheme:
Increase in accrued pension during 2012/13 (net of inflation)
Increase in accrued pension during 2012/13
Accrued pension at 30 September 2013
Transfer value at 30 September 2012
Value at 30 September 2012
Value at 30 September 2013
Increase in value (net of Director's contributions) - based on previously quoted figures
Value of increase in accrued pension during 2012/13 (net of inflation and Director's contributions)
£
-
1,457
66,376
1,195,508
1,298,378
1,327,528
132,020
-
The age at which Mr P C Slabbert may take his pension unreduced was reduced by 5/8ths of a year over the year to 30 September 2013.
On closure of the defined benefit scheme Mr Slabbert joined the money purchase section of the plan. Company contributions in respect
of Mr Slabbert during the year were nil (2012: £21,000) because Mr Slabbert reached the standard lifetime allowance in January 2012.
During the year £42,000 (2012: £21,000) was paid to Mr Slabbert in monthly instalments as a salary supplement.
In respect of Mr A G Lewis, Company contributions to the money purchase section of the plan were £30,000 (2012: £30,000).
All transfer values have been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11.
Avon Rubber p.l.c. Annual Report and Accounts 2013
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Remuneration Report
for the year ended 30 September 2013
The transfer values of the accrued entitlement represent the
value of assets that the pension scheme would need to transfer
to another pension provider on transferring the scheme's
liability in respect of Director's pension benefits. They do not
represent sums payable to individual Directors and, therefore,
cannot be added meaningfully to annual remuneration.
The accrued entitlement shown is the amount that would be
paid each year at normal retirement age, based on service to
the end of the current year. The accrued lump sum, under the
defined benefit scheme, for Mr Slabbert at 30 September 2013
was £318,748 (2012: £308,306).
Directors' shareholdings and share interests
Beneficial interests of Directors, their families and trusts in
ordinary shares of the Company were:
At the end
of the year
At the beginning
of the year
The Rt. Hon. Sir Richard Needham
N/A
65,900
(resigned 7 February 2013)
S.J. Pirie
D.R. Evans
R.K. Wood
(appointed 1 December 2012)
P.C. Slabbert
A.G. Lewis
82,000
40,000
-
187,116
100,496
82,000
40,000
N/A
140,097
75,122
Interests in jointly owned shares held by the Executive Directors
under the Performance Share Plan are excluded from the above
and detailed separately on page 69.
The only change in the interests set out above between 30
September 2013 and 20 November 2013 were the additional
shares bought by Mr P C Slabbert and Mr A G Lewis under the
Share Incentive Plan, which increased their total shareholdings
to 187,161 and 100,541 respectively.
The register of Directors' interests contains details of Directors'
shareholdings and share options. The position under the
shareholding guidelines for the Executive Directors is set out on
page 69.
Performance Share Plan 2010 (the Plan)
For grants of joint ownership awards, options or conditional
awards made to date pursuant to the Plan, the performance
conditions have been based on the Company's TSR relative to
the TSR of a comparator group, comprising the FTSE Small Cap
companies (excluding investment trusts). For the Cycles granted
in 2011/12 and 2012/13 a split performance condition applied so
that 50% of the award vests in accordance with the TSR target
and 50% in accordance with an EPS target based on real growth
in earnings over the performance period where real growth is
expressed as a percentage above inflation.
In September 2011 the Remuneration Committee decided that
the performance condition should be changed to a twofold test
based on TSR performance and EPS, bringing future awards in
line with market practice and thereby encouraging management
to maintain and increase earnings levels whilst at the same time
ensuring that it is not at the expense of longer term shareholder
return. The twofold test was used again for the 2012/13 awards.
In 2011, the Committee set the EPS target as nil vesting at RPI +3%
and maximum vesting at RPI +8% with vesting on a pro rata basis
in between these two figures. This EPS target was used again for
the 2012/13 awards.
The Committee determined in December 2012 that the 2009/10
award vested in full on the basis that the TSR over the three years
from 1 October 2009 to 30 September 2012 was significantly
ahead of the upper quartile of the comparator group. As a
consequence, and as announced to shareholders in December
2012, 230,126 shares were awarded to Mr Slabbert and 112,971
shares were awarded to Mr Lewis.
The Directors' contingent interests in ordinary shares under the
Plan at 30 September 2013 were as follows:
30 Sept
2012
Granted in Exercised in
the year*
the year
Lapsed in
the year
30 Sept
2013**
P.C. Slabbert
441,050
A.G. Lewis
231,038
82,063
46,893
(230,126)
(112,971)
- 292,987
- 164,960
Other senior
employees*** 823,783
221,282
(336,973)
(12,347) 695,745
Total
1,495,871
350,238
(680,070)
(12,347) 1,153,692
*
**
The market price at the vesting date for the 2009/10 award was 351.0 pence.
The weighted average remaining life of the awards outstanding at the
year-end is 1.1 years (2012: 1.0 years).
*** This figure includes 241,267 (2012: 284,550) in respect of key management
as defined in note 9 of the financial statements.
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Avon Rubber p.l.c. Annual Report and Accounts 2013
Outstanding awards granted annually under the Plan were
as follows:
2010
2011
2012
Total at 30
Sept 2013*
P.C. Slabbert
A.G. Lewis
Other senior
123,424
68,067
87,500
50,000
82,063
46,893
292,987
164,960
employees
268,810
205,653
221,282
695,745
Total
460,301
343,153
350,238
1,153,692
*
In relation to the awards outstanding at 30 September 2013, deferred
consideration payments will become due to the Company for the awards
granted in 2010/11 as follows: PC Slabbert £16,921 (2012: £32,317); AG Lewis
£9,332 (2012: £16,890) and a deferred loan payment for the awards granted
in 2011/12 and 2012/13 will become due as follows: PC Slabbert £10,000
(2012: £5,600); AG Lewis £6,642 (2012: £3,200).
The market price at the award date for the 2012/13 award was 349.5 pence,
for the 2011/12 award it was 300.0 pence, for the 2010/11 award it was 196.0
pence and for the 2009/10 award it was 81.5 pence.
PSP performance
30 Sept
30 Sept
2011
2012
30 Sept
2013***
30 Sept
2014****
30 Sept
2015****
(Cycle A)
(Cycle B)
(Cycle C)
(Cycle D)
(Cycle E)
period years
ending
TSR element*
100%
100%
100%
50%
50%
EPS element**
-
-
Total exercisable
rate (% of grant)
100%***** 100%******
-
-
50%
50%
-
-
*
**
***
Based on Avon Rubber p.l.c.'s Total Shareholder Return ranked relative to
companies in the FTSE Small Cap Index at the start of the period.
Based on the real growth in earnings over the performance period
where real growth is expressed as a % above inflation.
The three-year performance period in respect of these awards is complete
but vesting is not determined until the end of November following release
of the Group results. Currently expected to vest in full.
****
The three year performance periods in respect of these awards is not
yet complete.
***** These awards were reduced to 69% of entitlement to remain within the
5% dilution limit previously contained in the Plan rules. They vested in full
in December 2011 on the basis of a Company TSR of 905% compared to the
upper quartile of the comparator group at 131%.
****** These awards vested in full in December 2012 on the basis of a Company
TSR of 265% compared to the upper quartile of the comparator group at 63%.
Position under shareholding guidelines
Shareholding as
at 30 Sept 2013*
Number of shares
PC Slabbert
AG Lewis
187,116
100,496
Actual
Value**
£000
1,029
553
Target
Achievement****
Value***
£000
495
378
%
312
219
*
Taken from the table on page 68.
** Using the closing share price on 30 September 2013 of 550p.
*** 150% of current salary for Executive Directors for awards vesting up to.
December 2013. Salaries used are those effective 1 October 2013.
**** Actual value as a percentage of current salary.
Dilution
In respect of the 5% and 10% limits recommended by the
Association of British Insurers, the relevant percentages were
6.89% and 9.01% respectively based on the issued share capital
at 30 September 2013.
Under the Plan the 5% limit was increased to 10% and, in 2011,
the 10% limit was increased to 15% to preserve the 10% limit for
discretionary plans in connection with the introduction of the all
employee Share Incentive Plan.
As at 30 September 2013, the number of shares committed under
discretionary share-based incentive schemes since 30 September
2002, less the number of shares purchased in the market to
satisfy previous awards that had vested and the shares held in
the Employee Share Ownership Trusts gives 2,116,840 shares.
This represents 6.89% dilution against the 10% discretionary plan
dilution limit.
As at 30 September 2013, the number of shares committed under
all employee share-based incentive schemes since 30 September
2002, less the number of shares purchased in the market to
satisfy previous awards that had vested and the shares held in
the Employee Share Ownership Trusts gives 2,767,386 shares
which represents 9.01% dilution against the 15% all employee
plan dilution limit.
It remains the Company's practice to use employee share
ownership trusts in order to meet its liability for shares awarded
under the Plan. Two trusts have been established, the second
in March 2010 in connection with the jointly owned equity
awards. In December 2012 the Avon Rubber p.l.c. Employee
Share Ownership Trust No. 1 purchased 521,539 shares in
the market to be used in relation to future awards under the Plan.
At 30 September 2013 there were 1,242,111 shares held in the two
Employee Share Ownership Trusts which will either be used to
satisfy awards granted under the Plan to date, or in connection
with future awards. Of these, 801,360 were held on a jointly
owned equity basis. A Hedging Committee ensures that the
employee share ownership trusts hold sufficient shares to satisfy
existing and future awards made under the Plan by buying shares
in the market or causing the Company to issue new shares.
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Remuneration Report
for the year ended 30 September 2013
Total shareholder return performance graph
The following graph illustrates the total return, in terms of share price growth and dividends on a notional investment of £100 in the
Company over the last five years relative to the FTSE Small Cap Index (excluding investment trusts). This index was chosen by the
Remuneration Committee as a competitive indicator of general UK market performance for companies of a similar size.
AVON RUBBER PLC - TOTAL RETURN ON INVESTMENT
900.00
800.00
700.00
600.00
500.00
400.00
300.00
200.00
100.00
0.00
01 October 2008
Table of historic data
Table of historic data
CEO
2013
P.C. Slabbert
2012
P.C. Slabbert
2011
P.C. Slabbert
2010
P.C. Slabbert
2009
P.C. Slabbert
r
e
k
n
a
B
e
n
O
n
o
s
m
o
h
T
-
l
a
i
c
n
a
n
F
n
o
s
i
m
o
h
T
:
e
c
r
u
o
S
AVON RUBBER PLC FTSE SMALL CAP
30 September 2013
CEO single
figure of total
remuneration
£000
1,374
1,864
404
428
399
Annual bonus
Long term incentive
pay out
vesting rates
against maximum
against maximum
opportunity
opportunity
86%
40%
74%
90%
91%
100%
100%
nil
nil
nil
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Avon Rubber p.l.c. Annual Report and Accounts 2013
Share Incentive Plan
During the year to 30 September 2013 Mr Slabbert and Mr Lewis each purchased 374 shares pursuant to the Share Incentive Plan.
As at 30 September 2013, the market price of Avon Rubber p.l.c. shares was £5.50 (2012: £3.12). During the year the highest and lowest
market prices were £5.50 and £2.98 respectively.
Payments to past Directors and payments for loss of office
There have been no payments to past Executive Directors or payments for loss of office.
Statement of implementation of remuneration policy in the following year
Information required under this new disclosure is contained in the table on pages 56 to 57 and associated commentary.
Details of the advisors to the Remuneration Committee and their fees
During the year to 30 September 2013 the Company incurred costs of £3,750 (2012: £15,500) in respect of fees for advisors to the
Remuneration Committee.
Statement of shareholder voting on the Remuneration Report
The advisory shareholder vote on the Remuneration Report for the year ended 30 September 2012 at the AGM which took place on 7
February 2013 was as follows:
Resolution text
Votes for
% for
Votes against
% against
Total votes cast
Votes withheld
Approval of the renumeration report
18,923,638
99.39
115,608
0.61
19,039,246
248,886
The Remuneration Report has been approved by the Board of Directors and signed on its behalf by:
Richard Wood
Chairman of the Remuneration Committee
20 November 2013
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Consolidated Statement of Comprehensive Income
for the year ended 30 September 2013
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating profit
Operating profit is analysed as:
Before depreciation, amortisation and exceptional items
Depreciation and amortisation of development costs and software
Operating profit before amortisation of acquired intangibles and exceptional items
Amortisation of acquired intangibles
Exceptional items
Operating profit
Finance income
Finance costs
Other finance income/(expense)
Profit before taxation
Taxation
Profit for the year
Other comprehensive expense
Items that are not subsequently reclassified to the income statement
Actuarial loss recognised in retirement benefit scheme
Items that may be subsequently reclassified to the income statement
Net exchange differences offset in reserves
Other comprehensive expense for the year, net of taxation
Total comprehensive (expense)/income for the year
Earnings per share
Basic
Diluted
Adjusted earnings per share
Basic
Diluted
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Note
1
1
11,12
3
3
4
4
4
5
6
10
8
8
2013
£’000
124,851
(91,140)
33,711
(5,433)
(14,855)
13,423
20,023
(5,800)
14,223
(417)
(383)
13,423
1
(348)
118
13,194
(3,566)
9,628
(9,971)
(74)
(10,045)
2012
£’000
106,636
(75,803)
30,833
(5,013)
(14,199)
11,621
16,358
(4,737)
11,621
-
-
11,621
7
(249)
(374)
11,005
(3,176)
7,829
(3,098)
(917)
(4,015)
(417)
3,814
32.7p
31.4p
35.4p
34.0p
26.9p
25.4p
26.9p
25.4p
Avon Rubber p.l.c. Annual Report and Accounts 2013
Consolidated Balance Sheet
at 30 September 2013
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Liabilities
Current liabilities
Trade and other payables
Provisions for liabilities and charges
Current tax liabilities
Net current assets
Non-current liabilities
Borrowings
Deferred tax liabilities
Retirement benefit obligations
Provisions for liabilities and charges
Net assets
Shareholders’ equity
Ordinary shares
Share premium account
Capital redemption reserve
Translation reserve
Accumulated losses
Total equity
Note
2013
£’000
2012
£’000
11
12
13
14
19
15
16
18
17
6
10
18
20
20
16,541
20,387
36,928
13,374
20,677
214
184
34,449
16,680
616
6,073
23,369
13,281
17,878
31,159
15,449
14,616
121
176
30,362
15,748
616
5,160
21,524
11,080
8,838
11,059
2,977
11,279
1,997
27,312
8,901
2,584
2,238
2,377
16,100
20,696
23,897
30,723
34,708
500
(626)
(44,609)
20,696
30,723
34,708
500
(552)
(41,482)
23,897
These financial statements on pages 72 to 110 were approved by the Board of Directors on 20 November 2013 and signed on its behalf by:
Peter Slabbert Andrew Lewis
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Consolidated Cash Flow Statement
for the year ended 30 September 2013
Cash flows from operating activities
Cash generated from operations
Finance income received
Finance costs paid
Retirement benefit deficit recovery contributions
Tax paid
Net cash generated from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Purchase of property, plant and equipment
Capitalised development costs and software
Acquisition of VR Technology Holdings
Net cash used in investing activities
Cash flows from financing activities
Net movements in loans
Dividends paid to shareholders
Purchase of own shares
Net cash used in financing activities
Note
21
26
22
7
20
Net increase in cash, cash equivalents and bank overdrafts
Cash, cash equivalents and bank overdrafts at beginning of the year
Effects of exchange rate changes
Cash, cash equivalents and bank overdrafts at end of the year
22
2013
£’000
2012
£’000
15,300
1
(365)
(592)
(2,229)
12,115
2
(6,339)
(4,715)
(439)
(11,491)
2,281
(1,132)
(1,765)
(616)
8
176
-
184
14,726
7
(300)
(625)
(262)
13,546
4
(4,815)
(4,697)
-
(9,508)
(2,808)
(941)
(279)
(4,028)
10
167
(1)
176
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Avon Rubber p.l.c. Annual Report and Accounts 2013
Consolidated Statement of Changes in Equity
for the year ended 30 September 2013
At 1 October 2011
Profit for the year
Unrealised exchange differences on
overseas investments
Actuarial loss recognised in retirement
benefit scheme
Total comprehensive income for the year
Dividends paid
Purchase of shares by the employee benefit trust
Movement in respect of employee share schemes
At 30 September 2012
Profit for the year
Unrealised exchange differences on
overseas investments
Actuarial loss recognised in retirement
benefit scheme
Total comprehensive expense for the year
Dividends paid
Purchase of shares by the employee benefit trust
Movement in respect of employee share schemes
Note
Share
capital
£’000
30,723
-
Share
premium
£’000
34,708
-
-
-
-
-
-
-
-
-
-
-
-
-
30,723
-
34,708
-
-
-
-
-
-
-
-
-
-
-
-
-
10
7
20
24
10
7
20
24
Other
reserves
£’000
Accumulated
losses
£’000
Total
equity
£’000
865
-
(917)
(45,124)
7,829
21,172
7,829
-
(917)
-
(3,098)
(3,098)
(917)
-
-
-
(52)
-
(74)
-
(74)
-
-
-
4,731
(941)
(279)
131
3,814
(941)
(279)
131
(41,482)
9,628
23,897
9,628
-
(74)
(9,971)
(9,971)
(343)
(1,132)
(1,765)
113
(417)
(1,132)
(1,765)
113
At 30 September 2013
30,723
34,708
(126)
(44,609)
20,696
Other reserves consist of the capital redemption reserve of £500,000 (2012: £500,000) and the translation reserve of £626,000 (2012: £552,000).
All movement in other reserves relates to the translation reserve.
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Accounting Policies and Critical Accounting Judgements
for the year ended 30 September 2013
Accounting policies
The principal accounting policies adopted in the preparation
of these financial statements are set out below. These policies
have been consistently applied to all the years presented, unless
otherwise stated.
Basis of preparation
These financial statements have been prepared in accordance with
EU Endorsed International Financial Reporting Standards (IFRSs)
and IFRIC interpretations and the Companies Act 2006 applicable
to companies reporting under IFRS. The financial statements
have been prepared under the historical cost convention except
for financial assets and financial liabilities (including derivative
instruments) held at fair value through profit or loss.
The preparation of financial statements in conformity with IFRSs
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group’s accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the financial
statements are disclosed below.
Recent accounting developments
The following standards, amendments and interpretations have
been issued by the International Accounting Standards Board
(IASB) or by the International Financial Reporting Interpretations
Committee (IFRIC) but have not yet been adopted. Subject to
endorsement by the European Union, these will be adopted in
future periods. The Group’s approach to these is as follows:
a) Standards, amendments and interpretations effective
in 2013
The following amendment has been adopted for the year ended 30
September 2013:
- Amendment to IAS 1, ‘Presentation of Items of Other
Comprehensive Income'
-
-
-
-
-
-
-
IFRS 9, ‘Financial instruments’
IFRS 10, ‘Consolidated financial statements’
IFRS 11, ‘Joint arrangements’
IFRS 12, ‘Disclosure of interests in other entities’
IFRS 13, ‘Fair value measurement’
IAS 27 (revised), ‘Separate financial statements’
IAS 28 (revised), ‘Associates and joint ventures’
- Amendment to IAS 12, ‘Income taxes’
- Amendment to IAS 19, ‘Employee benefits’
The amendment to IAS 19, ‘Employee Benefits’ is effective for the
financial year beginning 1 October 2013. The main changes affecting
the Group are as follows:
Interest income or expense will now be calculated by applying
the discount rate to the net defined benefit liability or asset.
Previously interest cost was calculated on the defined benefit
obligation and expected return calculated on plan assets.
Costs associated with investment management are deducted
from the return on plan assets, (which is unchanged from
the existing standard). Other expenses are recognised as
incurred in the consolidated statement of comprehensive income.
This is expected to lead to an increase in the costs charged to
the income statement of £0.8m for the year ending 30 September
2014 over the cost under the existing standard and a 2.6p reduction
in earnings per share, with a similar impact on the comparative
figures for the year ended 30 September 2013.
2013
2014
Existing
Revised
Existing
Revised
standard Adjustment standard
standard Adjustment standard
£'000
£'000
£'000
£'000
£'000
£'000
The adoption of this amendment has not had a material impact on
the financial information as it only requires additional disclosure in
the consolidated statement of other comprehensive income.
Expected
return
b) Standards, amendments and interpretations to existing
standards issued but not yet effective in 2013 and not
early adopted
The following new standards, amendments to standards and
interpretations have been issued, but are not effective for the
financial year beginning 1 October 2012 and have not been
adopted early:
on assets
(12,974)
12,974
-
(13,540)
13,540
-
Interest on
liabilities
Administration
12,636
(12,603)
33
13,192
(13,180)
12
expenses
-
421
421
-
430
430
Total
pension
costs
(338)
792
454
(348)
790
442
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Basis of consolidation
Revenue
The consolidated financial statements incorporate the financial results
and position of the Group and its subsidiaries.
Subsidiaries are all entities over which the Group has the power to
govern the financial and operating policies generally accompanying a
shareholding of more than one half of the voting rights.
Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are de-consolidated from the date that
control ceases.
The purchase method of accounting is used to account for the
acquisition of subsidiaries by the Group. The cost of an acquisition
is measured as the fair value of the assets given, equity instruments
issued and liabilities incurred or assumed at the date of exchange.
Acquisition costs are expensed as incurred. Identifiable assets
acquired and liabilities and contingent liabilities assumed in a
business combination are measured initially at their fair values at the
acquisition date, irrespective of the extent of any non-controlling
interest. Intra-group transactions, balances and unrealised gains on
transactions between Group companies are eliminated; unrealised
losses are also eliminated unless costs cannot be recovered. Where
necessary, accounting policies of subsidiaries have been changed to
ensure consistency with the policies adopted by the Group.
Foreign currencies
The Group’s presentation currency is sterling. The results and financial
position of all subsidiaries and associates that have a functional
currency different from sterling are translated into sterling as follows:
- assets and liabilities are translated at the closing rate at the
balance sheet date; and
- income and expenses are translated at average rates.
All resulting exchange differences are recognised as a separate
component of equity.
On consolidation, exchange differences arising from the translation
of the net investment in foreign entities, and of borrowings and other
currency instruments designated as hedges of such investments, are
taken to shareholders’ equity. When a foreign operation is sold, the
cumulative amount of such exchange difference is recognised in the
consolidated statement of comprehensive income as part of the gain
or loss on sale.
Foreign currency transactions are initially recorded at the exchange
rate ruling at the date of the transaction. Foreign exchange gains
and losses resulting from settlement of such transactions and from
the translation to exchange rates ruling at the balance sheet date of
monetary assets or liabilities denominated in foreign currencies are
recognised in the consolidated statement of comprehensive income,
except when deferred in equity as qualifying hedges.
Revenue comprises the fair value of the consideration received for
the sale of goods and services, net of trade discounts and sales-
related taxes. Revenue is recognised when the risks and rewards
of the underlying sale have been transferred to the customer, and
when collectability of the related receivables is reasonably assured,
which is usually when title passes or a separately identifiable phase
of a development contract has been completed and accepted by
the customer.
Segment reporting
Segments are identified based on management information
provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and
assessing performance of the operating segments, has been
identified as the Group Executive team. A business segment is a
group of assets and operations engaged in providing products
or services that are subject to risks and returns that are different
from those of other business segments. A geographical segment
is engaged in providing products or services within a particular
economic environment that are subject to risks and returns that
are different from those of segments operating in other economic
environments. The chief operating decision-maker assesses the
performance of the operating segments based on the measures of
revenue, EBIT and EBITDA. Central overheads, finance income and
expense and taxation are not allocated to the business segments.
Exceptional items
Transactions are classified as exceptional where they relate to an
event that falls outside of the ordinary activities of the business and
where individually or in aggregate they have a material impact on
the financial statements.
Employee benefits
Pension obligations and post-retirement benefits
The Group has both defined benefit and defined contribution plans.
The defined benefit plan’s asset or liability as recognised in the
balance sheet is the present value of the defined benefit obligation
at the balance sheet date less the fair value of plan assets.
The defined benefit obligation is calculated annually by
independent actuaries using the projected unit credit method.
The present value of the defined benefit obligation is determined
by discounting the estimated cash outflows using interest rates of
high-quality corporate bonds that are denominated in the currency
in which the benefits will be paid, and that have terms to maturity
approximating to the terms of the related pension liability. Actuarial
gains and losses arising from experience adjustments and changes
in actuarial assumptions are recognised in full in the period in which
they occur, as part of other comprehensive income.
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Accounting Policies and Critical Accounting Judgements continued
for the year ended 30 September 2013
For the defined contribution plans, the Group pays contributions
to publicly or privately administered pension insurance plans on a
mandatory, contractual or voluntary basis. Contributions are expensed
as incurred.
Goodwill arising from acquisitions of subsidiaries before 3 October
1998, which was set against reserves in the year of acquisition under
UK GAAP, has not been reinstated and is not included in determining
any subsequent profit or loss on disposal of the related entity.
Share based compensation
The Group operates a number of equity-settled, share-based
compensation plans, under which the entity receives service from
employees as consideration for equity instruments (options) of the
Group. The fair value of the employee service received in exchange
for the grant of the options is recognised as an expense. The total
amount to be expensed is determined by reference to the fair value of
the options granted:
-
including any market performance conditions;
- excluding the impact of any service and non-market
performance vesting conditions (for example, profitability,
sales growth targets and remaining an employee of the entity
over a specified time period); and
-
including the impact of any non-vesting conditions
(for example, the requirement for employees to save).
Non-market vesting conditions are included in assumptions about
the number of options that are expected to vest. The total expense
is recognised over the vesting period, which is the period over which
all of the specified vesting conditions are to be satisfied. At the end of
each reporting period, the entity revises its estimates of the number
of options that are expected to vest based on the non-market
vesting conditions. It recognises the impact of the revision to original
estimates, if any, in the consolidated statement of comprehensive
income, with a corresponding adjustment to equity.
The proceeds received net of any directly attributable transaction
costs are credited to share capital (nominal value) and share premium
when the options are exercised.
Intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition over the
fair value of the Group’s share of the identifiable net assets of the
acquired subsidiary at the date of acquisition. Identifiable net assets
include intangible assets other than goodwill. Any such intangible
assets are amortised over their expected future lives unless they
are regarded as having an indefinite life, in which case they are not
amortised, but subjected to annual impairment testing in a similar
manner to goodwill.
Since the transition to IFRS, goodwill arising from acquisitions of
subsidiaries after 3 October 1998 is included in intangible assets, is not
amortised but is tested annually for impairment and carried at cost
less accumulated impairment losses. Gains and losses on the disposal
of an entity include the carrying amount of goodwill relating to the
entity sold.
Goodwill is tested for impairment at least annually or whenever
there is an indication that the asset may be impaired. Goodwill is
allocated to cash-generating units for the purpose of impairment
testing. The allocation is made to those cash-generating units
or groups of cash-generating units that are expected to benefit
from the business combination in which the goodwill arose. Any
impairment is recognised immediately in the consolidated statement
of comprehensive income. Subsequent reversals of impairment losses
for goodwill are not recognised.
Development Expenditure
Expenditure in respect of the development of new products where
the outcome is assessed as being reasonably certain as regards
viability and technical feasibility is capitalised and amortised over
the expected useful life of the development. Expenditure that does
not meet these criteria is expensed as incurred. The capitalised
costs are amortised over the estimated period of sale for each
product, commencing in the year sales of the product are first
made. Development costs capitalised are tested for impairment
at least annually or whenever there is an indication that the asset
may be impaired. Any impairment is recognised immediately in the
consolidated statement of comprehensive income. Subsequent
reversals of impairment losses for research and development are not
recognised.
Computer Software
Computer software is included in intangible assets at cost and
amortised over its estimated life.
Property plant and equipment
Property, plant and equipment is stated at historical cost or deemed
cost where IFRS 1 exemptions have been applied, less accumulated
depreciation and any recognised impairment losses.
Costs include the original purchase price of the asset and the costs
attributable to bringing the asset to its working condition for its
intended use including any qualifying finance expenses.
Land is not depreciated. Depreciation is provided on other assets
estimated to write off the depreciable amount of relevant assets by
equal annual instalments over their estimated useful lives.
In general, the rates used are:
·
·
Freehold – 2.5%
Short leasehold property – over the period of the lease
· Plant and machinery – 6% to 50%.
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The residual values and useful lives of the assets are reviewed, and
adjusted if appropriate, at each balance sheet date.
An asset’s carrying amount is written down immediately to its
recoverable amount if its carrying amount is greater than its
estimated net realisable value. Gains and losses on disposal are
determined by comparing proceeds with carrying amounts. These
are included in the consolidated statement of comprehensive
income.
Leases
Leases in which a significant portion of the risks and rewards of
ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases are charged to the
consolidated statement of comprehensive income on a straight-line
basis over the period of the lease.
The sale and lease back of property, where the sale price is at fair
value and substantially all the risks and rewards of ownership are
transferred to the purchaser, is treated as an operating lease. The
profit or loss on the transaction is recognised immediately and lease
payments charged to the consolidated statement of comprehensive
income on a straight-line basis over the lease term.
Provisions
Provisions are recognised when:
-
-
the Group has a legal or constructive obligation as a result
of a past event;
it is probable that an outflow of resources will be
required to settle the obligation and the amount has
been reliably estimated.
Where there are a number of similar obligations, for example
where a warranty has been given, the likelihood that an outflow
will be required in settlement is determined by considering the
class of obligations as a whole. A provision is recognised even if the
likelihood of an outflow with respect to any one item included in
the same class of obligation may be small.
Provisions are measured at the present value of the expenditures
expected to be required to settle the obligation.
Where a leasehold property, or part thereof, is vacant or sub-let
under terms such that the rental income is insufficient to meet all
outgoings, provision is made for the anticipated future shortfall up
to termination of the lease, or the termination payment, if smaller.
Inventories
Borrowings
Inventories are stated at the lower of cost and net realisable value.
Cost is determined using the first-in, first-out (FIFO) method. The
cost of finished goods and work in progress comprises raw materials,
direct labour, other direct costs and related production overheads
(based on normal operating capacity). It excludes borrowing costs.
Net realisable value is the estimated selling price in the ordinary
course of business, less applicable incremental selling expenses.
Trade and other receivables
Trade and other receivables are initially recognised at fair value and
subsequently held at amortised cost after deducting provisions for
impairment of receivables.
Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand, highly
liquid interest-bearing securities with maturities of three months
or less, and bank overdrafts. Bank overdrafts are shown within
borrowings in current liabilities on the balance sheet.
Trade payables
Trade payables are obligations to pay for goods or services that have
been acquired in the ordinary course of business from suppliers.
Accounts payable are classified as current liabilities if payment is
due within one year or less (or in the normal operating cycle of
the business if longer). If not, they are presented as non-current
liabilities. They are initially recognised at fair value and subsequently
held at amortised cost.
Borrowings are recognised initially at fair value, net of transaction
costs incurred and subsequently stated at amortised cost. Borrowing
costs are expensed using the effective interest method.
Taxation
Income tax on the profit or loss for the year comprises current and
deferred tax.
Current tax is the expected tax payable on the taxable income for
the year, using tax rates substantively enacted at the balance sheet
date, and any adjustments to tax payable in respect of prior years.
Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated financial
statements. However the deferred income tax is not accounted
for if it arises from initial recognition of an asset or liability in a
transaction other than a business combination that at the time of
the transaction affects neither accounting nor taxable profit or loss.
Deferred income tax is determined using tax rates (and laws) that
have been enacted or substantively enacted by the balance sheet
date and are expected to apply when the related deferred income
tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that is
probable that future taxable profit will be available against which
the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on
investments in subsidiaries and associates, except where the timing
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Accounting Policies and Critical Accounting Judgements continued
for the year ended 30 September 2013
of the reversal of the temporary difference is controlled by the Group
and it is probable that the temporary difference will not reverse in
the foreseeable future.
Income tax is charged or credited in the consolidated statement of
comprehensive income, except where it relates to items recognised
in equity, in which case it is dealt with in equity.
Deferred income tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets against current
tax liabilities and when the deferred income taxes assets and
liabilities relate to income taxes levied by the same taxation authority
on either the same taxable entity or different taxable entities where
there is an intention to settle the balances on a net basis.
Dividends
Final dividends are recognised as a liability in the Group’s financial
statements in the period in which the dividends are approved by
shareholders, while interim dividends are recognised in the period in
which the dividends are paid.
Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares
or options are shown in equity as a deduction, net of tax, from
the proceeds.
Where any Group company purchases the Company's equity share
capital (treasury shares), the consideration paid, including any directly
attributable incremental costs (net of income taxes), is deducted
from equity attributable to the Company’s equity holders until the
shares are cancelled, reissued or disposed of. Where such shares
are subsequently sold or reissued, any consideration received, net
of any directly attributable incremental transaction costs and the
related income tax effects, is included in equity attributable to the
Company’s equity holders.
Critical accounting judgements
The Group’s principal accounting policies are set out above.
Management is required to exercise significant judgement and make
use of estimates and assumptions in the application of these policies.
Areas which management believes require the most critical
accounting judgements are:
Retirement benefit obligations
The Group operates a defined benefit scheme. Actuarial valuations
of the schemes are carried out as determined by the trustees at
intervals of not more than three years.
The pension cost under IAS 19 is assessed in accordance with the
advice of an independent qualified actuary based on the latest
actuarial valuation and assumptions determined by the actuary.
The assumptions are based on information supplied to the actuary
by the Group, supplemented by discussions between the actuary
and management. The assumptions and sensitivities are disclosed in
note 10 of the financial statements.
Inventory provisions
At each balance sheet date, each subsidiary evaluates the
recoverability of inventories and records provision against these
based on an assessment of net realisable values. The actual net
realisable value of inventory may differ from the estimated realisable
values, which could impact on operating results positively or
negatively.
Impairment of intangible assets
The Group records all assets and liabilities acquired in business
acquisitions, including goodwill, at fair value. Intangible assets which
have an indefinite useful life, principally goodwill, are assessed
annually for impairment.
The Group is engaged in the development of new products and
processes. The costs of which are capitalised as intangible assets or
property, plant and equipment if, in the opinion of management,
there is a reasonable expectation of economic benefits being
achieved. The factors considered in making these judgements
include the likelihood of future orders and the anticipated volumes,
margins and duration associated with these.
Impairment charges are made if there is significant doubt as to the
sufficiency of future economic benefits to justify the carrying values
of the assets based upon discounted cash flow projections using an
appropriate risk weighted discount factor. Rates used were between
10% and 15%.
Provisions
Provisions are made in respect of receivables/accrued income,
claims, onerous contractual obligations and warranties based on the
judgement of management taking into account the nature of the
claim/contractual obligation, the range of possible outcomes and
the defences open to the Group.
Taxation
Management periodically evaluates positions taken in tax returns
where the applicable tax regulation is subject to interpretation. The
Group establishes provisions on the basis of amounts expected to
be paid to tax authorities only where it is considered more likely
than not that an amount will be paid or received. The Group applies
this test to each individual uncertain position. The Group measures
the uncertain positions based on the single most likely outcome.
When determining whether to recognise deferred tax assets
management considers the likely availability of future taxable profits
in the relevant jurisdiction.
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Avon Rubber p.l.c. Annual Report and Accounts 2013
Notes to the Group Financial Statements
for the year ended 30 September 2013
1 SEGMENT INFORMATION
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The
chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been
identified as the Group Executive team.
The Group has two clearly defined business segments, Protection & Defence and Dairy, and operates out of the UK and the US.
Business segments
year ended 30 September 2013
Revenue
93,137
31,714
124,851
Protection &
Defence
£’000
Dairy
£’000
Unallocated
£’000
Group
£’000
Segment result before depreciation, amortisation and exceptional items
Depreciation of property, plant and equipment
Amortisation of development costs and software
Segment result before amortisation of acquired intangibles and exceptional items
Amortisation of acquired intangibles
Exceptional items
Segment result
Finance income
Finance costs
Other finance income
Profit before taxation
Taxation
Profit for the year
Segment assets
Segment liabilities
Other segment items
Capital expenditure
- intangible assets
- property, plant and equipment
5,835
(623)
(32)
(1,948)
(52)
(4)
5,180
(2,004)
16,136
(3,221)
(1,868)
11,047
(417)
(383)
10,247
5,180
10,247
5,180
(2,004)
1
(348)
118
(2,233)
(3,566)
20,023
(3,896)
(1,904)
14,223
(417)
(383)
13,423
1
(348)
118
13,194
(3,566)
10,247
5,180
(5,799)
9,628
57,556
11,748
2,073
71,377
10,691
3,371
36,619
50,681
3,474
4,665
304
1,419
809
91
4,587
6,175
The Protection & Defence segment includes £51.9m (2012: £45.9m) of revenues from the US DOD, the only customer which individually
contributes more than 10% to Group revenues.
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81
Notes to the Group Financial Statements continued
for the year ended 30 September 2013
1 SEGMENT INFORMATION (CONTINUED)
year ended 30 September 2012
Revenue
Segment result before depreciation and amortisation
Depreciation of property, plant and equipment
Amortisation of development costs and software
Segment result
Finance income
Finance costs
Other finance expense
Profit before taxation
Taxation
Profit for the year
Segment assets
Segment liabilities
Other segment items
Capital expenditure
- intangible assets
- property, plant and equipment
Geographical segments by origin
year ended 30 September 2013
Revenue
Non-current assets
year ended 30 September 2012
Revenue
Non-current assets
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Protection &
Defence
£’000
Dairy
£’000
Unallocated
£’000
74,586
32,050
11,613
(2,594)
(1,516)
7,503
6,506
(468)
(55)
5,983
7,503
5,983
(1,761)
(102)
(2)
(1,865)
7
(249)
(374)
(2,481)
(3,176)
Group
£’000
106,636
16,358
(3,164)
(1,573)
11,621
7
(249)
(374)
11,005
(3,176)
7,503
49,191
9,781
5,983
9,760
2,681
(5,657)
7,829
2,570
61,521
25,162
37,624
3,877
3,519
225
1,198
595
72
4,697
4,789
UK
£’000
US
£’000
Group
£’000
24,028
4,897
100,823
32,031
124,851
36,928
UK
£’000
16,318
3,710
US
£’000
90,318
27,449
Group
£’000
106,636
31,159
Avon Rubber p.l.c. Annual Report and Accounts 2013
2 EXPENSES BY NATURE
Changes in inventories of finished goods and work in progress
Raw materials and consumables used
Employee benefit expense (note 9)
Depreciation and amortisation charges (notes 11 and 12)
Transportation expenses
Operating lease payments
Travelling costs
Legal and professional fees
Other expenses
Total cost of sales, distribution costs and administrative expenses
2013
£’000
1,828
49,954
33,314
6,217
2,173
1,705
2,465
2,185
11,187
111,028
2012
£’000
(740)
45,389
30,261
4,737
1,650
1,641
2,072
1,557
7,998
94,565
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Notes to the Group Financial Statements continued
for the year ended 30 September 2013
3 AMORTISATION OF ACQUIRED INTANGIBLES AND EXCEPTIONAL ITEMS
Amortisation of acquired intangible assets (note 11)
Exceptional items
Relocation of AEF facility
Acquisition costs
2013
£’000
417
2013
£’000
304
79
383
In the consolidated statement of comprehensive income the exceptional items are included within administrative expenses.
The acquisition costs relate to the purchase of VR Technology Holdings and other potential acquisitions investigated during the year.
4 FINANCE INCOME AND COSTS
Interest payable on bank loans and overdrafts
Finance income
Other finance income/(expense)
Interest cost: UK defined benefit pension scheme (note 10)
Expected return on plan assets: UK defined benefit pension scheme (note 10)
Provisions: Unwinding of discount (note 18)
2013
£’000
(348)
1
(347)
2013
£’000
(12,636)
12,974
(220)
2012
£’000
-
2012
£’000
-
-
-
2012
£’000
(249)
7
(242)
2012
£’000
(13,602)
13,557
(329)
118
(374)
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Avon Rubber p.l.c. Annual Report and Accounts 2013
5 PROFIT BEFORE TAXATION
Profit before taxation is shown after crediting:
Gain on foreign exchange
and after charging:
Loss on foreign exchange
Loss on disposal of property, plant and equipment
Depreciation on property, plant and equipment
Repairs and maintenance of property, plant and equipment
Amortisation of development costs and software
Amortisation of acquired intangibles
Research and development
Impairment of inventories
Impairment of trade receivables
Operating leases
Services provided to the Group (including its overseas subsidiaries) by the Company’s auditors:
Audit fees in respect of the audit of the accounts of the Parent Company and consolidation
Audit fees in respect of the audit of the accounts of subsidiaries of the Company
Other services relating to taxation
Compensation received regarding taxation services
Other business advisory services
Total fees
2013
£’000
230
-
24
3,896
848
1,904
417
2,780
438
5
1,705
30
80
110
-
(128)
-
(18)
2012
£’000
-
191
57
3,164
674
1,573
-
2,291
241
113
1,641
30
82
112
111
-
28
251
During 2013 £128,000 was received from the Group's auditors in relation to a claim for compensation regarding taxation services provided in the
US for previous years.
Avon Rubber p.l.c. Annual Report and Accounts 2013
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W
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M
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Notes to the Group Financial Statements continued
for the year ended 30 September 2013
6 TAXATION
Overseas current tax
Overseas adjustment in respect of previous periods
Total current tax
Deferred tax – current year
Deferred tax – adjustment in respect of previous periods
Total deferred tax
Total tax charge
2013
£’000
3,313
(139)
3,174
253
139
392
3,566
2012
£’000
3,366
172
3,538
(190)
(172)
(362)
3,176
The tax on the Group’s profit before taxation differs from the theoretical amount that would arise using the standard UK tax rate applicable to
profits of the consolidated entities as follows:
Profit before taxation
Profit before taxation at the average standard rate of 23.5% (2012: 25%)
Permanent differences
Losses for which no deferred taxation asset was recognised
Differences in overseas tax rates
Tax charge
The income tax charged directly to equity during the year was £nil (2012: £nil).
2013
£’000
13,194
3,101
(238)
69
634
3,566
2012
£’000
11,005
2,751
(1,101)
1,111
415
3,176
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Avon Rubber p.l.c. Annual Report and Accounts 2013
6 TAXATION (CONTINUED)
Deferred tax liabilities
At 1 October 2011
(Credited to)/charged against profit for the year
Exchange differences
At 30 September 2012
Charged against/(credited to) profit for the year
Exchange differences
Accelerated
capital
allowances
£’000
Other
temporary
differences
£’000
2,831
746
(39)
3,538
(415)
4
154
(1,108)
-
(954)
807
(3)
Total
£’000
2,985
(362)
(39)
2,584
392
1
At 30 September 2013
3,127
(150)
2,977
Deferred tax assets have been recognised in respect of temporary differences giving rise to deferred tax assets where it is probable that these
assets will be recovered.
The standard rate of corporation tax in the UK changed from 24% to 23% with effect from 1 April 2013. Accordingly the average standard rate for
the year is 23.5%.
A number of changes to the UK corporation tax system were announced in the March 2013 Budget Statement. The Finance Bill 2012, which was
substantively enacted on 2 July 2013, includes legislation reducing the main rate of corporation tax to 21% from 1 April 2014.
The change in rate had no material impact on the Group's deferred tax assets and liabilities as the Group's deferred tax liabilities are held in
the US.
The Group has not recognised deferred tax assets in respect of the following matters in the UK, as it is uncertain when the criteria for
recognition of these assets will be met.
Losses
Accelerated capital allowances
Retirement benefit obligations
Other
2013
£’000
(2,753)
(966)
(2,256)
(1,555)
(7,530)
2012
£’000
(3,837)
(1,676)
(515)
(1,230)
(7,258)
Avon Rubber p.l.c. Annual Report and Accounts 2013
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Notes to the Group Financial Statements continued
for the year ended 30 September 2013
7 DIVIDENDS
On 2 February 2013, the shareholders approved a final dividend of 2.4p per qualifying ordinary share in respect of the year ended 30 September
2012. This was paid on 15 March 2013 absorbing £708,000 of shareholders' funds.
On 22 April 2013 the Board of Directors declared an interim dividend of 1.44p (2012: 1.2p) per qualifying ordinary share in respect of the year
ended 30 September 2013. This was paid on 6 September 2013 absorbing £424,000 (2012: £353,000) of shareholders' funds.
After the balance sheet date the Board of Directors proposed a final dividend of 2.88p per qualifying ordinary share in respect of the year ended
30 September 2013, which will absorb an estimated £862,000 of shareholders' funds. Subject to shareholder approval, the dividend will be paid
on 21 March 2014 to shareholders on the register at the close of business on 21 February 2014. In accordance with accounting standards this
dividend has not been provided for and there are no corporation tax consequences.
8 EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of
ordinary shares in issue during the year, excluding those held in the employee share ownership trust. The company has dilutive potential
ordinary shares in respect of the Performance Share Plan (see page 68). Adjusted earnings per share removes the effect of the amortisation of
acquired intangible assets and exceptional items.
Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below.
Weighted average number of ordinary shares in issue used in basic calculations (thousands)
Potentially dilutive shares (weighted average) (thousands)
Fully diluted number of ordinary shares (weighted average) (thousands)
2013
29,451
1,231
30,682
2012
29,151
1,706
30,857
2013
£’000
2013
Basic
eps
pence
2013
Diluted
eps
pence
2012
£’000
2012
Basic
eps
pence
2012
Diluted
eps
pence
Profit attributable to equity shareholders of the Company
9,628
32.7
31.4
7,829
26.9
25.4
Amortisation of acquired intangible assets and exceptional items
800
2.7
2.6
Profit excluding amortisation of acquired intangibles and exceptional items
10,428
35.4
34.0
7,829
26.9
25.4
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Avon Rubber p.l.c. Annual Report and Accounts 2013
9 EMPLOYEES
The total remuneration and associated costs during the year were:
Wages and salaries
Social security costs
Other pension costs
US healthcare costs
Share based payments (note 24)
Detailed disclosures of Directors' remuneration and share options are given on pages 65 to 71.
The average monthly number of employees (including Executive Directors) during the year was:
By business segment
Protection & Defence
Dairy
Other
At the end of the financial year the total number of employees in the Group was 747 (2012: 746).
Key management compensation
Salaries and other employee benefits
Post employment benefits
Share based payments
2013
£’000
27,181
2,563
822
2,635
113
33,314
2012
£’000
23,765
2,378
817
3,170
131
30,261
2013
Number
2012
Number
533
200
9
742
2013
£’000
1,641
101
70
1,812
531
176
11
718
2012
£’000
1,330
99
83
1,512
The key management compensation above includes the Directors plus three (2012: three) others who were members of the Group Executive
during the year.
Avon Rubber p.l.c. Annual Report and Accounts 2013
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Notes to the Group Financial Statements continued
for the year ended 30 September 2013
10 PENSIONS AND OTHER RETIREMENT BENEFITS
Retirement benefit assets and liabilities can be analysed as follows:
Pension liability
2013
£’000
2012
£’000
(11,279)
(2,238)
Full disclosures are provided in respect of the UK defined benefit pension scheme below.
The Group operated a contributory defined benefits plan to provide pension and death benefits for the employees of Avon Rubber p.l.c. and its
Group undertakings in the UK employed prior to 31 January 2003. The scheme was closed to future accrual of benefit on 1 October 2009. The
assets of the plan are held in separate trustee administered funds and are invested by professional investment managers. The trustee is Avon
Rubber Pension Trust Limited, the Directors of which are members of the plan. Four of the Directors are appointed by the Company and two are
elected by the members.
Pension costs are assessed on the advice of an independent consulting actuary using the projected unit method. The funding of the plan is
based on regular actuarial valuations. The most recent finalised actuarial valuation of the plan was carried out at 31 March 2011 when the market
value of the plan's assets was £269.3m. The actuarial value of those assets represented 98.4% of the value of the benefits which had accrued to
members, after allowing for future increases in pensions.
During the year the Company made payments to the fund of £592,000 (2012: £625,000) in respect of scheme expenses and deficit recovery plan
payments. In accordance with the deficit recovery plan agreed following the 31 March 2011 actuarial valuation, the Company will make deficit
recovery payments in 2014 of £300,000 in addition to £175,000 towards scheme expenses.
An updated actuarial valuation for IAS 19 purposes was carried out by an independent actuary at 30 September 2013 using the projected
unit method.
The main financial assumptions used by the independent qualified actuary to calculate the liabilities under IAS 19 are set out below:
Inflation (RPI)
Inflation (CPI)
Pension increases post August 2005
Pension increases pre August 2005
Discount rate for scheme liabilities
2013
% p.a.
3.10
2.10
2.10
3.00
4.50
2012
% p.a.
2.50
1.50
1.90
2.50
4.55
The scheme actuary estimates a 0.1% change in the discount rate would change the value of scheme liabilities by approximately 1.6% (2012: 1.5%).
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10 PENSIONS AND OTHER RETIREMENT BENEFITS (CONTINUED)
Mortality rate
Assumptions regarding future mortality experience are set based on advice, published statistics and experience. The average life expectancy in
years of a pensioner retiring at age 65 on the balance sheet date is as follows:
Male
Female
The average life expectancy in years of a pensioner retiring at age 65, 20 years after the balance sheet
date is as follows:
Male
Female
The assets in the scheme and the expected rate of return were:
2013
22.0
24.2
2013
23.4
25.7
2012
22.1
24.2
2012
23.6
25.8
Equities
Liability driven investments
Corporate bonds
Cash
Long-term rate of
return expected
at 30 Sept 2013
% p.a.
Value at
30 Sept 2013
£’000
Long-term rate of
return expected
at 30 Sept 2012
% p.a.
7.90
2.65
4.50
2.65
130,293
84,689
30,696
43,369
7.95
2.70
4.55
2.70
Value at
30 Sept 2012
£’000
118,882
80,404
31,121
51,898
Average expected long term rate of return/total fair value of assets
5.21*
289,047
5.11*
282,305
The Liability Driven Investment ('LDI') comprises a series of LIBOR-earning cash deposits which are combined with contracts to hedge interest
rate and inflation rate risk over the expected life of the scheme's liabilities.
*Avon Rubber employs a building block approach in determining the long-term rate of return on pension plan assets. Historical markets are
studied and assets with higher volatility are assumed to generate higher returns consistent with widely accepted capital market principles.
The assumed long-term rate of return on assets is then derived by aggregating the expected return for each asset class over the actual asset
allocation for the plan as at 30 September 2013.
Avon Rubber p.l.c. Annual Report and Accounts 2013
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N
U
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W
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M
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F
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P
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W
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Notes to the Group Financial Statements continued
for the year ended 30 September 2013
10 PENSIONS AND OTHER RETIREMENT BENEFITS (CONTINUED)
Reconciliation of funded status to balance sheet
Fair value of plan assets
Present value of funded defined benefit obligations
Liability recognised on the balance sheet
Amounts (credited)/charged to profit before taxation in respect of post retirement benefits
Interest cost
Expected return on plan assets
Total (credited)/charged to profit before taxation
As the plan is closed to future accrual, the total charge is included in other finance expense.
Changes to the present value of the defined benefit obligation during the year
Opening defined benefit obligation
Interest cost
Actuarial losses on plan liabilities*
Net benefits paid out
Closing defined benefit obligation
* Includes changes to the actuarial assumptions.
Changes to the fair value of scheme assets during the year
Opening fair value of plan assets
Expected return on plan assets
Actuarial gains on plan assets
Contributions by the employer
Net benefits paid out
Closing fair value of plan assets
2013
£’000
289,047
(300,326)
2012
£’000
282,305
(284,543)
(11,279)
(2,238)
2013
£’000
12,636
(12,974)
(338)
2013
£’000
284,543
12,636
18,503
(15,356)
2012
£’000
13,602
(13,557)
45
2012
£’000
278,831
13,602
5,662
(13,552)
300,326
284,543
2013
£’000
282,305
12,974
8,532
592
(15,356)
2012
£’000
279,111
13,557
2,564
625
(13,552)
289,047
282,305
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Avon Rubber p.l.c. Annual Report and Accounts 2013
10 PENSIONS AND OTHER RETIREMENT BENEFITS (CONTINUED)
Actual return on plan assets
Expected return on plan assets
Actuarial gain on plan assets
Actual return on plan assets
Amounts recognised as other comprehensive income
Total actuarial losses recognised as other comprehensive income
Cumulative amount of (losses)/gains recognised as other comprehensive income
2013
£’000
12,974
8,532
21,506
2013
£’000
(9,971)
(3,529)
2012
£’000
13,557
2,564
16,121
2012
£’000
(3,098)
6,442
History of asset values, defined benefit obligation, deficit/surplus in scheme and experience gains and (losses)
2013
£’000
2012
£’000
2011
£’000
2010
£’000
2009
£’000
Fair value of plan assets
Defined benefit obligation
289,047
(300,326)
282,305
(284,543)
279,111
(278,831)
270,713
(276,989)
253,408
(261,785)
(Deficit)/surplus in plan
(11,279)
(2,238)
280
(6,276)
(8,377)
Experience gains/(losses) on plan assets
Experience (losses)/gains on plan liabilities*
2013
£’000
8,532
(803)
2012
£’000
2,564
(4,864)
2011
£’000
7,758
4,357
2010
£’000
18,696
(6,189)
2009
£’000
(10,864)
(1,917)
*This item consists of (losses)/gains in respect of liability experience only and excludes any change in liabilities in respect of changes to the
actuarial assumptions used.
In addition, commencing 1 February 2003, a defined contribution scheme was introduced for employees within the UK. The cost to the Group
in respect of this scheme for the year ended 30 September 2013 was £353,000 (2012: £321,000).
Avon Rubber p.l.c. Annual Report and Accounts 2013
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S
S
E
N
I
S
U
B
R
U
O
N
U
R
E
W
W
O
H
D
E
M
R
O
F
R
E
P
E
W
W
O
H
N
O
I
T
A
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Notes to the Group Financial Statements continued
for the year ended 30 September 2013
11 INTANGIBLE ASSETS
At 1 October 2011
Cost
Accumulated amortisation and impairment
Net book amount
Year ended 30 September 2012
Opening net book amount
Exchange differences
Additions
Amortisation
Closing net book amount
At 30 September 2012
Cost
Accumulated amortisation and impairment
Net book amount
Year ended 30 September 2013
Opening net book amount
Exchange differences
Additions
Acquisitions (note 26)
Disposals
Amortisation
Closing net book amount
At 30 September 2013
Cost
Accumulated amortisation and impairment
Net book amount
Goodwill
£’000
Acquired
intangibles
£’000
Development
expenditure
£’000
Computer
software
£’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
63
-
-
63
63
-
63
-
-
-
-
-
-
-
-
-
-
-
-
-
167
923
-
(417)
673
1,090
(417)
673
18,147
(7,903)
10,244
10,244
(306)
4,205
(1,501)
12,642
21,778
(9,136)
12,642
12,642
68
3,317
-
(62)
(1,837)
14,128
22,450
(8,322)
14,128
Total
£’000
19,415
(8,946)
10,469
10,469
(312)
4,697
(1,573)
13,281
1,268
(1,043)
225
225
(6)
492
(72)
639
1,736
(1,097)
23,514
(10,233)
639
13,281
639
2
1,103
-
-
(67)
1,677
2,848
(1,171)
1,677
13,281
70
4,587
986
(62)
(2,321)
16,541
26,451
(9,910)
16,541
Development expenditure is amortised over a period between 5 and 15 years.
Computer software is amortised over a period between 3 and 7 years.
The remaining useful economic life of the development expenditure is between 5 and 12 years.
Acquired intangibles include customer relationships, order book on acquisition and brands and are amortised over 3 years.
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12 PROPERTY, PLANT AND EQUIPMENT
At 1 October 2011
Cost
Accumulated depreciation and impairment
Net book amount
Year ended 30 September 2012
Opening net book amount
Exchange differences
Additions
Disposals
Depreciation charge
Closing net book amount
At 30 September 2012
Cost
Accumulated depreciation and impairment
Net book amount
Year ended 30 September 2013
Opening net book amount
Exchange differences
Additions
Acquisitions (note 26)
Reclassifications
Disposals
Depreciation charge
Closing net book amount
At 30 September 2013
Cost
Accumulated depreciation and impairment
Net book amount
Freeholds
£’000
Short
leaseholds
£’000
Plant and
machinery
£’000
Total
£’000
1,102
(128)
974
974
(32)
318
-
(133)
1,127
1,382
(255)
1,127
1,127
5
2,017
-
28
-
(142)
3,035
3,402
(367)
3,035
352
(236)
34,723
(19,095)
36,177
(19,459)
116
15,628
16,718
116
(3)
85
-
(26)
172
15,628
(369)
4,386
(61)
(3,005)
16,718
(404)
4,789
(61)
(3,164)
16,579
17,878
425
(253)
38,128
(21,549)
39,935
(22,057)
172
16,579
17,878
172
4
32
-
-
-
(127)
16,579
138
4,126
109
(28)
(26)
(3,627)
17,878
147
6,175
109
-
(26)
(3,896)
81
17,271
20,387
261
(180)
42,080
(24,809)
45,743
(25,356)
81
17,271
20,387
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Notes to the Group Financial Statements continued
for the year ended 30 September 2013
13 INVENTORIES
Raw materials
Work in progress
Finished goods
2013
£’000
6,020
2,481
4,873
2012
£’000
7,814
3,207
4,428
13,374
15,449
Provisions for inventory write downs were £1,710,000 (2012: £1,582,000).
The cost of inventories recognised as an expense and included in cost of sales amounted to £51,782,000 (2012: £44,649,000).
14 TRADE AND OTHER RECEIVABLES
Trade receivables
Less: provision for impairment of receivables
Trade receivables – net
Prepayments
Other receivables
2013
£’000
17,009
(269)
16,740
1,141
2,796
20,677
2012
£’000
10,238
(381)
9,857
1,242
3,517
14,616
Other receivables include £956,000 (2012: £956,000) in respect of a rent deposit relating to the Company's premises in Melksham, Wiltshire, UK.
The remaining balance comprises sundry receivables including accrued income.
Movements on the Group provision for impairment of receivables are as follows:
At 1 October
Provision for impairment of receivables
Receivables written off during the year as uncollectable
At 30 September
2013
£’000
381
5
(117)
269
2012
£’000
278
113
(10)
381
The creation and release of provision for impaired receivables have been included in administrative expenses in the consolidated statement of
comprehensive income.
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Avon Rubber p.l.c. Annual Report and Accounts 2013
15 CASH AND CASH EQUIVALENTS
Cash at bank and in hand
2013
£’000
184
2012
£’000
176
Cash at bank and in hand balances are denominated in a number of foreign currencies and earn interest based on national rates.
16 TRADE AND OTHER PAYABLES
Trade payables
Other taxation and social security
Other payables
Accruals
Other payables comprise sundry items which are not individually significant for disclosure.
17 BORROWINGS
Non-current
Bank loans
Total borrowings
The maturity profile of the Group’s borrowings at the year end was as follows:
In one year or less, or on demand
Between one and two years
Between two and five years
2013
£’000
4,139
282
3,289
8,970
2012
£’000
5,060
241
2,418
8,029
16,680
15,748
2013
£’000
11,059
11,059
-
11,059
-
11,059
2012
£’000
8,901
8,901
-
423
8,478
8,901
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Notes to the Group Financial Statements continued
for the year ended 30 September 2013
17 BORROWINGS (CONTINUED)
The Group has the following undrawn committed facilities:
Expiring within one year
Expiring beyond one year
Total undrawn committed borrowing facilities
Bank loans and overdrafts utilised
Utilised in respect of guarantees
Total Group facilities
All facilities are at floating interest rates.
2013
£’000
-
12,518
12,518
11,059
341
23,918
2012
£’000
-
14,606
14,606
8,901
381
23,888
On 30 September 2010 the Group agreed new bank facilities with Barclays Bank and Comerica Bank. The Barclays facility comprises a revolving
credit facility of £5m and $15.5m and expires on 30 March 2015. The Comerica facility is a $15m revolving credit facility and expires on 30 March
2015. These facilities are priced on average at the appropriate currency LIBOR plus a margin of 1.75% and include financial covenants which are
measured on a quarterly basis. The Group was in compliance with its financial covenants during 2013 and 2012.
The facilities are secured by charges over Group assets and certain shares in Group companies.
The effective interest rates at the balance sheet dates were as follows:
Bank loans
2013
Sterling
%
2013
Dollar
%
2012
Sterling
%
2.2
2.8
2.3
2012
Dollar
%
2.0
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18 PROVISIONS FOR LIABILITIES AND CHARGES
Balance at 1 October 2011
Unwinding of discount
Payments in the year
Balance at 30 September 2012
Unwinding of discount
Payments in the year
Balance at 30 September 2013
Analysis of total provisions
Non-current
Current
Property
obligations
£’000
3,208
329
(544)
2,993
220
(600)
2,613
2012
£’000
2,377
616
2,993
2013
£’000
1,997
616
2,613
Property obligations include an onerous lease provision of £1.8m in respect of unutilised space at the Group's leased Hampton Park West facility
in the UK. £0.6m of this provision is expected to be utilised in 2014, and the remaining £1.2m over the following two years. Other property
obligations relate to former premises of the Group which are subject to dilapidation risks and are expected to be utilised within the next eight
years. Property provisions are subject to uncertainty in respect of the utilisation, non-utilisation, or subletting of surplus leasehold property and
the final negotiated settlement of any dilapidation claims with landlords.
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Notes to the Group Financial Statements continued
for the year ended 30 September 2013
19 FINANCIAL INSTRUMENTS
Financial instruments by category
Trade and other receivables (excluding prepayments) and cash and cash equivalents are classified as 'loans and receivables'. Borrowings and
trade and other payables are classified as 'other financial liabilities at amortised cost'. Both categories are initially measured at fair value and
subsequently held at amortised cost.
Derivatives (forward exchange contracts) are classified as 'derivatives used for hedging' and accounted for at fair value with gains and
losses taken to reserves through the consolidated statement of comprehensive income.
Financial risk and treasury policies
The Group's treasury management team maintains liquidity, manages relations with the Group’s bankers, identifies and manages foreign
exchange risk and provides a treasury service to the Group’s businesses. Treasury dealings such as investments, borrowings and foreign
exchange are conducted only to support underlying business transactions.
The Group has clearly defined policies for the management of foreign exchange rate risk. The Group treasury management team is not a
profit centre and, therefore, does not undertake speculative foreign exchange dealings for which there is no underlying exposure. Exposures
resulting from sales and purchases in foreign currency are matched where possible and the net exposure may be hedged by the use of forward
exchange contracts.
(i) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations,
and arises principally from the Group’s receivables from customers and monies on deposit with financial institutions.
The US Government through the Department of Defense is a major customer of the Group. Credit evaluations are carried out on all non-
Government customers requiring credit above a certain threshold, with varying approval levels set above this depending on the value of the
sale. At the balance sheet date there were no significant concentrations of credit risk, except in respect of the US Government noted above.
Counterparty risk arises from the use of derivative financial instruments. This is managed through credit limits, counterparty approvals and
rigorous monitoring procedures.
Where possible, goods are sold subject to retention of title clauses, so that in the event of non-payment the Group may have a secure claim.
The Group establishes an allowance for impairment in respect of receivables where recoverability is considered doubtful.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:
Carrying amount
Trade receivables
Other receivables
Cash and cash equivalents
Forward exchange contracts used for hedging
The maximum exposure to credit risk for financial assets at the reporting date by currency was:
Carrying amount of financial assets
Sterling
US dollar
Euro
Other currencies
2013
£’000
16,740
2,796
184
214
19,934
2013
£’000
1,182
14,519
585
638
16,924
2012
£’000
9,857
3,517
176
121
13,671
2012
£’000
2,429
6,199
1,140
265
10,033
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Avon Rubber p.l.c. Annual Report and Accounts 2013
19 FINANCIAL INSTRUMENTS (CONTINUED)
Provisions against trade receivables
The ageing of trade receivables and associated provision for impairment at the reporting date was:
Not past due
Past due 0-30 days
Past due 31-60 days
Past due 61-90 days
Past due more than 91 days
Gross
2013
£’000
Provision
2013
£’000
14,818
1,369
634
116
72
-
(19)
(130)
(62)
(58)
Net
2013
£’000
14,818
1,350
504
54
14
Gross
2012
£’000
8,707
898
202
152
279
Provision
2012
£’000
(55)
(39)
(52)
(67)
(168)
Net
2012
£’000
8,652
859
150
85
111
17,009
(269)
16,740
10,238
(381)
9,857
The total past due receivables, net of provisions is £1,922,000 (2012: £1,205,000).
The individually impaired receivables mainly relate to a number of independent customers. A portion of these receivables is expected to be
recovered.
(ii) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing
liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group uses weekly cash flow forecasts to monitor cash requirements and to optimise its borrowing position. Typically the Group ensures
that it has sufficient borrowing facility to meet foreseeable operational expenses and at the year end had facilities of £23.9m (2012: £23.9m).
The following shows the contractual maturities of financial liabilities, including interest payments, where applicable and excluding the impact of
netting agreements and on an undiscounted basis:
Analysis of contractual cash flow maturities
30 September 2013
Secured bank loans
Trade and other payables
Forward exchange contracts used for hedging
- Outflow
- Inflow
Carrying Contractual
cash flows
amount
£’000
£’000
Less than
12 months
£’000
1 - 2
Years
£’000
2 - 5 More than
5 Years
£’000
Years
£’000
11,059
16,398
11,507
16,398
299
16,398
11,208
-
-
(214)
4,125
-
4,125
-
-
-
27,243
32,030
20,822
11,208
-
-
-
-
-
-
-
-
-
-
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U
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W
W
O
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D
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M
R
O
F
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P
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W
O
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Notes to the Group Financial Statements continued
for the year ended 30 September 2013
19 FINANCIAL INSTRUMENTS (CONTINUED)
Analysis of contractual cash flow maturities
30 September 2012
Secured bank loans
Trade and other payables
Forward exchange contracts used for hedging
- Outflow
- Inflow
Carrying Contractual
Cash flows
Amount
£’000
£’000
Less than
12 months
£’000
8,901
15,507
9,410
15,507
206
15,507
-
(121)
5,016
-
5,016
-
1 - 2
Years
£’000
629
-
-
-
24,287
29,933
20,729
629
8,575
2 - 5
Years
£’000
More than
5 Years
£’000
8,575
-
-
-
-
-
-
-
-
(iii) Market risks
Market risk is the risk that changes in market prices, such as currency rates and interest rates, will affect the Group’s results. The objective of
market risk management is to manage and control risk within suitable parameters.
(a) Currency risk
The Group is exposed to foreign currency risk on sales and purchases that are denominated in a currency other than sterling. The currencies
giving rise to this risk are primarily the US dollar and related currencies and the Euro. The Group hedges material forecast US dollar or Euro
foreign currency transactional exposures using forward exchange contracts. In respect of other monetary assets and liabilities held in currencies
other than sterling, the Group ensures that the net exposure is kept to an acceptable level, by buying or selling foreign currencies at spot rates
where necessary to address short-term imbalances.
The Group classifies its forward exchange contracts hedging forecasted transactions as cash flow hedges and states them at fair value through
the consolidated statement of comprehensive income. Fair value is assessed by reference to year end spot exchange rates, adjusted for forward
points associated with contracts of similar duration. The fair value of forward exchange contracts used as hedges at 30 September 2013 was a
£214,000 asset (2012: £121,000) comprising an asset of £214,000 (2012: £121,000) and a liability of nil (2012: nil).
All forward exchange contracts in place at 30 September 2013 mature within one year.
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19 FINANCIAL INSTRUMENTS (CONTINUED)
Sensitivity analysis
It is estimated that, with all other variables held equal (in particular other exchange rates), a general change of five cents in the value of the
US dollar against sterling would have had a £368,000 (2012: £378,000) impact on the Group's current year profit before interest and tax and
a £294,000 (2012: £274,000) impact on the Group's profit after tax. The method of estimation, which has been applied consistently, involves
assessing the translation impact of US dollar and Euro cash flows.
The following significant exchange rates applied during year:
US dollar
Euro
(b) Interest rate risk
Average rate
2013
Closing rate
2013
Average rate
2012
Closing rate
2012
1.559
1.188
1.612
1.191
1.576
1.215
1.615
1.255
The Group does not undertake any hedging activity in this area. All foreign currency cash deposits are made at prevailing interest rates and
where rates are fixed the period of the fix is generally not more than one month. The main element of interest rate risk concerns borrowings
which are made on a floating LIBOR-based rate and short-term overdrafts in foreign currencies which are also on a floating rate.
The Group is exposed to interest rate fluctuations and with net debt of £10.9m (2012: £8.7m) a 1% movement in interest rates would impact the
interest costs by £109,000 (2012: £87,000).
The floating rate financial liabilities comprise bank loans bearing floating interest rates fixed by reference to the relevant LIBOR or equivalent rate.
All cash deposits are on floating rates or overnight rates based on the relevant LIBOR or equivalent rate.
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Notes to the Group Financial Statements continued
for the year ended 30 September 2013
19 FINANCIAL INSTRUMENTS (CONTINUED)
(iv) Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns
for shareholders and benefits for other stakeholders and to maintain an optimal capital structure.
In order to maintain or adjust the capital structure the Group may adjust the amount of dividends paid to shareholders, return capital to
shareholders or issue new shares.
The Group monitors capital on the basis of the gearing ratio, calculated as net debt divided by capital. Net debt is calculated as total borrowings
less cash and cash equivalents. Total capital is measured by the current market capitalisation of the Group, plus net debt. The increased market
capitalisation has positively impacted the gearing ratio in 2013 as shown below.
The Group’s net debt at the balance sheet date was:
Total borrowings
Cash and cash equivalents
Group net debt
Market capitalisation of the Group at 30 September
Gearing ratio
2013
£’000
11,059
(184)
10,875
168,978
6.0%
2012
£’000
8,901
(176)
8,725
95,857
8.3%
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Avon Rubber p.l.c. Annual Report and Accounts 2013
19 FINANCIAL INSTRUMENTS (CONTINUED)
(v) Fair values
The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows:
Trade receivables
Other receivables
Cash and cash equivalents
Forward exchange contracts
Secured loans
Trade and other payables
Carrying
amount
2013
£’000
16,740
2,796
184
214
(11,059)
(16,398)
Fair
value
2013
£’000
16,740
2,796
184
214
(11,059)
(16,398)
Carrying
amount
2012
£’000
9,857
3,517
176
121
(8,901)
(15,507)
Fair
value
2012
£’000
9,857
3,517
176
121
(8,901)
(15,507)
(7,523)
(7,523)
(10,737)
(10,737)
Basis for determining fair value
The following summarises the significant methods and assumptions used in estimating the fair values of financial instruments reflected in the
table above.
Derivatives
The fair value of forward exchange contracts is determined by using valuation techniques using year-end spot rates, adjusted for the forward
points to the contract’s value date. No contract's value date is greater than one year from the year end. These instruments are included in level 2
in the fair value hierarchy as the valuation is based on inputs that are either directly or indirectly observable.
Secured loans
As the loans are floating rate borrowings, amortised cost is deemed to reflect fair value.
Trade and other receivables/payables
As the majority of receivables/payables have a remaining life of less than one year, the notional amount is deemed to reflect the fair value.
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Notes to the Group Financial Statements continued
for the year ended 30 September 2013
20 SHARE CAPITAL
Called up, allotted and fully
paid ordinary shares of £1 each
2013
No. of
shares
2013
Ordinary
shares
£’000
2013
Share
premium
£’000
2012
No. of
shares
2012
Ordinary
shares
£’000
2012
Share
premium
£’000
At the beginning of the year
30,723,292
30,723
34,708
30,723,292
30,723
34,708
At the end of the year
30,723,292
30,723
34,708
30,723,292
30,723
34,708
Details of outstanding share options and movements in share options during the year are given in the Remuneration Report on pages 52-71.
Ordinary shareholders are entitled to receive dividends and are entitled to vote at meetings of the Company.
At 30 September 2013 1,242,111 (2012: 1,400,642) ordinary shares were held by a trust in respect of obligations under the 2002 Performance Share
Plan and the 2010 Performance Share Plan. Dividends on these shares have been waived. The market value of the shares held by the trust at 30
September 2013 was £6,832,000 (2012: £4,370,000). These shares are held at cost as treasury shares and deducted from shareholders' equity.
During the year the trust acquired 522,000 (2012: 90,000) shares at a cost of £1,765,000 (2012: £279,000). 680,070 (2012: 1,225,347) shares were
used to satisfy awards following the vesting of shares relating to the 2002 Performance Share Plan.
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21 CASH GENERATED FROM OPERATIONS
Profit for the financial year
Adjustments for:
Taxation
Depreciation
Amortisation of intangible assets
Finance income
Finance costs
Other finance (income)/expense
Loss on disposal of intangibles
Loss on disposal of property, plant and equipment
Movement in respect of employee share scheme
Decrease/(increase) in inventories
(Increase)/decrease in receivables
(Decrease)/increase in payables and provisions
22 ANALYSIS OF NET DEBT
2013
£’000
9,628
3,566
3,896
2,321
(1)
348
(118)
62
24
113
2,259
(6,295)
(503)
15,300
2012
£’000
7,829
3,176
3,164
1,573
(7)
249
374
-
57
131
(5,259)
3,352
87
14,726
This note sets out the calculation of net debt, a measure considered important in explaining our financial position.
Cash at bank and in hand
Net cash and cash equivalents
Debt due in more than 1 year
At 1 Oct
2012
£’000
176
176
(8,901)
Cash flow
£’000
8
8
(2,281)
(8,725)
(2,273)
Exchange
movements
£’000
At 30 Sept
2013
£’000
-
-
123
123
184
184
(11,059)
(10,875)
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Notes to the Group Financial Statements continued
for the year ended 30 September 2013
23 OTHER FINANCIAL COMMITMENTS
Capital expenditure committed
2013
£’000
918
2012
£’000
608
Capital expenditure committed represents the amount contracted in respect of property, plant and equipment at the end of the financial year
for which no provision has been made in the financial statements.
The future aggregate minimum lease payments under non-cancellable operating leases are:
Within one year
Between 1 and 5 years
Later than 5 years
The majority of leases of land and buildings are subject to rent reviews.
24 SHARE BASED PAYMENTS
2013
£’000
2,052
5,025
6,472
2012
£’000
2,177
6,462
7,243
13,549
15,882
The Group operates an equity-settled share-based performance share plan (PSP). Details of the Plan, awards granted and options outstanding
are set out in the Remuneration Report on page 68 and are incorporated by reference into these financial statements. The charge against profit
of £113,000 (2012: £131,000) in respect of PSP options granted after 7 November 2002 has been calculated using the Monte Carlo pricing model
and the following principal assumptions:
Weighted average fair value (£)
Key assumptions used:
Weighted average share price (£)
Volatility (%)
Risk-free interest rate (%)
Expected option term (yrs)
Divided yield (%)
Volatility is estimated based on actual experience over the last three years.
2013
PSP
0.21
3.41
39
1.75
3.0
1.0
2012
PSP
0.28
3.00
39
2.47
3.0
1.0
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25 RELATED PARTY TRANSACTIONS
There were no related party transactions during the year or outstanding at the end of the year (2012: £nil). Key management compensation is
disclosed in note 9.
26 ACQUISITION
On 26 April 2013 Avon Polymer Products Limited acquired 100% of the share capital of VR Technology Holdings Limited (VR), a market leader
in diving rebreather systems and dive computers, for consideration of £833,000. VR's products and key technologies will complement and
enhance the Group's current and planned product ranges and increase respiratory protection opportunities for the Group, particularly with
navies around the world.
The results of the acquired entity have been consolidated in the Group's consolidated statement of comprehensive income from 26 April 2013
and contributed £278,000 of revenue and a loss of £126,000 to the profit attributable to equity shareholders of the Group during the year.
The impact of the acquisition on the consolidated balance sheet was as follows:
Book value
£’000
Accounting
policy alignment
£’000
Fair value
adjustment
£’000
Fair value
£’000
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Net assets acquired
Goodwill
Total consideration
Satisfied by:
Cash
Deferred/contingent consideration
-
109
36
137
64
(499)
(153)
301
-
-
-
-
-
301
622
-
-
-
-
-
622
923
109
36
137
64
(499)
770
63
833
483
350
833
The goodwill is attributable to the workforce of the acquired business and synergies expected to arise in the period following the acquisition.
The Directors have reviewed the goodwill for impairment and concluded that the carrying value is recoverable. Full details of the review are not
disclosed given the immateriality of the goodwill balance.
The contingent consideration becomes payable over the next three years, providing certain performance conditions are met, based on both
qualitative and quantitative factors. The range of outcomes is expected to be between nil and £200,000.
Had VR been consolidated from 1 October 2012, the consolidated statement of comprehensive income would show revenue of £124,863,000
and profit for the year of £9,637,000.
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Notes to the Group Financial Statements continued
for the year ended 30 September 2013
27 GROUP UNDERTAKINGS
Held by Parent Company
Avon Polymer Products Limited
Avon Rubber Overseas Limited
Avon Rubber Pension Trust Limited
Avon Dairy Solutions (Shanghai) International Trading Company Ltd
Held by Group undertakings
Avon Engineered Fabrications, Inc.
Avon Hi-Life, Inc.
Avon Protection Systems, Inc.
Avon Rubber & Plastics, Inc.
Avon-Ames Limited
VR Technology Holdings Limited
Avon International Safety Instruments, Inc.
Country in which
incorporated
UK
UK
UK
China
US
US
US
US
UK
UK
US
Shareholdings are ordinary shares and all undertakings are wholly owned by the Group and operate primarily in their country of incorporation.
All companies have a year ending in September, except Avon Dairy Solutions (Shanghai) which has a year ending in December and VR Technology
Holdings Limited which has a year ending in April. For the purpose of the Group accounts the results are consolidated to 30 September.
Avon Rubber Pension Trust Limited is a pension fund trustee.
Avon Rubber Overseas Limited and Avon Rubber & Plastics, Inc. are investment holding companies.
VR Technology Holdings Limited designs and manufactures diving rebreather systems and dive computers.
The activities of all of the other companies listed above are the manufacture and/or distribution of rubber and other polymer based products.
A number of non-trading and small Group undertakings have been omitted, on the grounds of immateriality.
All UK subsidiaries are exempt from the requirement to file audited accounts by virtue of section 479A of the Companies Act 2006.
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Independent Auditors' Report
for the year ended 30 September 2013
Report on the Group financial statements
Our opinion
In our opinion the Group financial statements:
Give a true and fair view of the state of the Group’s affairs as
at 30 September 2013 and of the Group’s profit and cash flows
for the year then ended;
Have been properly prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the
European Union; and
Have been prepared in accordance with the requirements
of the Companies Act 2006 and Article 4 of the IAS Regulation.
The reasonableness of significant accounting estimates made
by the directors; and
The overall presentation of the financial statements.
In addition, we read all the financial and non-financial information
in the Annual Report to identify material inconsistencies with the
audited Group financial statements and to identify any information
that is apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of
performing the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for
our report.
Overview of our audit approach
This opinion is to be read in the context of what we say below.
Materiality
What we have audited
The Group financial statements, which are prepared by Avon
Rubber p.l.c. comprise:
We set certain thresholds for materiality. These helped us to
determine the nature, timing and extent of our audit procedures
and to evaluate the effect of misstatements, both individually and
on the financial statements as a whole. Based on our professional
The Consolidated balance sheet as at 30 September 2013;
judgment, we determined materiality for the Group financial
The Consolidated statement of comprehensive income for
the year then ended;
The Consolidated cash flow statement for the year then ended;
statements as a whole to be £650,000.
We agreed with the Audit Committee that we would report to
them misstatements identified during our audit above £32,500
as well as misstatements below that amount that, in our view,
The Consolidated statement of changes in equity for the year
warranted reporting for qualitative reasons.
then ended; and
The Accounting policies and critical accounting judgements
and the notes to the Group’s financial statements, which
includes other explanatory information.
Overview of the scope of our audit
The Group structure comprises two divisions, being Protection
& Defence and Dairy. The Group financial statements are a
consolidation of nine reporting units, comprising the Group’s
The financial reporting framework that has been applied in their
operating businesses and centralised functions.
preparation comprises applicable law and IFRSs as adopted by the
European Union.
In establishing the overall approach to the Group audit, we
determined the type of work that needed to be performed at
Certain disclosures required by the financial reporting framework
reporting units.
have been presented elsewhere in the Annual Report, rather than
in the notes to the financial statements. These are cross-referenced
from the financial statements and are identified as audited.
What an audit of financial statements involves
Accordingly, of the Group's nine reporting units, we identified four
which, in our view, required an audit of their complete financial
information due to their size and risk characteristics. Specific audit
procedures on certain balances and transactions were performed
at the remaining reporting units. This, together with additional
We conducted our audit in accordance with International Standards
procedures performed at the Group level, gave us the evidence we
on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). An audit
needed for our opinion on the Group financial statements as
involves obtaining evidence about the amounts and disclosures
a whole.
in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement,
whether caused by fraud or error. This includes an assessment of:
Whether the accounting policies are appropriate to the Group’s
circumstances and have been consistently applied and
adequately disclosed;
Avon Rubber p.l.c. Annual Report and Accounts 2013
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Independent Auditors' Report
for the year ended 30 September 2013
Areas of particular audit focus
In preparing the financial statements, the Directors made a
number of subjective judgements, for example in respect of
significant accounting estimates that involved making assumptions
and considering future events that are inherently uncertain.
In our audit, we tested and examined information, using sampling
and other auditing techniques, to the extent we considered
necessary to provide a reasonable basis for us to draw conclusions.
We obtained audit evidence through testing the effectiveness of
controls, substantive procedures or a combination of both.
We primarily focused our work in these areas by assessing the
We considered the following areas to be those that required
Directors’ judgements against available evidence, forming our
particular focus in the current year. This is not a complete list of all
own judgements, and evaluating the disclosures in the financial
risks or areas of focus identified by our audit. We discussed these
statements.
areas of focus with the Audit Committee. Their report on those
matters that they considered to be significant issues in relation to
the financial statements is set out on page 50.
Area of focus
How the scope of our audit addressed the area of focus
Provisions for uncertain tax positions
As noted in the critical accounting judgements section
on page 80, provisions are made for any tax positions
which are uncertain in each relevant tax jurisdiction. We
focused on this area because there are material uncertain
tax positions and the directors have had to estimate the
likelihood of the future outcome in each case.
We requested and obtained correspondence with the relevant tax
authorities in each tax jurisdiction along with the filing positions which
we independently reassessed and reconciled to the balances in the
financial statements. We challenged management’s assumptions over
the likelihood of settlement and amount of provisions required against
uncertain tax positions.
Pension liabilities
We focussed on this area because of the magnitude
of the defined benefit pension liability in the overall
context of the Group Balance Sheet. Measurement of
the liabilities requires judgement by management in
choosing appropriate actuarial assumptions. Changes in
key assumptions can cause a material change in the value
of the pension deficit.
Revenue recognition
ISAs (UK & Ireland) presume there is a risk of fraud in
revenue recognition on every audit engagement.
We focused on judgements in the recognition of revenue
for certain contractual arrangements.
Risk of management override of internal controls
ISAs (UK & Ireland) require that we consider this.
We have considered and challenged the reasonableness of the key
actuarial assumptions (including the discount rate and inflation rate)
by comparing these to benchmark ranges based on market conditions
and available actuarial data. We assessed whether the methods used
to determine key assumptions were consistently applied and evaluated
the rationale for any changes in approach. We also obtained supporting
evidence for each of the key inputs into the overall pension deficit
calculation (such as census data and asset values).
We challenged the key assumptions and judgements made by
management in the calculation of certain contractual revenues, including
whether the Group was entitled to, and appropriately recognised,
revenue in line with their contractual obligations and revenue recognition
policy. We also tested material manual journal entries posted to revenue.
We tested material manual journal entries made by local and
Group management to determine that the adjustments made were
appropriate. We considered whether there was evidence of bias by
the directors in the significant accounting estimates and judgments
relevant to the financial statements. We also assessed the overall control
environment of the Group and interviewed senior management.
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Going Concern
Directors’ remuneration
Under the Listing Rules we are required to review the Directors’
Under the Companies Act 2006 we are required to report if, in our
statement, set out on page 48, in relation to going concern.
We have nothing to report having performed our review.
As noted in the Director’s statement the Directors have concluded
that it is appropriate to prepare the Group’s financial statements
using the going concern basis of accounting. The going concern
opinion, certain disclosures of directors’ remuneration specified
by law have not been made, and under the Listing Rules we are
required to review certain elements of the report to shareholders
by the Board on directors’ remuneration. We have no exceptions
to report arising from these responsibilities.
basis presumes that the Group has adequate resources to remain in
Corporate Governance Statement
operation, and that the Directors intend it to do so, for at least one
year from the date the financial statements were signed. As part of
our audit we have concluded that the directors’ use of the going
concern basis is appropriate.
However, because not all future events or conditions can be
predicted, these statements are not a guarantee as to the Group’s
ability to continue as a going concern.
Opinions on matters prescribed by the Companies
Act 2006
In our opinion:
The information given in the Strategic Report and the
Under the Companies Act 2006, we are required to report to you
if, in our opinion a corporate governance statement has not been
prepared by the Parent Company. We have no exceptions to report
arising from this responsibility.
Under the Listing Rules we are required to review the part of
the Corporate Governance Statement relating to the Company’s
compliance with nine provisions of the UK Corporate Governance
Code (‘the Code’). We have nothing to report having performed
our review.
On page 43 of the Annual Report, as required by the Code
Provision C.1.1, the Directors state that they consider the Annual
Report taken as a whole to be fair, balanced and understandable
Directors’ Report for the financial year for which the Group
and provides the information necessary for members to assess the
financial statements are prepared is consistent with the Group
Group’s performance, business model and strategy. On page 50,
financial statements; and
The information given in the Corporate Governance
Statement set out on pages 47 to 48 in the Annual Report
with respect to internal control and risk management
as required by C3.8 of the Code, the Audit Committee has set out
the significant issues that it considered in relation to the financial
statements, and how they were addressed. Under ISAs (UK &
Ireland) we are required to report to you if, in our opinion:
systems and about share capital structures is consistent with
The statement given by the Directors is materially inconsistent
the financial statements.
Other matters on which we are required to
report by exception
with our knowledge of the Group acquired in the course of
performing our audit; or
The section of the Annual Report describing the work of
the Audit Committee does not appropriately address matters
Adequacy of information and explanations received
communicated by us to the Audit Committee.
Under the Companies Act 2006 we are required to report to you
We have no exceptions to report arising from this responsibility.
if, in our opinion we have not received all the information and
explanations we require for our audit. We have no exceptions to
report arising from this responsibility.
Avon Rubber p.l.c. Annual Report and Accounts 2013
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Independent Auditors' Report
for the year ended 30 September 2013
Other information in the Annual Report
Other matter
Under ISAs (UK & Ireland), we are required to report to you if, in our
We have reported separately on the Parent Company financial
opinion, information in the Annual Report is:
statements of Avon Rubber p.l.c. for the year ended 30 September
2013 and on the information in the Directors’ Remuneration Report
that is described as having been audited.
Mark Ellis
Senior Statutory Auditor
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Bristol
20 November 2013
Materially inconsistent with the information in the audited
Group financial statements; or
Apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group acquired in the
course of performing our audit; or
Is otherwise misleading.
We have no exceptions to report arising from this responsibility.
Responsibilities for the financial statements and
the audit
Our responsibilities and those of the Directors
As explained more fully in the Statement of Directors’
responsibilities set out on page 42, the Directors are responsible
for the preparation of the Group financial statements and for being
satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the Group
financial statements in accordance with applicable law and ISAs (UK
& Ireland). Those standards require us to comply with the Auditing
Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and
only for the Company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other
purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to
whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
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Report on the Parent Company
financial statements
Our opinion
In our opinion the Parent Company financial statements:
Give a true and fair view of the state of the Parent Company’s
affairs as at 30 September 2013;
The reasonableness of significant accounting estimates
made by the Directors; and
The overall presentation of the financial statements.
In addition, we read all the financial and non-financial information
in the Annual Report and Accounts 2013 to identify material
inconsistencies with the audited Parent Company financial
statements and to identify any information that is apparently
Have been properly prepared in accordance with United
materially incorrect based on, or materially inconsistent with, the
Kingdom Generally Accepted Accounting Practice; and
knowledge acquired by us in the course of performing the audit.
Have been prepared in accordance with the requirements of
the Companies Act 2006.
This opinion is to be read in the context of what we say below.
What we have audited
If we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Opinions on matters prescribed by the Companies
Act 2006
The Parent Company financial statements, which are prepared by
In our opinion:
Avon Rubber p.l.c, comprise:
The Parent Company Balance Sheet as at 30 September 2013;
A summary of significant accounting policies and notes to
the Parent Company financial statements, which include other
explanatory information.
The information given in the Strategic Report and the
Directors’ Report for the financial year for which the Parent
Company financial statements are prepared is consistent with
the Parent Company financial statements.
The part of the Directors’ Remuneration Report to be audited
has been properly prepared in accordance with the Companies
The financial reporting framework that has been applied in their
Act 2006.
preparation comprises applicable law and United Kingdom
Accounting Standards (United Kingdom Generally Accepted
Accounting Practice).
In applying the financial reporting framework, the Directors have
made a number of subjective judgements, for example in respect
of significant accounting estimates. In making such estimates, they
have made assumptions and considered future events.
Certain disclosures required by the financial reporting framework
have been presented elsewhere in the Annual Report, rather than
in the notes to the financial statements. These are cross-referenced
Other matters on which we are required to
report by exception
Adequacy of accounting records and information and
explanations received
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
We have not received all the information and explanations
we require for our audit; or
from the financial statements and are identified as audited.
Adequate accounting records have not been kept by the
What an audit of financial statements involves
We conducted our audit in accordance with International Standards
of Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). An audit involves
obtaining evidence about the amounts and disclosures in the
financial statements sufficient to give reasonable assurance that the
Parent Company, or returns adequate for our audit have not
been received from branches not visited by us; or
The Parent Company financial statements and the part of
the Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns.
financial statements are free from material misstatement, whether
We have no exceptions to report arising from this responsibility.
caused by fraud or error. This includes an assessment of:
Whether the accounting policies are appropriate to the Parent
Company’s circumstances and have been consistently applied
and adequately disclosed;
Directors’ remuneration
Under the Companies Act 2006 we are required to report if, in our
opinion, certain disclosures of directors’ remuneration specified by
law have not been made. We have no exceptions to report arising
from this responsibility.
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Independent Auditors' Report continued
for the year ended 30 September 2013
Other information in the Annual Report
Other matter
Under ISAs (UK & Ireland) we are required to report to you if, in our
We have reported separately on the Group financial statements of
opinion, information in the Annual Report is:
Avon Rubber p.l.c. for the year ended 30 September 2013.
Materially inconsistent with the information in the audited
Parent Company financial statements; or
Apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Parent Company
acquired in the course of performing our audit; or
Is otherwise misleading.
Mark Ellis
Senior Statutory Auditor
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Bristol
We have no exceptions to report arising from this responsibility.
20 November 2013
Responsibilities for the financial statements and
the audit
Our responsibilities and those of the directors
As explained more fully in the Statement of Directors’
responsibilities set out on page 42, the directors are responsible for
the preparation of the Parent Company financial statements and
for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the Parent
Company financial statements in accordance with applicable law
and ISAs (UK & Ireland). Those standards require us to comply with
the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and
only for the Company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other
purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to
whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
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Parent Company Balance Sheet
at 30 September 2013
Note
2013
£’000
2013
£’000
2012
£’000
2012
£’000
Fixed Assets
Tangible assets
Investments
Current assets - debtors
Creditors - amounts falling due within one year
Net current assets
Total assets less current liabilities
4
5
7
8
53,304
5,412
Creditors - amounts falling due after more than one year
Borrowings
Provisions for liabilities
9
10
3,208
2,613
Net assets
Capital and reserves
Share capital
Share premium account
Capital redemption reserve
Profit and loss account
Total shareholders’ funds
11
12
12
12
13
788
75,540
76,328
47,892
124,220
5,821
118,399
30,723
34,708
500
52,468
118,399
52,715
2,195
8,478
2,993
505
78,407
78,912
50,520
129,432
11,471
117,961
30,723
34,708
500
52,030
117,961
These financial statements on pages 117 to 126 were approved by the Board of Directors on 20 November 2013 and were signed on its behalf by:
Peter Slabbert Andrew Lewis
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Parent Company Accounting Policies
for the year ended 30 September 2013
Accounting policies
The principal accounting policies adopted in the preparation of these
financial statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.
Basis of preparation
The accounts have been prepared on a going concern basis and in
accordance with the Companies Act 2006 and with all applicable
accounting standards in the United Kingdom (UK GAAP) under the
historical cost convention except for financial assets and liabilities
(including derivative instruments) held at fair value through profit and loss.
The Company does not publish its own cash flow statement, as its cash
flows are included within the consolidated cash flow statement of
the Group.
Foreign currencies
The Company’s functional currency is sterling. Foreign currency
transactions are recorded at the exchange rate ruling on the date of
transaction. Foreign exchange gains and losses resulting from the
settlement of such transactions, and from the retranslation at year end
exchange rates of monetary assets and liabilities denominated in foreign
currencies are recognised in the profit and loss account.
Deferred taxation
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date, where transactions
or events that result in an obligation to pay more tax in the future or a right
to pay less tax in the future have occurred at the balance sheet date.
A net deferred tax asset is considered as recoverable and therefore
recognised only when, on the basis of all available evidence, it can be
regarded as more likely than not that there will be suitable taxable profits
against which to recover carried forward tax losses and from which the
future reversal of underlying timing differences can be deducted.
Deferred tax is measured at the average tax rates that are expected to apply
in the periods in which the timing differences are expected to reverse,
based on tax rates and laws that have been enacted or substantively
enacted by the balance sheet date. Deferred tax is measured on an
undiscounted basis.
Impairment of fixed assets
Impairment reviews are undertaken if events or changes in circumstances
indicate that the carrying amount of the tangible fixed assets may not be
recoverable. If the carrying amount exceeds its recoverable amount (being
the higher of the value in use and the net realisable value) then the fixed
asset is written down accordingly. Where recoverable amounts are based
on value in use, discount rates of typically between 10% and 15% are used
depending on the risk attached to the underlying asset.
Investments in subsidiary undertakings
Investments in subsidiary undertakings are recorded at cost plus
incidental expenses less any provision for impairment. Impairment
reviews are performed by the Directors when there has been an
indication of potential impairment.
Leased assets
Operating lease rentals are charged against profit over the term of the
lease on a straight line basis.
Pensions
The Company operated a contributory defined benefits plan to provide
pension and death benefits for the employees of Avon Rubber p.l.c.
and its Group undertakings in the UK employed prior to 31 January
2003. The scheme is closed to new entrants and was closed to future
accrual of benefits from 1 October 2009. Scheme assets are measured
using market values while liabilities are measured using the projected
unit method. The multi-employer exemption has been taken and no
asset or provision has been reflected in the parent company’s balance
sheet for any surplus or deficit arising in respect of pension obligations.
The Company also provides pensions by contributing to defined
contribution schemes. The charge in the profit and loss account
reflects the contributions paid and payable to these schemes during
the period. Full disclosures of the UK pension schemes have been
provided in the Group Financial Statements.
Provisions for liabilities
Provisions are recognised when a liability exists at the year end that can
be measured reliably, there is an obligation to one or more third parties
as a result of past transactions or events and there is an obligation to
transfer economic benefits in settlement.
Provisions are calculated based on management’s best estimate of the
expenditure required to settle the present obligation at the balance
sheet date, after due consideration of the risks and uncertainties that
surround the underlying event. Provision for reorganisation costs are
made where a detailed plan has been approved and an expectation
has been raised in those affected by the plan that the Company will
carry out the reorganisation.
Where a leasehold property, or part thereof, is vacant, or sub-let under
terms such that the rental income is insufficient to meet all outgoings,
provision is made for the anticipated future shortfall up to termination
of the lease, or the termination payment, if smaller.
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Tangible fixed assets
Tangible fixed assets are stated at cost, less amounts provided for
Dividends
Final dividends are recognised as a liability in the Company’s financial
depreciation and any provision for impairment. Cost includes the original
statements in the period in which the dividends are approved by
purchase price of the asset and the costs attributable to bringing the
shareholders, while interim dividends are recognised in the period in
asset to its working condition for its intended use. Plant and machinery is
which the dividends are paid.
Share Capital
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of new shares or options are shown in equity
as a deduction, net of tax, from the proceeds.
Where the Company purchases its own share capital (treasury shares)
through Employee Share Ownership Trusts, the consideration paid,
including any directly attributable incremental costs (net of income
taxes), is deducted from shareholders’ funds until the shares are
cancelled, reissued or disposed of. Where such shares are subsequently
sold or reissued, any consideration received, net of any directly
attributable incremental transaction costs and the related income tax
effects, is included in shareholders’ funds.
depreciated using the straight line method at rates varying between 6%
and 50% per annum.
Related parties
The Company has taken advantage of the dispensation under FRS 8,
‘Related Party Disclosures’, not to disclose transactions or balances with
other Group companies.
Share based payment
The Company operates a number of equity-settled, share-based
compensation plans. The fair value of the employee services received in
exchange for the grant of the options is recognised as an expense. The total
amount to be expensed over the vesting period is determined by reference
to the fair value of the options granted, excluding the impact of any non-
market vesting conditions (for example, profitability and sales growth
targets). Non-market vesting conditions are included in assumptions
about the number of options that are expected to vest. At each balance
sheet date, the entity revises its estimates of the number of options that
are expected to vest. It recognises the impact of the revision to original
estimates, if any, in the profit and loss account. The proceeds received net
of any directly attributable transaction costs are credited to share capital
(nominal value) and share premium when the options are exercised.
Debtors
Debtors are initially recognised at fair value and subsequently measured at
amortised cost after deduction of provisions for impairment of receivables.
Trade creditors
Trade creditors are obligations to pay for goods or services that have been
acquired in the ordinary course of business from suppliers. Trade creditors
are classified as current liabilities if payment is due within one year or less
(or in the normal operating cycle of the business if longer). If not, they are
presented as amounts falling due after more than one year. They are initially
recognised at fair value and subsequently measured at amortised cost.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs
incurred and subsequently stated at amortised cost. Costs are expensed
using the effective interest method.
Financial instruments
As permitted by FRS 29, ‘Financial Instruments: Disclosures’ the Company
has elected not to present the disclosures required by FRS 29 in the notes
to its individual financial statements as full equivalent disclosures are
presented in the consolidated financial statements.
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Notes to the Parent Company Financial Statements
for the year ended 30 September 2013
1 PARENT COMPANY
As a consolidated statement of comprehensive income is published, a separate profit and loss account for the parent Company is omitted
from the accounts by virtue of section 408 of the Companies Act 2006. The parent company's profit for the financial year was £3,222,000
(2012: £21,613,000).
The audit fee in respect of the parent company was £30,000 (2012: £30,000).
2 DIVIDENDS
On 2 February 2013, the shareholders approved a final dividend of 2.4p per qualifying ordinary share in respect of the year ended 30 September
2012. This was paid on 15 March 2013 absorbing £708,000 of shareholders' funds.
On 22 April 2013, the Board of Directors declared an interim dividend of 1.44p (2012: 1.2p) per qualifying ordinary share in respect of the year
ended 30 September 2013. This was paid on 6 September 2013 absorbing £424,000 (2012: £353,000) of shareholders' funds.
After the balance sheet date the Board of Directors proposed a final dividend of 2.88p per qualifying ordinary share in respect of the year ended
30 September 2013, which will absorb an estimated £862,000 of shareholders' funds. Subject to shareholder approval, the dividend will be paid
on 21 March 2014 to shareholders on the register at the close of business on 21 February 2014. In accordance with accounting standards this
dividend has not been provided for and there are no corporation tax consequences.
3 EMPLOYEES
The total remuneration and associated costs during the year were:
Wages and salaries
Social security costs
Other pension costs
Share based payments
2013
£’000
1,535
299
205
113
2,152
2012
£’000
1,278
304
299
131
2,012
Detailed disclosures of Directors’ remuneration and share options are given on pages 52 to 71 of the Annual Report and Accounts.
The average monthly number of employees (including Executive Directors) during the year was 7 (2012: 8), all of whom were classified as
administrative staff.
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4 TANGIBLE ASSETS
Cost
At 1 October 2012
Additions at cost
Disposals
At 30 September 2013
Accumulated depreciation
At 1 October 2012
Charge for the year
Disposals
At 30 September 2013
Net book amount at 30 September 2013
Net book amount at 30 September 2012
5 INVESTMENTS
Cost and net book value
At 1 October 2012
Additions
Redemption of preference shares
At 30 September 2013
The investments consist of a 100% interest in the following subsidiaries:
Plant and machinery
£’000
905
325
(159)
1,071
400
42
(159)
283
788
505
Investment in subsidiaries
£’000
78,407
420
(3,287)
75,540
Principal
activity
Country in which
incorporated
Avon Polymer Products Limited
Avon Rubber Overseas Limited
Avon Rubber Pension Trust Limited
Avon Dairy Solutions (Shanghai) International Trading Company Ltd
The manufacture and distribution of rubber and polymer based products
Investment company
Pension Fund Trustee
Trading company
UK
UK
UK
China
Details of investments held by these subsidiaries are given in note 27 to the Group accounts on page 110.
The additions relate to additional capital contributions to Avon Polymer Products Limited and Avon Dairy Solutions (Shanghai) International
Trading Company Ltd.
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Notes to the Parent Company Financial Statements continued
for the year ended 30 September 2013
6 OTHER FINANCIAL COMMITMENTS
Capital expenditure committed
2013
£’000
4
2012
£’000
72
Capital expenditure committed represents the amount contracted at the end of the financial year for which no provision has been made in the
financial statements.
The annual commitments of the Company for non-cancellable operating leases are:
For leases expiring
Within 1 year
In 2-5 years
Over 5 years
The majority of leases of land and buildings are subject to rent reviews.
2013
Land and
buildings
£’000
2012
Land and
buildings
£’000
-
814
153
967
-
814
153
967
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7 DEBTORS
Amounts owed by Group undertakings
Other debtors
Prepayments
2013
£’000
51,627
1,001
676
53,304
2012
£’000
51,054
976
685
52,715
Other debtors include £956,000 (2012: £956,000) in respect of a rent deposit relating to the Company's premises in Melksham, Wiltshire, UK.
The remaining balance comprises sundry receivables which are not individually significant for disclosure.
8 CREDITORS – AMOUNTS FALLING DUE WITHIN ONE YEAR
Bank overdrafts
Amounts due to Group undertakings
Other creditors
Accruals
2013
£’000
-
3,051
486
1,875
5,412
2012
£’000
303
-
570
1,322
2,195
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Notes to the Parent Company Financial Statements continued
for the year ended 30 September 2013
9 BORROWINGS
Current
Bank overdrafts
Non-current
Bank loans
Total borrowings
The maturity profile of the Company's borrowings at the year end was as follows:
In 1 year or less or on demand
Between 1 and 2 years
Between 2 and 5 years
The carrying amounts of the Company's borrowings are denominated in the following currencies:
Sterling
US dollars
2013
£’000
-
3,208
3,208
2013
£’000
-
3,208
-
3,208
2013
£’000
1,347
1,861
3,208
2012
£’000
303
8,478
8,781
2012
£’000
303
-
8,478
8,781
2012
£’000
3,053
5,728
8,781
On 30 September 2010 the Company agreed new bank facilities with Barclays Bank. The facility comprises a revolving credit facility of £5m and
$15.5m and expires on 30 March 2015. The facility is priced on average at the appropriate currency LIBOR plus a margin of 1.75% and includes
financial covenants which are measured on a quarterly basis. The Company was in compliance with its financial covenants during 2013 and 2012.
The facility is secured by charges over all group assets and certain shares in group companies.
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10 PROVISIONS FOR LIABILITIES
Balance at 1 October 2011
Unwinding of discount
Payments in the year
Balance at 30 September 2012
Unwinding of discount
Payments in the year
Balance at 30 September 2013
Analysis of provisions
Non-current
Current
Property
obligations
£’000
3,208
329
(544)
2,993
220
(600)
2,613
2012
£’000
2,377
616
2,993
2013
£’000
1,997
616
2,613
Property obligations include an onerous lease provision of £1.8m in respect of unutilised space at the Company's leased Hampton Park
West facility in the UK. £0.6m of this provision is expected to be utilised in 2014, and the remaining £1.2m over the following three years.
Other property obligations relate to former premises of the Company which are subject to dilapidation risks and are expected to be utilised
within the next eight years. Property provisions are subject to uncertainty in respect of the utilisation, non-utilisation, or subletting of surplus
leasehold property and the final negotiated settlement of any dilapidation claims with landlords.
11 CALLED UP SHARE CAPITAL
Called up, allotted and fully paid ordinary shares of £1 each
30,723,292 (2012: 30,723,292) ordinary shares of £1 each
2013
£’000
2012
£’000
30,723
30,723
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Notes to the Parent Company Financial Statements continued
for the year ended 30 September 2013
12 SHARE PREMIUM ACCOUNT AND RESERVES
At 1 October 2011
Retained profit for the year
Movement in respect of employee share schemes
At 30 September 2012
Retained profit for the year
Movement in respect of employee share schemes
At 30 September 2013
Share
premium
account
£’000
34,708
-
-
34,708
-
-
34,708
Capital
redemption
reserve
£’000
500
-
-
500
-
-
500
Profit and
loss account
£’000
31,506
20,672
(148)
52,030
2,090
(1,652)
Total
£’000
66,714
20,672
(148)
87,238
2,090
(1,652)
52,468
87,676
13 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS
At the beginning of the year
Profit for the financial year attributable to equity shareholders
Dividends paid
Purchase of shares by the employee benefit trust
Movement in respect of employee share scheme
2013
£’000
117,961
3,222
(1,132)
(1,765)
113
2012
£’000
97,437
21,613
(941)
(279)
131
At 30 September
118,399
117,961
At 30 September 2013 1,242,111 (2012: 1,400,642) ordinary shares were held by a trust in respect of obligations under the 2002 Performance Share
Plan and the 2010 Performance Share Plan. Dividends on these shares have been waived. The market value of the shares held in the trust at 30
September 2013 was £6,832,000 (2012: £4,370,000). These shares are held at cost as treasury shares and deducted from shareholders' equity.
During the year the trust acquired 522,000 (2012: 90,000) shares at a cost of £1,765,000 (2012: £279,000). 680,070 (2012: 1,225,347) shares were
used to satisfy awards following the vesting of shares relating to the 2002 Performance Share Plan.
14 SHARE BASED PAYMENTS
The Company operates an equity-settled share-based performance share plan (PSP). Details of the Plan, awards granted and options
outstanding are set out in the remuneration report on page 68 and are incorporated by reference into these financial statements. The charge
against profit of £113,000 (2012: £131,000) in respect of PSP options granted after 7 November 2002 has been calculated using the Monte Carlo
pricing model and the following principal assumptions:
Weighted average fair value (£)
Key assumptions used:
Weighted average share price (£)
Volatility (%) (estimated based on historic experience)
Range of risk-free interest rate (%)
Range of expected option term (yrs)
Dividend yield (%)
2013
PSP
0.21
3.41
39
1.75
3.0
1.0
2012
PSP
0.28
3.00
39
2.47
3.0
1.0
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Five Year Record
for the year ended 30 September 2013
Revenue
124,851
106,636
107,600
117,574
100,900
2013
£’000
2012
£’000
2011
£’000
2010
£’000
2009
£’000
Operating profit before amortisation of acquired
intangibles and exceptional items
Amortisation of acquired intangibles and
exceptional items
Operating profit
Net finance costs and other finance expense
Profit before taxation
Taxation
Profit/(loss) for the year
Profit attributable to non-controlling interest
Profit/(loss) attributable to equity shareholders
Ordinary dividends
Retained profit/(loss)
Intangible assets and property, plant and equipment
Net assets classified as held for sale
Working capital
Provisions
Pension (liability)/asset
Deferred tax liability
Net borrowings
14,223
11,621
11,136
9,255
5,509
(800)
-
-
-
(2,535)
13,423
(229)
13,194
(3,566)
11,621
(616)
11,005
(3,176)
11,136
(924)
10,212
(3,094)
9,255
(2,121)
7,134
(2,808)
9,628
7,829
7,118
4,326
2,974
(1,112)
1,862
(2,004)
(142)
41
(183)
-
-
4,326
-
4,326
(183)
25,762
-
9,628
(4,373)
(7,134)
(2,517)
(12,589)
25,199
3,082
5,273
(6,649)
(9,152)
(1,833)
(13,656)
-
9,628
(1,132)
-
7,829
(941)
8,496
6,888
36,928
-
11,512
(2,613)
(11,279)
(2,977)
(10,875)
31,159
-
9,278
(2,993)
(2,238)
(2,584)
(8,725)
-
7,118
(706)
6,412
27,187
-
11,714
(3,208)
280
(2,985)
(11,816)
Net assets employed
20,696
23,897
21,172
8,777
2,264
Financed by:
Ordinary share capital
Reserves attributable to equity shareholders
Non-controlling interest in equity
30,723
(10,027)
-
30,723
(6,826)
-
30,723
(9,551)
-
30,723
(21,946)
-
Total equity
20,696
23,897
21,172
Basic earnings/(loss) per share
Adjusted basic earnings per share
Dividends per share paid in cash
32.7p
35.4p
3.84p
26.9p
26.9p
3.2p
25.2p
25.2p
2.5p
8,777
15.2p
15.2p
-
29,141
(26,916)
39
2,264
(0.6)p
8.3p
-
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Notice of Annual General Meeting
for the year ended 30 September 2013
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
If you are in any doubt as to what action you should take, you are recommended to
seek your own financial advice from your stockbroker or other independent adviser
authorised under the Financial Services and Markets Act 2000.
If you have sold or transferred all of your shares in Avon Rubber p.l.c., please forward this
document, together with the accompanying documents, as soon as possible either to
the purchaser or transferee or to the person who arranged the sale or transfer so they
can pass these documents to the person who now holds the shares.
Notice of Annual General Meeting for the year ended
30 September 2013
Notice is hereby given that the annual general meeting (‘AGM’) of
shareholders of Avon Rubber p.l.c. (the 'Company') will be held at
Hampton Park West, Semington Road, Melksham, Wiltshire on 6
February 2014 at 10.30 a.m. for the following purposes:-
Ordinary Business
To consider and, if thought fit, pass resolutions 1- 8 as Ordinary
Resolutions:
Resolution 1
To receive the Company's accounts and reports of the Directors and
the Auditors for the year ended 30 September 2013.
Resolution 2
To approve the Directors’ Remuneration Report for the year ended
30 September 2013.
Resolution 3
To approve the Remuneration Policy set out in the Directors’
Remuneration Report for the year ended 30 September 2013.
Resolution 4
To declare a final dividend of 2.88p per ordinary share as
recommended by the Directors.
Resolution 5
To re-appoint Peter Slabbert as Director who retires by rotation.
Resolution 6
To re-appoint Stella Pirie as Director who retires by rotation.
Resolution 7
To re-appoint PricewaterhouseCoopers LLP as auditors of the
Company, to hold office from the conclusion of this meeting until
the conclusion of the next general meeting at which accounts are
laid before the Company.
Resolution 8
To authorise the Directors to determine the auditors’ remuneration.
Special Business
To consider and if thought fit, pass resolution 9 as an Ordinary
Resolution and resolutions 10, 11 and 12 as Special Resolutions:
Resolution 9
That in accordance with section 551 of the Companies Act 2006 (the
‘Act’) the Directors be generally and unconditionally authorised to
allot Relevant Securities (as defined in the notes to this resolution)
comprising equity securities (as defined by section 560 of the Act)
up to an aggregate nominal amount of £10,241,097 but subject to
such exclusions or other arrangements as the Directors may deem
necessary or expedient in relation to treasury shares, fractional
entitlements, record dates, legal or practical problems in or under
the laws of any territory or the requirements of any regulatory body
or stock exchange, provided that this authority shall, unless renewed,
varied or revoked by the Company, expire on the date 15 months
after the date of this Resolution or, if earlier, the date of the next
annual general meeting of the Company save that the Company
may, before such expiry, make offers or agreements which would or
might require Relevant Securities to be allotted and the Directors
may allot Relevant Securities in pursuance of such offer or agreement
notwithstanding that the authority conferred by this resolution
has expired.
This resolution revokes and replaces all unexercised authorities
previously granted to the Directors to allot Relevant Securities
but without prejudice to any allotment of shares or grant of rights
already made, offered or agreed to be made pursuant to
such authorities.
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Resolution 10
That, subject to the passing of Resolution 9, the Directors be given
the general power to allot equity securities (as defined by section
560 of the Act) for cash, either pursuant to the authority conferred by
Resolution 9 or by way of a sale of treasury shares, as if section 561(1)
of the Act did not apply to any such allotment, provided that this
power shall:
(d) this authority shall expire on the date 15 months after the date
of this Resolution or, if earlier, the date of the next annual general
meeting of the Company (except in relation to the purchase of
shares the contract for which was concluded before the expiry
of such authority and which might be executed wholly or partly
after such expiry) unless such authority is renewed prior to
such time.
Resolution 12
That a general meeting of the Company (other than an annual
general meeting), may be called on not less than 14 clear
days' notice.
By order of the Board
Miles Ingrey-Counter
Company Secretary
20 November 2013
(a) be limited to the allotment of equity securities up to an
aggregate nominal amount of £1,536,164; and
(b) expire on the date 15 months after the date of this Resolution
or, if earlier, the date of the next annual general meeting of the
Company (unless renewed, varied or revoked by the Company
prior to or on that date) save that the Company may, before
such expiry make an offer or agreement which would or might
require Relevant Securities to be allotted after such expiry and
the Directors may allot Relevant Securities in pursuance of any
such offer or agreement notwithstanding that the power
conferred by this resolution has expired.
Resolution 11
That the Company be and is hereby unconditionally and generally
authorised for the purpose of section 701 of the Act to make market
purchases (within the meaning of 693(4) of the Act) of ordinary
shares of £1 each in the capital of the Company provided that:
(a) the maximum number of shares which may be purchased
is 4,608,492;
(b) the minimum price which may be paid for each share is 1p;
(c) the maximum price which may be paid for a share is an amount
equal to 105% (one hundred and five percent) of the average of
the middle market quotations of the Company's ordinary shares
as derived from the Official List of the London Stock Exchange
for the 5 (five) business days immediately preceding the day on
which such share is contracted to be purchased; and
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Notice of Annual General Meeting continued
for the year ended 30 September 2013
Notes
(1) Information regarding the annual general meeting (the 'AGM')
including the information required by section 311A of the Act,
is available at www.avon-rubber.com.
(2) A form of proxy is enclosed for use by shareholders and, if
appropriate, must be deposited with the Company’s registrars,
Capita Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent
BR3 4TU not less than 48 hours before the time of the AGM.
Appointment of a proxy does not preclude a shareholder from
attending the AGM and voting in person.
(3) A member entitled to attend and vote at the AGM may appoint
one or more proxies (who need not be a member of the
Company) to attend and to speak and to vote on his or her behalf
whether by show of hands or on a poll. A member can appoint
more than one proxy in relation to the meeting, provided that
each proxy is appointed to exercise the rights attaching to
different shares held by him. In order to be valid an appointment
of proxy (together with any authority under which it is executed
or a copy of the authority certified notarially) must be returned by
one of the following methods:
(i)
in hard copy form by post, by courier or by hand to the
Company’s registrars, Capita Asset Services, PXS,
34 Beckenham Road, Beckenham, Kent BR3 4TU;
(ii) via www.capitashareportal.com; or
(iii) in the case of CREST members, by utilising the CREST
electronic proxy appointment service in accordance with the
procedures set out below and in each case must be received
by the Company not less than 48 hours before the time of
the meeting.
CREST members who wish to appoint a proxy or proxies through the
CREST electronic proxy appointment service may do so for the AGM
and any adjournment thereof by using the procedures described
in the CREST Manual. CREST personal members or other CREST
sponsored members, and those CREST members who have appointed
a voting service provider(s) should refer to their CREST sponsor or
voting service provider(s), who will be able to take the appropriate
action on their behalf.
In order for a proxy appointment, or instruction, made by means of
CREST to be valid, the appropriate CREST message (a ‘CREST Proxy
Instruction’) must be properly authenticated in accordance with
Euroclear UK & Ireland Limited’s (‘EUI’) specifications and must contain
the information required for such instructions, as described in the
CREST Manual. Regardless of whether it relates to the appointment
of a proxy or to an amendment to the instruction given to a
previously appointed proxy the message must, in order to be valid,
be transmitted so as to be received by the issuer’s agent (ID RA10) by
the latest time(s) for receipt of proxy appointments specified in this
Notice. For this purpose, the time of receipt will be taken to be the
time (as determined by the timestamp applied to the message by
the CREST Applications Host) from which the issuer’s agent is able to
retrieve the message by enquiry to CREST in the manner prescribed
by CREST. The Company may treat as invalid a CREST Proxy Instruction
in the circumstances set out in Regulation 35(5) of the Uncertificated
Securities Regulations 2001. CREST members and where applicable,
their CREST sponsors or voting service providers should note that EUI
does not make available special procedures in CREST for any particular
messages. Normal system timings and limitations will therefore apply
in relation to the input of CREST Proxy instructions. It is therefore
the responsibility of the CREST member concerned to take (or, if the
CREST member is a CREST personal member or sponsored member
or has appointed a voting service provider(s), to procure that his or
her CREST sponsor or voting service provider(s) take(s)) such action as
shall be necessary to ensure that a message is transmitted by means
of the CREST system by any particular time. In this connection, CREST
members and, where applicable, their CREST sponsors or voting
service providers are referred, in particular, to those sections of the
CREST Manual concerning practical limitations of the CREST system
and timings.
(4) The right to appoint a proxy does not apply to persons whose
shares are held on their behalf by another person and who
have been nominated to receive communication from the
Company in accordance with Section 146 of the Act (‘nominated
persons’). Nominated persons may have a right under an
agreement with the registered shareholder who holds shares on
their behalf to be appointed (or to have someone else appointed)
as a proxy. Alternatively, if nominated persons do not have
such a right, or do not wish to exercise it, they may have a right
under such an agreement to give instructions to the person
holding the shares as to the exercise of voting rights.
(5) In order to be able to attend and vote at the AGM or any
adjourned meeting (and also for the purpose of calculating how
many votes a person may cast), a person must have his/her name
entered on the register of members of the Company by 6.00
pm on 4 February 2014 (or 6.00 pm on the date two days before
any adjourned meeting, ignoring non-working days). Changes
to entries on the register of members after this time shall
be disregarded in determining the rights of any person to
attend or vote at the meeting.
(6) To change your proxy instructions simply submit a new proxy
appointment using the methods set out above. Note that the
cut- off time for receipt of proxy appointments (see above)
also applies in relation to amended instructions; any amended
proxy appointment received after the relevant cut-off time will
be disregarded.
(7) A corporation which is a member can appoint one or more
corporate representatives who may exercise, on its behalf, all
its powers as a member provided that no more than one
corporate representative exercises powers over the same share.
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(8) Under section 319A of the Act, the Company must answer any
(13) The following documents are available for inspection at the
question you ask relating to the business being dealt with at the
meeting unless:
(i) answering the question would interfere unduly with the
preparation for the meeting or involve the disclosure of
confidential information;
(ii) the answer has already been given on a website in the form of
an answer to a question; or
(iii) it is undesirable in the interests of the Company or the good
order of the meeting that the question be answered.
registered office of the Company during normal business hours
on any weekday and will be available at the place of the AGM from
15 minutes before the meeting until it ends:
(i) the Register of Directors’ interests showing any transactions
of Directors and their family interests in the share capital of
the Company; and
(ii) copies of all contracts of service under which the Executive
Directors of the Company are employed by the Company or
any of its subsidiaries; and
(iii) copies of the letters of appointment of the Non-Executive
(9) Appointment of proxy by joint members
Directors of the Company.
In the case of joint holders, where more than one of the joint
holders purports to appoint a proxy, only the appointment
submitted by the most senior holder will be accepted. Seniority
is determined by the order in which the names of the joint holders
appear in the Company's register of members in respect of the
joint holding (the first-named being the most senior).
(10) Termination of proxy appointments
In order to revoke a proxy instruction you will need to inform
the Company by sending a signed hard copy notice clearly
stating your intention to revoke your proxy appointment to
the Company’s registrars, Capita Asset Services, PXS,
34 Beckenham Road, Beckenham, Kent BR3 4TU. In the case of a
member which is a company, the revocation notice must be
executed under its common seal or signed on its behalf by an
officer of the company or an attorney for the company. Any power
of attorney or any other authority under which the revocation
notice is signed (or a duly certified copy of such power or
authority) must be included with the revocation notice.
In either case, the revocation notice must be received by the
Company’s registrars, Capita Asset Services, PXS, 34 Beckenham
Road, Beckenham, Kent BR3 4TU no later than 4 February 2014
at 10.30 am.
(ii)
(14) Please note that the Company takes all reasonable precautions
to ensure no viruses are present in any electronic communication
it sends out but the Company cannot accept responsibility
for loss or damage arising from the opening or use of any email
or attachments from the Company and recommends that the
members subject all messages to virus checking procedures prior
to use. Any electronic communication received by the Company,
including the lodgement of an electronic proxy form, that is found
to contain any virus will not be accepted.
(15) Pursuant to Chapter 5 of Part 16 of the Act (sections 527 to
531), where requested by a member or members meeting the
qualification criteria set out below, the Company must publish on
its website, a statement setting out any matter that such members
propose to raise at the AGM relating to the audit of the Company's
accounts (including the auditor's report and the conduct of the
audit) that are to be laid before the AGM. Where the Company is
required to publish such a statement on its website:
(i)
it may not require the members making the request to
pay any expenses incurred by the Company in complying with
the request;
it must forward the statement to the Company's auditors no
later than the time the statement is made available on the
Company's website; and
If you attempt to revoke your proxy appointment but the
revocation is received after the time specified then, subject to
the paragraph directly below, your proxy appointment will
remain valid.
Appointment of a proxy does not preclude you from attending
the AGM and voting in person. If you have appointed a proxy
and attend the AGM in person, your proxy appointment will
automatically be terminated.
(iii) the statement may be dealt with as part of the business of
the meeting.
The request:
(i) may be in hard copy form or in electronic form (see below);
(ii) either set out the statement in full or, if supporting a
statement sent by another member, clearly identify the
statement which is being supported;
(iii) must be authenticated by the person or persons making it
(see below); and
(11) Biographical details of the Directors are shown on page 39 of
(iv) must be received by the Company at least one week before
the Annual Report.
the AGM.
(12) The issued share capital of the Company as at 20 November
2013 was 30,723,292 ordinary shares, carrying one vote each and
representing the total number of voting rights in the Company.
In order to be able to exercise the members' right to require the
Company to publish audit concerns the relevant request must be
made by:
(i) a member or members having a right to vote at the AGM and
holding at least 5% of total voting rights of the Company; or
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Notice of Annual General Meeting continued
for the year ended 30 September 2013
(ii) at least 100 members having a right to vote at the AGM and
Explanatory notes
holding, on average, at least £100 of paid up share capital each
and may be made by:
- Hard copy request which is signed by the member or
members concerned, stating their full names and addresses
and is sent to Hampton Park West, Semington Road,
Melksham, Wiltshire, SN12 6NB.
-
Request which is signed by the member or members
concerned, stating their full names and addresses and is
sent by fax to 01225 896898 marked for the attention of
the Company Secretary.
Request which states the full names and addresses of
the member or members concerned, sent by email to
-
miles.ingrey-counter@avon-rubber.com.
(16) Pursuant to section 338 of the Act, a members or members
meeting the qualification criteria set out below, may, subject
to conditions, require the Company to give to members notice
of a resolution which may properly be moved and is intended
to be moved at that meeting.
The conditions are that:
(i) The resolution must not, if passed, be ineffective (whether
by reason of inconsistency with any enactment or the
Company's constitution or otherwise).
(ii) The resolution must not be defamatory of any person,
frivolous or vexatious.
The Company is required to give notice of a resolution once it
has received requests that it do so from:
(i) a member or members having a right to vote at the AGM and
holding at least 5% of total voting rights of the Company; or
(ii) at least 100 members having a right to vote at the AGM and
holding, on average, at least £100 of paid up share capital each
and may be made by:
- Hard copy request which is signed by the member or
members concerned, stating their full names and addresses
and is sent to Hampton Park West, Semington Road,
Melksham, Wiltshire, SN12 6NB.
-
Request which is signed by the member or members
concerned, stating their full names and addresses and is
sent by fax to 01225 896898 marked for the attention of
the Company Secretary.
Request which states the full names and addresses of
the member or members concerned, sent by email to
-
miles.ingrey-counter@avon-rubber.com.
The request:
(i) must identify the resolution of which notice is to be
given by either setting out the resolution in full or, if
supporting a resolution sent by another member, clearly
identifying the resolution which is being supported; and
(ii) must be received by the Company not later than 6 weeks
before the date of the meeting.
Resolution 1 – Report and Accounts
The Directors are required by law to present to the AGM the accounts,
and the reports of the Directors and Auditors, for the year ended 30
September 2013. These are contained in the Company’s 2013 Annual
Report.
Resolutions 2 & 3 – Directors’ Remuneration Report and
Remuneration Policy
These resolutions seek shareholder approval for the Directors’
Remuneration Report and the forward looking Remuneration Policy.
New regulations which came into force in the UK on 1 October 2013
require the Company to offer an advisory vote on the implementation
of the Company’s existing remuneration report and a separate binding
vote on the Company’s forward looking remuneration policy.
Resolution 2 seeks approval for the Directors' Remuneration Report for
the year ended 30 September 2013. This is contained on pages 52 to
71 of the Annual Report.
Resolution 3 requests approval of the Company’s forward looking
Remuneration Policy, contained on pages 54 to 64 of the Annual
Report.
Resolution 4 – Declaration of a dividend
A final dividend can only be paid after the shareholders have approved
it at a general meeting. If the meeting approves this Resolution, a final
dividend in respect of the financial year ended 30 September 2013 of
2.88p will be paid.
Resolutions 5&6 – Election and re-election of Directors
Peter Slabbert retires by rotation and, being eligible, offers himself for
re-election.
Stella Pirie retires by rotation and, being eligible, offers herself for
re-election.
Biography details of the Directors can be found on page 39 of the
Annual Report.
Resolutions 7&8 – Re-appointment and remuneration of Auditor
Resolutions 7&8 propose the re-appointment of
PricewaterhouseCoopers LLP as Auditor of the Company and authorise
the Directors to set their remuneration.
Resolution 9 – Directors’ authority to allot
This Resolution deals with the Directors’ authority to allot Relevant
Securities in accordance with section 551 of the Companies Act
2006. The authority granted at the last annual general meeting is
due to expire at the conclusion of this year’s AGM and accordingly
it is proposed to renew this authority. This Resolution complies
with guidance issued by the Association of British Insurers and will,
if passed, authorise the Directors to allot Relevant Securities up
to a maximum nominal amount of £10,241,097, which is equal to
approximately one-third of the issued share capital of the Company as
at 20 November 2013.
The Directors have no preset intention of exercising this authority
except in connection with the Company's employee share schemes.
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The authority granted by this resolution will expire on the date 15
months after the date of this Resolution or, if earlier, the date of the
next annual general meeting of the Company.
the date of this Resolution and the Company's next annual general
meeting.
In this resolution, Relevant Securities means:
(i) shares in the Company other than shares allotted pursuant to:
-an employee share scheme (as defined by section 1166 of the Act);
-a right to subscribe for shares in the Company where the grant of the
right itself constituted a Relevant Security; or
- a right to convert securities into shares in the Company where the
grant of the right itself constituted a Relevant Security; and
(ii) any right to subscribe for or to convert any security into shares in
the Company other than rights to subscribe for or convert any security
into shares allotted pursuant to an employee share scheme (as defined
by section 1166 of the Act). References to the allotment of Relevant
Securities in this resolution include the grant of such rights.
Resolution 10 – Disapplication of pre-emption rights
This Resolution will, if passed give the Directors power, pursuant to
the authority to allot granted by Resolution 9, to allot equity securities
(as defined by section 560 of the Companies Act 2006) or sell treasury
shares for cash without first offering them to existing shareholders
in proportion to their existing holdings up to a maximum nominal
amount of £1,536,164 which represents approximately 5% of the
Company's issued share capital as at 20 November 2013 and renews
the authority given at the annual general meeting in 2013.
In compliance with the guidelines issued by the Pre-Emption Group,
the Directors will ensure that, other than in relation to a rights issue to
which rights of pre-emption apply, no more than 7.5% of the issued
ordinary shares will be allotted for cash on a non pre-emptive basis
over a rolling three year period unless shareholders have been notified
and consulted in advance. No shares have been issued under this
authority during the last 3 years.
This Resolution complies with relevant guidance issued by the Pre-
Emption Group and guidance issued by the Association of British
Insurers (ABI).
The power granted by this Resolution will expire on the date 15
months after the date of this Resolution or, if earlier, the date of the
next annual general meeting of the company.
Resolution 11 – Authority to purchase own shares
This resolution seeks authority for the Company to make market
purchases of its own shares and is proposed as a special resolution.
If passed, the resolution gives authority for the Company to purchase
up to 4,608,492 ordinary shares of £1 each, representing just under
15 per cent of the Company's issued ordinary share capital as at 20
November 2013.
The resolution specifies the minimum and maximum prices which
may be paid for any ordinary shares purchased under this authority.
The authority will expire on the earlier of the date 15 months after
As of 20 November 2013 there were options to subscribe outstanding
over 1,147,363 ordinary shares, representing 3.73% of the Company’s
ordinary issued share capital. If the authority given by Resolution 11
were to be fully exercised, these options would represent 4.39%.
The Company’s ordinary issued share capital after cancellation of the
re-purchased shares. As of 20 November 2013 there were no warrants
outstanding over ordinary shares.
The Directors intend to exercise the power given by Resolution 11
only when, in the light of market conditions prevailing at the time,
they believe that the effect of such purchases will be to increase
the underlying value per share having regard to the intent of the
guidelines of institutional investors and that such purchases are
in the best interests of shareholders generally. Other investment
opportunities, appropriate gearing levels and the overall position of
the Company will be taken into account before deciding upon this
course of action. Any shares purchased in this way will be cancelled
and the number of shares in issue will be reduced accordingly.
Bonus and incentive scheme targets for executive Directors would
not be affected by any enhancement of earnings per share following a
share re-purchase.
In the opinion of the Directors, Resolution No. 11 is in the best interests
of the shareholders as a whole and the Directors intend to seek
renewal of these powers at subsequent annual general meetings.
Resolution 12 – Notice of Meeting
Resolution 12 is a resolution to allow the Company to hold general
meetings (other than annual general meetings) on 14 days' notice.
Before the introduction of the Companies (Shareholders' Rights)
Regulations in August 2009, the Company was able to call general
meetings (other than annual general meetings) on 14 clear days’
notice. One of the amendments that the Companies (Shareholders'
Rights) Regulations 2009 made to the Act was to increase the
minimum notice period for listed company general meetings to 21
days, but with an ability for companies to reduce this period back to
14 days (other than for annual general meetings) provided that: (i) the
Company offers facilities for shareholders to vote by electronic means;
and (ii) there is an annual resolution of shareholders approving the
reduction in the minimum notice period from 21 days to 14 days.
Resolution 12 is therefore proposed as a special resolution to approve
14 days as the minimum period of notice for all general meetings of
the Company other than annual general meetings. The approval will
be effective until the Company's next annual general meeting, when
it is intended that the approval be renewed. The Company will use this
notice period when permitted to do so in accordance with the Act
and when the Directors consider it appropriate to do so.
Avon Rubber p.l.c. Annual Report and Accounts 2013
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Notes
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R E P O R T
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Shareholder Information
Shareholder
On 11 November 2013 the Company had 1,707 shareholders, of which
992 (58%) had 1,000 shares or less.
Financial calendar
Interim results announced in May and final results in November.
In respect of the year ended 30 September 2013 the annual general
meeting will be held on 6 February 2014 at Hampton Park West,
Semington Road, Melksham, Wiltshire, SN12 6NB, England.
Corporate information
Registered office
Hampton Park West, Semington Road, Melksham, Wiltshire,
SN12 6NB, England.
Registered
In England and Wales No 32965
VAT No. GB 137 575 643
Board of Directors
David Evans (Chairman)
Peter Slabbert (Chief Executive)
Andrew Lewis (Group Finance Director)
Stella Pirie OBE (Non-Executive Director)
Richard Wood (Non-Executive Director)
Company secretary
Miles Ingrey-Counter
Independent auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Registrars & transfer office
Capita Asset Services, The Registry, 34 Beckenham Road,
Beckenham, BR3 4TU.
Tel: 0871 664 0300
(calls cost 10p per minute plus network extras,
lines are open 8.30am–5.30pm Mon-Fri)
Brokers
Arden Partners plc
Solicitors
TLT LLP
Principal bankers
Barclays Bank PLC
Comerica Inc.
Corporate financial advisor
Arden Partners plc
Corporate website
www.avon-rubber.com
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R
U
O
N
U
R
E
W
W
O
H
D
E
M
R
O
F
R
E
P
E
W
W
O
H
N
O
I
T
A
M
R
O
F
N
I
R
E
D
L
O
H
E
R
A
H
S
Avon Rubber p.l.c. Annual Report and Accounts 2013
IBC
delivering our strategy
C o r p o r a t e H e a d q u a r t e r s
H a m p t o n P a r k W e s t • S e m i n g t o n R o a d
M e l k s h a m • W i l t s h i r e • S N 1 2 6 N B • E n g l a n d
T e l : + 4 4 ( 0 ) 1 2 2 5 8 9 6 8 0 0
F a x : + 4 4 ( 0 ) 1 2 2 5 8 9 6 8 9 8
E - M a i l : e n q u i r i e s @ a v o n - r u b b e r . c o m
w w w . a v o n - r u b b e r . c o m