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A N I N T R O D U C T I O N T O A V O N R U B B E R p . l . c .
The Group has transformed itself over recent years into an
innovative design and engineering group specialising in two core
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 employees to realise
their highest potential.
Avon Protection is the recognised global market leader in
advanced Chemical, Biological, Radiological and Nuclear (CBRN)
respiratory protection systems technology 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 Personal Protective Equipment (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 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
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 dairy 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
improve, so does our global presence.
D E L I V E R I N G P E R F O R M A N C E A N D P O T E N T I A L
“2014 has been an excellent year reflecting the strategic decisions made over
the last three years to invest in innovative new products and technologies while
expanding our international markets. This strategy will continue to drive growth
in the years ahead.”
Peter Slabbert, Chief Executive
Our determination to adhere to our consistent strategy and
execute it relentlessly has delivered exceptionally strong growth
and excellent cash generation in 2014 and reflects the increasing
strength and confidence of our teams from the Board all the way
through to the shop floor. The investments we have made are
delivering sustained growth and improving returns for the Group.
In our Protection & Defence business, we have leveraged our
prime contractor status with the US Department of Defense (DOD)
to deliver growth in 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. This year we have obtained
key new product approvals and will further expand our product
capability next year as we target all air, land and sea based
personnel. We also see opportunities in niche industrial markets for
our unique capabilities.
Our Dairy business under the Milkrite brand is the leading global
supplier of consumable milking rubberware. We are postioning
ourselves as experts in the milk harvesting process through product
development and expansion and have successfully introduced
a service offering as well. We expect long-term growth in the
emerging markets to be significant and our Chinese distribution
business will be replicated in Brazil in the coming year to ensure
we are positioned to benefit from growth in these regions.
We will continue to consistently implement our strategy as we
remain convinced of the long-term growth potential for both
our Protection & Defence and Dairy businesses. I believe that our
ability to deliver further shareholder value remains considerable.
Peter Slabbert
Chief Executive
19 November 2014
IFC
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
G R O U P
Revenue
£124.8m
Operating Profit*
£17.0m £2.8m
P R O T E C T I O N & D E F E N C E
Revenue
£92.8m
Operating Profit*
£13.6m £2.6m
D A I R Y
Revenue
£32.0m
Operating Profit
£5.7m
£0.5m
Operating Profit* (£m)
Operating Profit* (£m)
Operating Profit* (£m)
£17.0m
£14.2m
£11.6m
£11.1m
£9.3m
£5.5m
£13.6m
£11.0m
£7.5m £7.5m
£6.5m
£4.5m
£5.5m
£6.0m
£5.2m
£5.7m
£4.6m
£3.0m
09 10
11
12
13
14
09 10
11
12
13
14
09 10
11
12
13
14
* = before exceptional items, defined benefit
pension scheme costs and the amortisation of
acquired intangibles, see page 19 for a reconciliation
to non-adjusted measures
C O N T E N T S
O V E R V I E W O F T H E Y E A R
H O W W E P E R F O R M E D
IFC
01 - 07
08 - 10
11 - 33
Delivering performance & potential
74 - 112
Financial results
Who we are, where we are and what we do
113 - 120
Independent Auditors' Reports
Chairman's Statement
Strategic Report
121 - 130 Parent Company Financial Statements
131
Five year record
34 - 40
Environmental and Corporate Social Responsibility
H O W W E R U N O U R B U S I N E S S
S H A R E H O L D E R I N F O R M AT I O N
41
42 - 45
46 - 50
51
52 - 53
54 - 73
Board of Directors
Directors' Report
Corporate Governance
Nominations Committee Report
Audit Committee Report
Remuneration Report
132 - 137 Notice of Annual General Meeting
IBC
Shareholder information
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
01
W O R L D C L A S S I N N O V AT I O N I N P R O T E C T I O N & D E F E N C E
“Avon’s high specification products continue to gain widespread support as
users experience their superior design and comfort. Our depth of capability
and development positions Avon as the global market leader of respiratory
protection systems technology.”
Peter Slabbert, CEO
“OVER 2,000,000 FIRST RESPONDERS
WORLDWIDE ARE PROTECTED BY AVON
RESPIRATORS EVERY SINGLE DAY”
Delivering in new markets
We are proud to have protected first responders in more
than 64 countries
Delivering new products and services
Project Fusion has brought together the talent of our design
and engineering teams to develop a new and unique modular
personal protection system offering multiple functionality
Combined or singular use of modular products deliver
enhanced protection that we expect to expand our reach
into the military, law enforcement and first responder
protective equipment markets
In the Middle East we continue to grow in new markets as new
customers experience our advanced products
We have delivered:
We have expanded into the tactical dive market with
advanced rebreather technology and complementary services
We now provide total respiratory protection solutions for land,
air and water based armed forces
Our rapidly growing global customer base 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 continued our expansion into South America
Delivering brand recognition
Our product management team continues to deliver
innovative new industry firsts in every product category
Our brand loyalty is increasing through customer satisfaction
and the commitment of our sales and marketing teams
AvonAir, our new National Institute for Occupational
Safety and Health (NIOSH) approved range of Powered Air
Purifying Respirators (PAPRs)
Filter technology developments covering a wider variety of
threat scenarios for global military and law enforcement users
Deltair, our self-contained breathing apparatus (SCBA)
innovation which received NIOSH and 2013 US National
Fire Protection Association (NFPA) standard certification
and approvals
EEBD, our NIOSH-approved Emergency Escape
Breathing Device
DEKRA Gmbh certifications for the CE-approved HM50
CBRN respirator and the HMK150 Helmet Mask Kombination
System for riot control
Land, air and sea capability. Our development teams are
also expanding our respiratory product offering into the
aerospace market (through an aircrew version of our
existing M53 respirator) and the military diving market
through a range of rebreather and monitoring technologies
02
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
“Becoming the leading fire
equipment authority is our mission.“
John Kime, Protection & Defence COO
Protection innovation delivering results
Avon Protection has delivered innovative industry firsts time after
time to each of its core markets and with Deltair, our new SCBA for the
firefighting community, we have delivered an award-winning product.
Deltair is the most innovative SCBA available on the market, designed
by firefighters for firefighters. Deltair received ultimate recognition with
the GOLD Industrial Designers Society of America, International Design
Excellence Award (IDEA) for research relating to the Deltair product
development as well as being awarded The People’s Choice Award;
ultimate recognition for its design excellence.
Deltair is the result of extensive investment in development as part of
Project Fusion, designed to meet the critical needs of the fire service
and to meet and exceed the new NFPA 1981, 1982: 2013 Standard
on Open-Circuit Self-Contained Breathing Apparatus (SCBA) for
Emergency Services.
Avon’s Deltair design team developed a product to provide the
features and benefits that are most important to the firefighting
community, using a completely new platform, unlike other available
products which are simply existing and dated models adjusted to meet
the new standards.
Fully approved for use in a CBRN environment, the revolutionary
Deltair offers superior air management, single power supply, clearer
communications and optimal weight distribution for firefighters and
other first responder teams. The ergonomic design of this advanced
SCBA evenly distributes the weight of the cylinder on the firefighter’s
hips, which alleviates pressure on the back and shoulders, minimizes
the risk of fatigue and increases a firefighter’s ability to operate in
challenging environments. The low-profile mask design provides
the greatest field of vision in the marketplace, which is critical when
firefighters are navigating dark, smoky environments.
Intelligent air management provides more time on the target to
perform critical tasks.
Avon has advanced the development of SCBA equipment with the
introduction of new technologies and by leveraging our proven military
pedigree, whilst through intelligent design we have maintained the
simplicity and reliability demanded by today’s firefighter.
“Avon Protection does what it says it will
do. Avon Protection helps firefighters do
their jobs effectively and with confidence.”
Dean Holland, retired Saginaw, Michigan fire chief
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
03
M I L K R I T E I N N O V AT I O N AT T H E H E A R T O F M I L K I N G
“Our goal is to permanently improve on farm milking conditions,
through our products, support and advice.”
“We believe in thinking differently.”
“We focus on the milk extraction process and overall animal health,
with the aim of more efficient milking for both the animal and the milker.”
Paul McDonald, Avon Dairy Solutions Managing Director
Delivering in new markets
Delivering new products and services
After entering China in 2012, our Shanghai sales
Milkrite products are the most technically advanced in
and distribution facility is now well established and
provides a strong platform for the future as we grow in
the emerging markets
This year we are pleased to report the establishment of
a similar distribution facility for South America in Brazil
Over the next 12 months we will continue our focus
on growth in China and the Far East, North America,
South America and Western Europe. We expect these
markets to provide continued growth opportunities
for the future
Delivering brand recognition
A commitment to sales and marketing has strengthened
the Milkrite brand and enables us to focus on increasing
brand loyalty through customer satisfaction
As part of our global positioning strategy we continue
to invest in external communications through trade
exhibitions and digital communication channels
the market. We take pride in providing quality products that
milk better and keep animals healthier
Our Cluster Exchange programme is well established
in the US with distribution on both the East and West coast.
This exciting programme has also gained considerable
momentum in Continental Europe over the past year with
a total take-up covering over 256,000 cows. Cluster Exchange
is a complete solution provider, saving farmers time on
low-value tasks, securing our relationship with our customers
and managing the change cycle
We believe our advanced range of liners, milk tubing
and other essential components of the milking process are
the very best on the market, and our customers tell us the
same, but we are constantly looking at ways we can further
improve efficiency for the farmer whilst ensuring improved
animal health
Our product development team put customer requirements
at the heart of every new innovation. We work with farmers
to provide exceptional results for both the animal and
the milker
04
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
We inspect all liners to assess the washed conditions and
issue a “liner scoring report” to the farmer. This allows
the farmer to check the efficiency of his wash system
When the next change is due, we send another full cluster
using cleaned and refurbished equipment with new liners
and pulse tubes
The farmer fits the new, refurbished clusters and puts
the used clusters in the plastic box provided
Then the farmer calls us, and the process starts again
It’s so simple, milking made easier
It saves time and money for the farmer and increases
parlour productivity.
We make the change process effortless and easy:
Changing liners is always low on the activity or priority list
for farmers and so we take away the effort
We use the latest technology to improve milking efficiency and
improve teat health:
ImpulseAir: the biggest advance in the milking process
in a generation
-
Improved teat-end condition and greatly reduced
congestion of the teat
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Liners stay on the teats better, with reduced squawks and slips
- Dryer teats, because milk is taken away more efficiently
We maintain the cluster for the farmer:
Lifetime guarantee on all parts
We maintain the claw
We change the air tubes when required
Our support service also includes a tune-up programme for
the parlour:
We assess parlour conditions and routines
We assess pulsation and vacuum
conditions to provide the
optimum settings and
conditions for teat health
We regularly review the process
of wash performance, through
our feedback system
We work with the
farmer and their
dealer to keep
their parlour
tuned to
their herd
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Giving time back to the
farmer, stress free milking
Cluster Exchange
The farmer pays an initial small sign-up fee per cluster,
and then a regular fee per change
The farmer provides information on the parlour type,
number of points, number of milking cows in herd and
frequency of milking
The farmer chooses the product type (and liners available)
and the claw option
At the first change, the farmer receives a brand new cluster
including liners, shells, weights, pulse tubes and claw.
The farmer fits the new cluster and returns the used clusters
in the plastic boxes provided, then calls us to arrange pick up
We handle all transport costs and arrangements
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
05
G L O B A L I N V E S T M E N T
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3
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1
1
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1
2
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Avon Rubber p.l.c.
Corporate Headquarters
Melksham, UK
Avon Protection
Melksham, UK
Avon Dairy Solutions
Melksham, UK
6 Avon Protection
Brussels, EU
ARTIS
Melksham, UK
7
Avon Dairy Solutions
Johnson Creek, WI
Avon Protection
Cadillac, MI
8 Milkrite
Modesto, CA
Avon Protection
Baltimore, MD
9 Milkrite
Rudnik, Czech Republic
4 Avon Protection - AEF
Picayune, MS
10 Milkrite
Shanghai, China
5
Avon Protection
Kuala Lumpur, Malaysia
11
Milkrite
Castro, Brazil
11
06
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
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1
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6
9
10
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Agents and Distributors
Distribution countries
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
07
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229890
C H A I R M A N ' S S TAT E M E N T
“The successful implementation of our strategy has
delivered exceptionally strong growth and
excellent cash generation in 2014. We remain
convinced of the long-term growth potential
for both our Protection & Defence and
Dairy businesses.”
David Evans, Chairman, Avon Rubber p.l.c.
Introduction
Avon has delivered another year of exceptionally strong growth in
2014. We have further strengthened our business, improved our
margins and through sound operational management provided
strong cash generation moving us to a net cash position.
We have recorded significant increases in operating margins, profits
and earnings per share, despite the foreign exchange headwind
caused by a weaker US dollar. Revenue of £124.8m (2013: £124.9m)
would have increased by £5.6m or 5% on a constant currency
basis. Operating margins have increased by 2.2% to 13.6% with an
operating profit of £17.0m (2013: £14.2m), up 20%. Diluted earnings
per share rose 30% to 42.3p (2013: 32.5p).
In addition to the strong financial performance, we end the year
with a more robust and sustainable business. Both Protection
& Defence and Dairy are generating opportunities for growth.
In Protection & Defence we have 11 new product approvals and are
growing in all our market sectors. In Dairy we are increasing our own
brand Milkrite’s market share, expanding our product and service
offerings and developing our distribution in emerging markets.
We have also invested £2m across the Group in upgrading our IT
systems over the past 18 months which will deliver a single
Group-wide ERP infrastructure to provide better business
integration and support our growing global business.
Our continued investment in product, brand
and market development and in our
operational capability in 2014 should
position us to make further progress
in the coming years.
Protection & Defence
Protection & Defence order intake was
£93m with increased orders from the
DOD, EMEA and North American customers.
Our DOD long-term M50 mask contract is in its
seventh year and we supplied 168,000 systems during the year,
bringing the total to over 1.2m systems so far under this contract.
As a result of higher order intake of 246,000 mask systems we enter
2015 with an order book covering the first half year sales at a slightly
accelerated rate. Follow-on DOD M50 orders are expected in the first
half as 2015 DOD budgets are released.
The filter requirement has less short-term visibility, but we expect
this consumable item to be a good source of repeat revenue in the
long term as more masks enter service. Whilst uncertainty continues
in the US regarding budget cuts and sequestration, we are an
established programme, delivering to schedule and the largest user,
the Army, has begun taking product. This gives us a reasonable
degree of comfort that mask system volumes will continue at good
levels for the foreseeable future.
During the year the Joint Service Aircrew Mask (JSAM) programme
design, development and testing work progressed well. This will
provide respiratory protection to a wide range of operators on the
DOD’s fleet of fixed wing aircraft. This $6.7m development contract
is due to conclude at the end of our 2015 financial year and should
lead to a production contract which could be worth up to $74m.
Our newly developed Emergency Escape Breathing Device (EEBD)
received NIOSH approval to the new standard, with Avon being
the only manufacturer to date to achieve this. This product has
applications on board navy ships and in the mining sector. The US
Navy has an open solicitation to replace its ageing installed base
to which we will respond early in our 2015 financial year.
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 a number of areas
around the world.
08
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
In the US, while budgets remain constrained, 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
effective equipment procured post 9/11 is replaced.
Competition is more intense in the fire market. At present our new
Deltair self-contained breathing apparatus is one of only three
approved to the new standard and has been well received in the
market. We expect this and further planned enhancements to
provide the opportunity to increase our market share in 2015
and beyond.
In Rest of World markets, we are the CBRN respiratory protection
provider of choice and we continue to build business, particularly in
South America and the Middle East. We have also started to make
progress into new markets such as the oil and gas sector and see
opportunities for further growth in the broader industrial sector
with our enhanced and differentiated technologies. The timing of
end-user procurement remains difficult to predict, but in 2014 we
grew our revenues in the Rest of World market by 26%.
We have consolidated our Protection & Defence operations from
four US sites into three ahead of the expiry of the lease on our
Lawrenceville, Georgia facility in 2015. The move is substantially
complete and we are pleased that our operations team brought the
project in on time and on budget. Our Cadillac, Michigan facility
is now the centre of excellence for both mask manufacture and
filter technology as well as the supplied air products previously
manufactured in Lawrenceville.
Our proven ability to convert profit into cash has enabled us to
continue to invest in new products, laying the foundation for
further growth. Our programme to expand and enhance our
product range (Project Fusion) remains on track with 11 new
products receiving regulatory approval in 2014. A pipeline of further
products have been submitted for approval which should deliver
further new product launches in our 2015 financial year.
Dairy
Dairy has become substantially less dependent on original
equipment manufacturers (OEMs) in recent years as we continue to
grow our own higher margin Milkrite branded products. Only four
years ago OEM customers represented 47% of our revenue; at the
end of this year this has fallen to 31%, reflecting the growth of the
higher margin Milkrite brand.
Market conditions improved during the year with milk prices and
feed costs returning to more normal levels and demand for our
consumable products was generally at a higher level than the
previous year. In recent years the business has demonstrated
through the launch of our ImpulseAir liner that the industry is
receptive to new technology which improves farm efficiency and
animal health. This proprietary product now enjoys a 21% market
share in the US.
This success has given us the confidence to invest further in Dairy
product development resource and to launch the next generation
of products and services. The first example of this is our Cluster
Exchange service. Under this programme farmers outsource to us
their liner change process, through Avon service centres with the
support of our dealers and third-party logistics specialists. This was
launched in the US and Europe at the end of 2013 and by the end
of the year was servicing 256,000 cows on 887 farms, ahead of our
expectations. This service has the potential to grow a significant
recurring revenue stream in the years to come as more farms
continue to sign up.
Huge potential exists in emerging markets, especially in Brazil,
Russia, India and China where the growing demand for animal
protein in diets 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 in the first half of 2015 we have opened
a sales and distribution centre in Brazil, allowing us access to this
growing market.
Group results
Revenue was flat at £124.8m (2013: £124.9m) (an increase of 5% on a
constant currency basis), with Protection & Defence lower by 0.3% at
£92.8m (2013: £93.2m) and Dairy up 0.8% to £32.0m (2013: £31.7m),
both impacted by the negative translation effect of the weaker
dollar. On a constant currency basis, Protection & Defence revenue
increased by 5% (£4.2m) due to growth in non-DOD sales. Dairy
revenue increased by 5% on a constant currency basis with Milkrite
and Cluster Exchange growth and improved market conditions.
Operating profit before depreciation and amortisation (EBITDA)
rose 14% to £22.9m (2013: £20.0m) and operating profit rose 20% to
£17.0m (2013: £14.2m) (an increase of 26% at constant currency).
The progressive strengthening of sterling during the year gave the
Group a foreign exchange translation headwind. The US $/£ average
rate was $1.65 (2013: $1.56) and this 9 cent headwind was equivalent
to £5.7m at a revenue level and £0.8m at an operating profit level.
Constant currency information is provided in the Strategic Report.
Operating profit in Protection & Defence grew strongly to £13.6m
(2013: £11.0m) reflecting the revenue growth in non-DOD markets
and improved operational performance. Dairy operating profit rose
11% to £5.7m (2013: £5.2m) reflecting the success of our Cluster
Exchange service and the growth of the Milkrite brand in Europe as
we saw the first returns from the additional resource added in this
area in 2013.
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09
opportunities to fruition. Our strong balance sheet will also support
complementary acquisitions which can deliver synergistic benefits.
Board changes
After serving as a Non-Executive Director since March 2005 Stella
Pirie will stand down at the AGM in January 2015. Stella has made a
significant contribution during a period of remarkable progress and
change for the Group, for which she has my considerable thanks. A
recruitment process to appoint a suitable replacement is underway
and an announcement will be made at the appropriate time.
Outlook
Our strategy has significantly improved the shape of the Group,
reduced the risk profile and improved margins. This is providing
continued growth and the outlook for the future remains positive.
In our global Protection & Defence business we have good visibility
of DOD revenues for 2015 and expect to see growth in the fire and
industrial markets. New products will contribute to growth and
we should see a positive operational gearing effect from a stable
cost base.
The Dairy business is well positioned with positive current market
conditions and long-term market growth potential. We expect
volume growth from our investment in the emerging markets
of China and Brazil and from the Cluster Exchange programme.
We continue to invest in enhanced milking technologies.
David Evans
Chairman
19 November 2014
C H A I R M A N ' S S TAT E M E N T
Interest costs were £0.3m (2013: £0.3m) and the Group effective tax
rate fell from 27% to 21% due to a more favourable geographic mix
of profits to give a profit for the year of £13.1m
(2013: £10.0m). This equates to earnings
per share of 43.7p (2013: 33.8p).
On a fully-diluted basis, earnings per
share rose 30% to 42.3p (2013: 32.5p)
(up 37% at constant currency).
We continue to invest in product
development reflected in our
expanding product range in
both sides of the business. Our total
investment in research and development
(capitalised and expensed) amounted to £7.0m (2013: £6.4m) of
which £4.5m (2013: £2.1m) was customer funded.
Net cash at year end was £2.9m (2013: net debt of £10.9m),
reflecting the strong cash conversion from the business.
Committed bank facilities of £24.5m run to 30 November 2017.
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 30% increase in the final dividend to
shareholders of 3.74p per ordinary share (2013: 2.88p).
This, combined with the 2014 interim dividend of 1.87p, results in a
full year dividend of 5.61p (2013: 4.32p), up 30%.
Employees
Our employees have risen to the challenge in supporting the
Group’s progression from a traditional manufacturing business
to a customer and technology driven, sales and marketing
led organisation. We are succeeding in creating a culture of
innovation to enable us to take full advantage of opportunities in
developing new technologies and new markets while maintaining
the manufacturing excellence for which the Group is so highly
regarded. Our people have continued to respond positively and I
thank all of them for their valued contribution on behalf of
the Board.
Opportunities
Last year I said that the nature of our challenge had changed
and that management was now firmly focused on growth and
margin enhancement. Both of these are clearly reflected in the
2014 results.
Looking forward we see our global market leading positions
delivering further opportunities for organic growth. We will
continue to invest in innovative new technologies and products
and in building our brand and market reach to bring these
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S T R AT E G I C R E P O R T
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 26 to 27.
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
The Group has transformed itself over recent 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 Systems 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 of 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 more efficient. As our market
share and milking experience continue to grow, so does our
global presence.
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S T R AT E G I C R E P O R T
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 a strong position in the US military market
and use this position to sell to other governments and first
responder markets globally.
We initially demonstrated this through our long-term sole-source
mask systems contract to supply the US military and our status as
a prime contractor to the DOD, which regards us as experts in our
field, has brought us a number of other opportunities to replicate
this with our recently developed respiratory protection products.
Our product range and capacity for manufacture is increasing.
Developing through-life revenues with greater consumable sales
and service revenue, such as filters, is also a key objective.
We believe that our expanding product range and customer
base, together with our credibility and development expertise,
will put us in a market-leading 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.
We have consolidated our Protection & Defence operations from
four US sites into three ahead of the expiry of the lease on our
Lawrenceville, Georgia facility in 2015. The move is substantially
complete and we are pleased that our operations team brought the
project in on time and on budget. Our Cadillac, Michigan facility
is now the centre of excellence for both mask manufacture and
filter technology as well as the supplied air products previously
manufactured in Lawrenceville.
Leverage our relationship with the DOD to aid
Ensure customers and stakeholders recognise
and facilitate 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.
EMPLOYEE OPINION
SURVE Y 2014
Employee engagement is at the heart of our business and we
recognise its importance in achieving success. Avon Engineered
Fabrications in Picayune achieved a 100% response rate in
the employee opinion survey this year. A happy, engaged and
productive workforce equals inspiration and growth.
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
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. In both
of these developed markets we have recently added a service
offering, Cluster Exchange, which provides efficiency gains for
the farmer and provides us with an increased, more predictable
revenue base.
We are also investing in opportunities in developing markets
such as China, Brazil, India, Russia and Eastern Europe by
expanding our global distribution capability and our in-country
network to deliver growth in the longer term. Following the
opening of our Chinese sales and distribution facility in February
2012, we have opened a similar facility in Brazil early in our 2015
financial year.
Innovative new product and service offerings and continued
world-class low-cost manufacturing excellence should enable
this business to sustain growth, profitability and cash generation.
Strategic imperatives for success in Dairy
Expansion of our product and service 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.
INVES TING IN
ANIMAL HE ALTH
Our goal is to continually improve on farm milking conditions
through our products, research, support and advice. Milkrite
sponsored the National Mastitis Council regional meeting in
Ghent in August 2014 which was home to many discussions
regarding mastitis and udder health.
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S T R AT E G I C R E P O R T
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
FIRE
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 is currently developing a new aircrew mask
system funded by the DOD.
We provide a total solutions option, manufacturing a broad
portfolio of high-performance, timesaving respiratory
personal protection equipment that employs the most
advanced features in the fire-service industry. In 2014 we
launched Deltair, our completely redesigned fire SCBA
which meets the latest NFPA regulatory standard.
OTHER MILITARY, LAW ENFORCEMENT
AND FIRST RESPONDER
AEF
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.
We continue to provide the US Army and Navy with
hovercraft skirting assemblies. We also supply a wide range
of collapsible storage tanks for static fuel and water storage
for military applications and other industrial applications
such as fracking.
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
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 NIOSH-approved emergency hood
(NH15); rebreathers for escape and underwater use; and SCBA (primarily the Deltair product range). We 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.
M50
M61
The most advanced general service respiratory protection
mask to date, offering advanced comfort, usability,
operational effectiveness and protection.
Pioneering conformal filter technology for closer integration
and designed with bayonet quick fit for use only with the
M50 mask.
C50
MILCF50
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.
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 reducing neck loading.
ST53
DELTAIR
One system for all missions combining the FM53 mask
technology with an advanced modular breathing apparatus
for specialist operations.
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.
EEBD
UNDERWATER REBREATHERS
Our Emergency Escape Breathing Device for which
we recently obtained NIOSH certification has military
applications on-board ship and we are targeting applications
in the mining industry.
Following the acquisition of VR Technology Holdings we are
upgrading the current recreational product range for military
use and developing a multi-capability mine counter-measures
rebreather.
JSAM
NH15
We are developing upgraded CBRN respiratory protection
equipment for aircrew on the DOD’s fleet of fixed wing
aircraft.
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.
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Offering design and manufacture of flexible storage tanks,
containers and other air-supported rubber structures.
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S T R AT E G I C R E P O R T
Product development
Our product development programme, Project Fusion, combines the skills and expertise of our design and engineering teams to
produce a modular personal protection system comprising smaller modules with multiple functionalities that can be combined or used
independently in different threat scenarios.
We have launched the first components of this system:
AvonAir, our new range of Powered Air Purifying Respirators (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.
Deltair, our new fire service offering, designed to meet the new 2013 NFPA standard, received NIOSH and NFPA certification
and approval in April 2014 and was successfully launched to the market in the second half of our 2014 financial year.
EEBD, our emergency escape breathing device, for which we recently obtained NIOSH certification has military applications
on-board ship and we are targeting applications in the mining industry.
HMK150 Helmet Mask Kombination was launched in 2014 and became the first product to meet a new German police standard
for CBRN respiratory protection and head protection for riot control when combined with the Schuberth P100N helmet.
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 for air, land or sea based users.
Avon’s new law enforcement SCBA system, the ST54, combines our
new FM54 mask technology with a modular breathing apparatus. It
is currently in its NIOSH & CE certification testing cycle and should be
available in 2015.
The PC50 respirator, derived from our successful C50 respirator, is
specifically designed for the correctional facility market and is already
NIOSH-approved. It should also be CE-approved in 2015 and will be
made available with the base AvonAir breath assist system.
The entire AvonAir modular product range has undergone extensive
“voice of the customer” reviews to ensure we have incorporated
features that provide customers with the best in class product.
This process has confirmed we have captured the changing
requirements and our proactive and constantly evolving design
approach is working. We anticipate finalising the design efforts and
submitting the product for certification testing in 2015.
The Deltair, our new fire service SCBA product, incorporates Avon’s
military pedigree in design and quality as a result of extensive
investment in research. It will be further enhanced by a new respirator
as part of the Project Fusion development programme. The design is
nearing completion and we anticipate that the enhanced product will
be available for the North American market in 2015.
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
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 the milk 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 milking 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 and have recently opened a similar facility in Brazil to service the South American market.
US
CHINA
Our Milkrite brand has established a 40% market share
Contracts secured with China’s largest milk suppliers
ImpulseAir has 21% share of the market
and distributors, Mengniu and Yili
Dealer network established
EU
OTHER MARKETS
Milkrite market share has increased to 16% of which 2.5%
represents ImpulseAir, launched in 2013
We now have sales resource in Brazil, India and Eastern
Europe which will allow further opportunity for growth
Investment made in sales resource in 2013 starting to
deliver Milkrite growth
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S T R AT E G I C R E P O R T
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 the milk extraction
process. The success of the innovative Milkrite Impulse Mouthpiece Vented Liner, ImpulseAir, continues and this product has established
a 21% market share in the US since its launch in 2010 and a 2.5% market share in Europe since its launch there in 2013.
Milkrite liners
Milkrite’s Impulse and ImpulseAir range provides triangular liners designed for less slip and improved animal
health benefits with their 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 and Europe, means Milkrite is a complete solution provider, saving farmers
time on low-value tasks, securing our relationships with our customers and managing the liner change cycle. Further opportunities are
available for this exciting concept.
Health standards around the world are changing and we take them very seriously. This year, we have invested in an upgrade to our
compound to ensure that we comply with new regulations in Europe.
We continue to provide Food and Drug Administration (FDA) approved products to the US and we have developed a unique long life
capability for rubber liners, which is developing a growing market share in the North American market.
RESE ARCH AND DE VELOPMENT
AWARD FOR MILK RITE
In October 2013 Milkrite was presented with The Royal Association of British Dairy Farmers
(RABDF) Prince Philip Award by His Royal Highness at Buckingham Palace. The award
recognised research and development in the field of dairy farming.
RABDF’s president, Prof David Leaver said: "The development of new technology which
improves productivity on dairy farms is an important component for improving
the industry's competitiveness. Consequently, I am delighted to see Milkrite
receiving the award for their continuing innovation as a company.”
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
Business review – the year under review
Group performance
Avon has delivered a strong set of financial results, providing returns on the investments made in the previous five years.
The increase in profitability (despite foreign exchange translation headwinds of £0.8m) and strong cash conversion has enabled the
Group to position itself to take advantage of the many further opportunities for future growth.
The Group’s key achievements in 2014 have been:-
EBITDA growth of 14% to £22.9m
Increased order intake in Protection & Defence
Operating profit growth of 20% to £17.0m
Product approvals received for Deltair, EEBD and
Operating margins improved by 2.2% to 13.6%
Profit before tax up 21% to £16.6m
Diluted earnings per share up 30% to 42.3p
Dividend increase of 30% to 5.61p reflecting business
growth, strong cash flows and confidence in the future
Cash generated from operating activities of £26.5m,
representing 156% of operating profit
a number of other Project Fusion modules
Market share growth of ImpulseAir to 21% in the US
and 2.5% in the EU
Cluster Exchange successfully launched in US and
Europe servicing 256,000 cows on 887 farms
Investment of £7.0m 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, defined benefit pension scheme costs 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 statutory measures is provided below:-
2014
2014
2014
2013
2013
2013
Statutory
Adjustments
Adjusted
Statutory Adjustments
Adjusted
Group EBITDA (£m)
Group operating profit (£m)
Other finance expense (£m)
Group profit before taxation (£m)
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)
20.5
14.3
0.2
13.9
3.1
10.8
36.2
35.0
16.5
11.3
2.4
2.7
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2.7
0.4
2.3
7.5
7.3
2.0
2.3
22.9
17.0
0.2
16.6
3.5
13.1
43.7
42.3
18.5
13.6
19.2
13.0
0.3
12.4
3.6
8.8
30.0
28.8
15.7
10.2
0.8
1.2
0.1
1.3
0.1
1.2
3.8
3.7
0.4
0.8
20.0
14.2
0.2
13.7
3.7
10.0
33.8
32.5
16.1
11.0
The adjustments comprise:
Amortisation of acquired intangibles of £0.3m (2013: £0.4m)
Defined benefit pension scheme costs of £0.4m (2013: £0.4m),
which relate to a scheme closed to future accrual and therefore
do not relate to current operations
Further details are provided in note 3 of the financial statements.
Exceptional item of £2.0m (2013: £0.4m) relating to
the consolidation of Protection & Defence sites
Tax effect of exceptional item of £0.4m (2013: £0.1m)
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
19
S T R AT E G I C R E P O R T
Results
Constant currency information
Avon has made excellent progress during 2014. Revenue
remained flat at £124.8m (2013: £124.9m) as a result of
strengthening sterling. At constant currency, revenue increased
by 4.8% with Protection & Defence up 4.7% and Dairy up 5.0%.
Operating profit increased to £17.0m (2013: £14.2m) and earnings
before interest, taxation, depreciation and amortisation (EBITDA)
were £22.9m (2013: £20.0m). This represents a return on sales
(defined as EBITDA divided by revenue) of 18.4% (2013: 16.0%).
After net interest and other finance costs the profit before tax
was £16.6m (2013: £13.7m). After tax, the profit for the year was
£13.1m (2013: £10.0m).
Finance expenses
Net interest costs remained constant at £0.3m (2013: £0.3m).
Other (non-cash) finance expenses associated with the
unwinding of discounts on provisions were £0.2m (2013: £0.2m).
Taxation
The statutory tax charge totalled £3.1m (2013: £3.6m) on a
statutory profit before tax of £13.9m (2013: £12.4m). In 2014
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 is
22% (2013: 29%), reflecting a more favourable geographic mix
of profits.
The adjusted effective tax rate, where the tax charge and
the profit before taxation are adjusted for exceptional items,
the amortisation of acquired intangibles and defined benefit
pension scheme costs is 21% (2013: 27%). In 2014 the US Federal
tax rate was 34% and the Group’s 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
£1.4m (2013: £2.8m).
The Group is exposed to the translation effect of fluctuations in
the sterling/US dollar rate given its significant US presence. In
2014 the strengthening of sterling by 9 cents from an average
rate of $1.56 to $1.65 provided a currency headwind. Constant
currency information is based on 2014 actual results compared
with 2013 results translated at 2014 rates and the impact on key
reported numbers is:
Reported
change
Constant
Currency Growth
Group revenue
Group operating profit
Group diluted EPS
P&D revenue
P&D operating profit
Dairy revenue
Dairy operating profit
(0.1%)
19.5%
30.2%
(0.3%)
23.0%
0.8%
10.7%
4.8%
25.7%
36.5%
4.7%
28.1%
5.0%
17.0%
Earnings per share
Basic earnings per share were 43.7p (2013: 33.8p) and diluted
earnings per share were 42.3p (2013: 32.5p).
GRE AT PL ACE
TO WORK
We launched our Great Place to Work initiative on 1 October 2014
with a new employee recognition and reward programme.
The aim of the new programme is to reward employees who
demonstrate Avon's core values, embodied by the acronym CREED.
See page 38 for further details.
20
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
Segmental performance
Protection & Defence performance
Protection & Defence represented 74% (2013: 75%) of total
Group revenues. The business saw revenues decrease by
0.3% from £93.2m to £92.8m (an increase of 4.7% at constant
currency). Underlying growth was due to growing non-DOD
mask sales. Our strong manufacturing capability and existing
capacity allowed us to meet this increase in customer demand.
7%
12%
49%
2013
£93.2m
28%
38%
2014
£92.8m
34%
Operating profit grew strongly to £13.6m (2013: £11.0m) up
23.0% and EBITDA was £18.5m (2013: £16.1m), representing a
return on sales (as defined above) of 20.0% (2013: 17.3%).
This reflects a richer mix of non-DOD sales and improved
operational performance, slightly offset by continued investment
in the infrastructure of the business.
As expected, sales of mask systems and filter spares to the DOD
reduced from £45.2m to £34.0m as production scheduling was
flexed to accommodate the higher level of non-DOD activity.
We delivered 168,000 mask systems and 172,000 pairs of filter
spares, compared with 223,000 mask systems and 429,000 pairs of
filter spares in 2013. As a result of higher order intake of 246,000
mask systems, we have orders in hand of 118,000 mask systems
which gives us good order coverage for the first half of 2015.
As part of our 10 year sole-source contract to supply the DOD
with mask systems, we expect further orders as 2015 DOD
budgets are released in the first half of the new financial year.
6%
10%
8%
8%
Mask systems
)
S
D
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S
U
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H
T
(
S
M
E
T
S
Y
S
K
S
A
M
3000
2500
2000
1500
1000
500
0
DOD masks and filters
DOD spares
EMEA/NA Law Enforcement
Fire
AEF
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
D E L I V E R E D O R D E R S
NE W UNDERWATER SYS TEMS
FACILIT Y IN POOLE, UK
Over the past year Avon Protection has evolved its product offerings
into underwater breathing apparatus for the military diving market.
This complements our military portfolio of land, air and sea.
Avon Underwater Systems now provides innovative military diving
equipment and technology to a global customer base.
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
21
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S T R AT E G I C R E P O R T
DOD sales 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 £25.0m to £31.0m as a result of
strong order intake in 2014 as we experience the benefit of the
increased sales and marketing resource added in prior years.
We won an industrial order in the final quarter of the year for
27,000 escape hoods of which the majority is for delivery in 2015.
Sales to the fire market were flat in the first half of the year as
purchasers put procurement decisions on hold pending release of
the new, delayed, NFPA standard. Our new Deltair SCBA, designed
to meet these new US regulations and to enhance operational
performance, was approved in April 2014. It is one of only three
units to receive approval to date and has been well received by
the market in early customer trials. This led to a relatively stronger
conclusion to the year and our target of converting this pipeline
of opportunity into revenue in 2015 has begun well as we carry
forward confirmed orders for 600 Deltair units.
AEF again made a positive contribution to divisional operating
profit, winning hovercraft skirt and fuel and water storage tank
orders. We enter 2015 with order coverage for the first half of the
year, which gives us excellent visibility in this part of the business.
DOD spares sales have grown this year, as expected; as the
installed base of masks grows so does the DOD’s requirement to
fill its supply chain.
Operating margin % P&D
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
2009
2010
2011
2012
2013
2014
Operating margin % P&D
Dairy performance
Dairy revenues increased by 0.8% to £32.0m (2013: £31.7m) (up
5.0% on a constant currency basis) reflecting the success of our
Cluster Exchange service and growth of the Milkrite brand in
Europe. Operating profit increased by 10.7% to £5.7m (2013:
£5.2m) (up 17.0% at constant currency). EBITDA was £6.6m (2013:
£5.8m), giving a return on sales (as defined above) of 20.7%, up
from 18.4% in 2013.
Operating margin % Dairy
20.0%
15.0%
10.0%
5.0%
0.0%
2009
2010
2011
2012
2013
2014
Operating margin % Dairy
The difficult market conditions experienced during the latter part
of the previous financial year began to improve as a result of the
better 2013 harvest which resulted in lower animal feed costs.
This, together with higher milk prices, reduced the pressure on
farmer revenues and margins and led to a return of more normal
levels of demand for our consumable products.
Milkrite increased as a proportion of total revenue providing a
richer sales mix. Only four years ago OEM customers represented
47% of our revenue; at the end of this year this had fallen to 31%,
reflecting the success of the Milkrite brand.
)
m
£
(
E
U
N
E
V
E
R
18
16
14
12
10
8
6
4
2
FY11
H1
FY11
H2
FY12
H1
FY12
H2
FY13
H1
FY13
H2
FY14
H1
FY14
H2
O E M M I L K R I T E T O TA L
22
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
In recent years the business has demonstrated through the
launch of its ImpulseAir liner that the industry is receptive to new
technology which improves farm efficiency and animal health,
with our proprietary product now enjoying a 21% market share
in the US (2013: 19%).
The launch of the ImpulseAir liner in Europe, where market share
grew to 2.5%, contributed to an increase in Milkrite’s overall
market share (now 16.5%), delivering returns on our investment
in the sales force, enhanced technical support and a larger
distributor network.
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, which was successfully launched in
the US and Europe at the end of 2013, gained momentum as
the year developed and by the end of the year was servicing
256,000 cows on 887 farms. This add-on service for the farmer
increases the value of each direct liner sale we make and should
lead to a more robust business model. Under this programme
farmers outsource to us their liner change process, which we
deliver through service centres established in our existing
facilities, with the support of our dealers and third-party
logistics specialists.
US Market Share
22%
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
3%
2.5%
2%
1.5%
1%
0.5%
0%
Sep
10
Mar
11
Sep
11
Mar
12
Sep
12
Mar
13
Sep
13
Mar
14
Sep
14
US
Market Share
EU Market Share
US Cluster Exchange
Monthly Revenue
2
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UK & EU Cluster Exchange
Monthly Revenue
160
140
120
100
80
60
40
20
0
0
0
0
$
'
0
0
0
£
'
60
50
40
30
20
10
0
Mar
13
Sep
13
Mar
14
Sep
14
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EU
Market Share
UK EU
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
23
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UK retirement benefit obligations
The balance, as measured under IAS 19 (revised) ('IAS 19 (R)'),
associated with the Group’s UK retirement benefit obligation,
which has been closed to future accrual, has moved from a
£11.3m deficit at 30 September 2013 to a £16.0m deficit at 30
September 2014.
This movement has resulted from a decrease in the discount
rate. IAS 19 (R) specifies the use of AA corporate bond (rather
than gilt) yields to set the discount rate.
During 2014, the Group paid total contributions of £0.5m.
A new triennial actuarial valuation took place as at 31 March
2013. That valuation showed the scheme to be 98.0% funded
on a continuing basis and this has given rise to a new deficit
recovery plan under which the payments for the Group financial
years ending 30 September will be as follows: 2015: £550,000,
2016: £675,000, 2017: £700,000 and 2018: £700,000. These
amounts include £250,000 p.a. in respect of administration
expenses.
S T R AT E G I C R E P O R T
In China, after a softer first half when the dairy industry was
restructured following a number of issues, including contaminated
milk, contaminated feed and an outbreak of foot and mouth
disease, we were pleased to see volumes returning to expected
levels in a market which has excellent long-term potential.
In many other emerging markets, including Brazil and India, the
number of dairy cows being milked using automated milking
processes is growing strongly. This is adding to the market
potential for the consumable products we sell. We plan to harness
this potential by establishing sales and distribution functions
in these markets as they develop and consequently we have
established a sales and distribution centre in Brazil in the first
quarter of the new financial year.
Group position
Net cash and cashflow
Net cash at the end of the year was £2.9m (2013: net debt of
£10.9m). The Group has no borrowings at the year end; total bank
facilities were £24.5m, which are US dollar denominated and
committed to 30 November 2017.
In the year we invested £6.8m (2013: £11.1m) in property, plant and
equipment and new product development. In the Protection &
Defence business this focused on our new product development
programme, Project Fusion. In Dairy we invested in the hardware
required to support our Cluster Exchange service offering. Across
the Group we continued our investment in a common IT platform
to support the Group’s future growth ambitions.
Operating activities generated cash of £26.5m (2013: £15.5m),
representing 156% of operating profit (2013: 109%). Through
sound operational management the Group has driven a strong
conversion of profits into cash and this was supplemented by the
phasing of customer payments including £3.5m of accelerated
payments from a major customer ahead of its financial year-end.
Receivables at 30 September 2014 were lower than the previous
year due to this phasing and these accelerated payments.
IMPUL SE AIR
PARLOUR FOR LUCK Y
DE VON FARMER
Mr Raffe, a farmer based in Holsworthy, Devon was the lucky
winner of the Milkrite ImpulseAir competition this year and
his parlour was fitted with brand new ImpulseAir liners, shells
and weights.
24
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
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
6.7
(4.5)
2.2
(1.6)
0.6
1.7
2.3
92.8
7.2%
0.3
-
0.3
(0.2)
0.1
0.1
0.2
32.0
1.0%
Total
£m
7.0
(4.5)
2.5
(1.8)
0.7
1.8
2.5
124.8
5.6%
An update to the actuarial position as at 30 September 2014 has
been obtained and this shows a deficit of £10m, which represents
a funding level of 97%. It is this metric that the Group focuses
on, as this and not the accounting IAS 19 (R) metric is what drives
the funding requirement for the scheme. At 30 September 2014
the reason for the difference between the two measures is the
fall in AA corporate bond yields. IAS 19 (R) specifies the use of
AA corporate bond yields (rather than gilt yields adjusted for
expected returns on return-seeking assets in the investment
portfolio) to set the discount rate for the accounting metric.
As the Avon scheme is not 100% invested in corporate bonds a
mis-match in the accounting metric occurs. The actuarial metric
takes account of the diversified investment approach of Avon’s
scheme and therefore provides a more realistic reflection of the
funding status of the scheme at any point in time.
Research and development
Intangible assets totalling £17.2m (2013: £16.5m) 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 £1.8m
(2013: £1.9m).
Our total investment in research and development (capitalised
and expensed) amounted to £7.0m (2013: £6.4m) of which £4.5m
(2013: £2.1m) 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 have started to see the benefits of these efforts, which
underpin the long-term prosperity of the Group, during our 2014
financial year.
DELTAIR PICK S UP
GOLD AWARD
Deltair, our new fire service offering, received NIOSH and NFPA certification
and approval and was successfully launched to the market in our 2014 financial
year. Deltair received ultimate recognition with a Gold International Design
Excellence Award (IDEA®) for research. The IDEA programme is regarded
as an extremely distinguished design competition with its scope
and influence reaching far beyond the US.
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
25
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S T R AT E G I C R E P O R T
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
£m 110
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 is flat in 2014 due to the negative translation effect of the
weaker US dollar. On a constant currency basis, revenue increased by
4.8% due to an increase in non-DOD sales in Protection & Defence
and growth in Milkrite and Cluster Exchange in Dairy.
Sep
Oct
Nov Dec
Jan
Feb Mar
Apr May
Jun
Jul
Aug
2013
Sep
2014
D E C R E A S E D BY
0.1%
PROTECTION & DEFENCE ORDERS IN HAND
REASON FOR CHOICE
This demonstrates the orders in hand for fulfilment and future sales.
£46m
£31m
£15m
2012
£31m
£15m
£16m
2013
£33m
£21m
£12m
2014
DOD
NON DOD
RETURN ON SALES
15.3%
16.0%
18.4%
2012
2013
2014
HOW WE CALCULATE
This is measured at sales value.
COMMENTS ON RESULTS
We delivered a large non-DOD order prior to the year end and
flexed our DOD scheduling to meet these production requirements.
I N C R E A S E D T O
£33m
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
exceptional items (EBITDA) divided by revenue.
COMMENTS ON RESULTS
We have succeeded in growing profit in our Protection & Defence
business through the richer sales mix of higher margin non-DOD
sales. In Dairy, an increasing proportion of higher margin Milkrite
sales contributed to an increased return on sales.
I N C R E A S E D T O
18.4%
26
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
TRADE WORKING CAPITAL
TO REVENUE RATIO
19.0%
20.8%
17.8%
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
- payables, expressed as a percentage of revenue.
COMMENTS ON RESULTS
Overall, working capital has been reasonably stable during the
year and was impacted at the year end by an accelerated payment
from a major customer.
2012
2013
2014
D E C R E A S E D T O
17.8%
DILUTED EARNINGS PER SHARE
25.4p
32.5p
42.3p
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, defined benefit pension scheme costs and exceptional
items divided by the fully diluted number of ordinary shares.
COMMENTS ON RESULTS
Higher operating profit and a lower Group effective tax rate in 2014
have contributed to an improved EPS position.
2012
2013
2014
I N C R E A S E D T O
42.3p
Our non-financial KPIs in relation to health and safety and employees are detailed in our Environmental and Corporate Social
Responsibility report on pages 34 to 40.
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27
S T R AT E G I C R E P O R T
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 46 to 50). 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, 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
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
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.
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S T R AT E G I C R E P O R T
Principal risks and uncertainties (continued)
Type of Risk
Business Risk
Mitigation
1
O P E R AT I O N A L
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
Market threat
Lack of sales growth
2
S T R AT E G I C
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
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
Safety approvals and sole source supply contracts
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
3
O P E R AT I O N A L
Business interruption
– supply chain
Dependency on sole supplier/subcontractor
Proactive approach to the approval of second sources
Availability/quality of raw materials
Failure to manage distributors and
dealers correctly
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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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
Type of Risk
Business Risk
Mitigation
4
O P E R AT I O N A L
Talent management
Insufficient skills of employees
Poor engagement and morale
Dysfunctional organisational
structure/reporting lines
5
Quality risks and product recall
Poor quality systems allow faulty
O P E R AT I O N A L
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
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
Non-compliance with legislation
6
S T R AT E G I C
7
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
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
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
Failure to comply with export controls,
Regular focus and review of the export and ITAR
O P E R AT I O N A L
the International Traffic in Arms
Regulations (ITAR), Bribery Act and
product approvals
control framework, NPI process and the internal control
procedures
Internal and external audit
Talent management is considered an increasingly important priority for the business. Due to the limited number of quality issues and our lower dependence
on large customers, these risks have been re-ordered.
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S T R AT E G I C R E P O R T
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 118,000 M50 masks for delivery in 2015. We also expect
further mask orders in 2015 from 2015 DOD budgets.
The buying pattern 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 2015.
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.
ARMED
FORCES DAY
At Avon, we are immensly proud of our armed forces, the work
they do and the sacrifice they make on our behalf. A number of our
employees and their families serve in reserve forces and we are
forever grateful for their commitment.
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
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 2014 results a 5¢ movement in the average
US dollar rate would have impacted reported operating
profit by £0.4m (2013: £0.4m) and profit after tax by £0.3m
(2013: £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 can be partially hedged by matching either
with foreign currency borrowings within the subsidiaries or with
foreign currency borrowings which are held centrally.
At the end of the year the asset exposure was not hedged as
there were no borrowings (2013: asset exposure was 5% hedged).
As a result of the remaining balance sheet exposure, the Group
was exposed to the following:
Based on the 2014 balance sheet a 5¢ movement in the
year-end US dollar rate would have impacted Group assets
by £1.4m (2013: £1.1m).
The Group is exposed to interest rate fluctuations but with
net cash of £2.9m (2013: net debt of £10.9m), a 1% movement
in interest rates would have no impact on interest costs (2013:
increase of £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. There were no fixed interest
borrowings at the year end (2013: £nil).
Peter Slabbert
Chief Executive
19 November 2014
Andrew Lewis
Group Finance Director
19 November 2014
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E N V I R O N M E N TA L A N D C O R P O R AT E S O C I A L R E S P O N S I B I L I T Y
Annual report on environmental
Ethics and anti-corruption
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.
We are committed to minimising the impact of our operations
on the environment. We encourage all employees to think about
ways of modifying their behaviour to reduce our impact on
the environment by, for example, reducing waste, cutting out
unnecessary travel and saving water and energy.
At many of our sites we remain one of the largest employers in
the local area. As an integral part of the community we are aware
of the impact that our operations and products have on the 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
The Code 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 Code also contains
guidance on avoiding conflicts of interest, confidentiality, our
approach to gifts and hospitality, bribery and corruption and
managing relationships with third parties.
We have a zero-tolerance approach to bribery and corruption and
are committed to acting professionally, fairly and with integrity in
all our business dealings and relationships and implementing and
enforcing effective systems to counter bribery and corruption. We
are committed to only working with third parties whose standards
are consistent with our own. 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 Code, which is incorporated into
all written agreements. A programme of supplier audits exists to
ensure suppliers adhere to Avon’s standards.
These areas continue to receive focus as part of our aim to uphold
the strictest standards of business conduct and ethics throughout
the Group.
We believe a culture of openness and accountability is essential
to encourage all employees to report any behaviour which may
be a breach or a suspected breach of the Code, or any unethical
or illegal behaviour. The 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
directly at the highest level.
Aim for the highest standards of health and safety in
the workplace
A copy of the Code is available to all employees in addition to
being available on the Group website.
Develop and motivate our employees, ensuring they are
Human rights
fully engaged in the Group’s strategy
Avon is fully committed to respecting the human rights of all
those working with or for us. We do not accept any form of child
or forced labour and we will not do business with anyone who
fails to uphold these standards.
Minimise waste and emissions that contribute to
climate change
Code of conduct
Our Code of Conduct has been updated and will be re-launched at
the end of the calendar year. It sets out the values and standards
of behaviour expected from everyone working for or on behalf of
Avon at our locations around the world.
The Code provides employees with a guide as to what is expected
of them as representatives of the Group and provides information
on how to report concerns.
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
Environmental responsibility
At the start of the year we set significant environmental
improvement goals. Each site has delivered a number of
improvements:
Cadillac, US
Improved lithium and alkaline battery recycling facilities
on site
Lighting improvements reducing total emissions and
delivering cost reductions
Installation of motion detectors to control lighting in
offices and rest rooms
All corrugated material is now recycled
Picayune, US
Wooden pallets are now recycled rather than disposed of
as general waste
Lighting reductions, without compromising safety or the
integrity of the product, have reduced our carbon emissions
and saved on energy costs
Soak hoses have been introduced to replace spraying to
water the landscape
Waste Electronic and Electrical Equipment (WEEE) and used
ink cartridges are recycled locally rather than disposed of
in landfill
Belcamp, US
A single stream recycling programme has been introduced
Site lighting has been upgraded for a more energy
efficient system
Motion sensors have been installed in each office
ensuring that lights are automatically turned off when
the office is vacant
Johnson Creek, US
Hydraulic pumps are now fitted with an automatic shut off
system to reduce risks in the event of a fire. We have four
hydraulic pumps that feed more than 70 presses
Melksham, UK
A reduction in the kilo volt ampere (KVA) usage
Implementation of our ‘Red Tag’ project has seen the
site recycle much of its unused equipment by either selling
or transferring equipment to other sites or recycling
with metal contractors
A number of employees participated in our ‘cycle to
work scheme’ as part of the UK Government's 'Green
Transport Plan'
Replacement of thorn bushes surrounding the facility with
a mulch of waste cured rubber, reducing the need for
cured rubber disposal and providing a cost-effective pest
control measure
Recycling
In the UK our target is to achieve an annual 85% recycled waste
level and this year we achieved 82%. It is becoming increasingly
difficult to meet this target as cured rubber waste contractors are
under significant pressure following a reduction of government
funding for items such as school playgrounds, road surfacing and
equestrian surfacing.
This, coupled with the reduction in permitted emission levels
from incineration, has had a detrimental effect on our recycling
efforts. Our only other option is to dispose by landfill which
we are reluctant to do as we are committed to minimising our
environmental impact.
We are exploring the potential of granulating our cured rubber
waste and supplying direct to the equestrian world and are
actively examining our compounds for suitability to ensure
compliance with legislation.
At all our sites we continue to recycle:
Waste cardboard
Waste polythene
Paper
Used products
Toners and inks
Metal
WEEE
The significant improvements across all our sites are testament
to the commitment of the Board and all our employees to invest
in the future whilst reducing our impact on the environment and
making substantial financial savings.
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E N V I R O N M E N TA L A N D C O R P O R AT E S O C I A L R E S P O N S I B I L I T Y
ISO 14001
In March 2014 our Melksham site successfully retained its 3
yearly accreditation to the ISO 14001 standard for environmental
management systems; this audit was conducted by an external
quality auditor.
What is ISO 14001?
ISO 14001 was developed to provide a management system
to help organisations reduce their environmental impact. The
standard provides the framework for organisations to demonstrate
their commitment to the environmental by:
Reducing harmful effects on the environment
Providing evidence of continual improvement of
environmental management
Environmental management system
By achieving ISO 14001 certification Avon is able to clearly
demonstrate its commitment to reducing waste and recycling
materials where appropriate. The benefits to the organisation
are not just in cost savings, having ISO 14001 accreditation is also
beneficial when tendering for new business.
We aim to ensure that the ISO 14001 standard is successfully
introduced into our Cadillac and Picayune plants over the next
18 months.
Legislation
With evolving environmental legislation within the EU, US and
the UK, Avon ensures compliance through regular environmental
updates from its membership to the Institute of Environmental
Management and Assessment (IEMA).
Carbon Reduction Commitment scheme (CRC)
Avon’s Melksham site has been included in phase 1 of the Carbon
Reduction Commitment scheme (CRC) for three years. This scheme
is designed to improve energy efficiency and cut emissions.
The CRC affects large public and private sector organisations
across the UK, who are collectively responsible for approximately
10% of the UK’s greenhouse gas emissions. Participants include
supermarkets, water companies, banks, manufacturing facilities,
local authorities and all central government departments.
Qualification for the next three year phase of the scheme
which commenced in April 2014 is based on electricity usage.
At Melksham, the installation of settled half-hourly meters has
significantly reduced its electricity usage from that of phase 1 and
the site does not qualify for inclusion in this next phase.
Mandatory carbon reduction scheme
The Companies Act 2006 (Strategic Report and Directors’ Reports)
Regulations 2013 requires quoted companies to include within
their annual report details of greenhouse gas emissions for which
they are responsible and other environmental matters for which
key performance indicators are selected.
Avon has employees in each of its facilities who are responsible for
collecting and acting on the data. The collected data allows the
organisation to monitor and examine carbon emission trends and
act accordingly.
Emissions at Melksham have increased due to increased
production on the tile moulding press, which requires steam to
achieve temperature.
Johnson Creek emissions increased due to the output from the
new Cluster Exchange facility at the Johnson Creek site.
Health and safety (H&S)
The past year has been an exciting time for the health and safety
professionals in our organisation with the introduction of monthly
global H&S meetings for the UK and US sites. Through information
sharing, knowledge and ideas we are able to implement best
practice across our global sites.
GLOBAL ISO 9 0 01:20 08
CER TIFIC ATION
In June 2014, Avon Protection was recommended by Lloyds
Registrar for Quality Assurance (LRQA) for Global ISO 9001:2008
certification and formal approval of this standard has now been
received. We have developed a Quality Management System (QMS)
to meet our customers' quality requirements while continually
improving our operational processes.
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
Greenhouse Gas (GHG) emissions
Description
GHG
emissions
in tons
2012/13
GHG
emissions
in tons
2013/14
Monthly meeting reports are displayed in our facilities and on
our Avon Communication Exchange (ACE) intranet site for all
employees and invited visitors to view and comment.
Scope 1
Mandatory reporting of emissions
directly from our operations
which include fuel in our vehicles
and refrigeration leakage.
7
5
Scope 2
Mandatory reporting of emissions
from electricity, gas and water
usage at each facility.
8,496
8,185
Over the next 12 months we will identify areas in which we
can create standardised global policies, procedures and
documentation; this will assist by removing any ambiguity
regarding procedures and safety arrangements, therefore
improving the safety of our working environments.
Our management teams put considerable focus on dangerous
occurrence reporting. This reporting ensures that any potential
hazards are reported early and appropriate action taken before
they cause an incident or a serious accident. These actions are
key to ensure our facilities are safe places in which to work.
Scope 3
Voluntary reporting of emissions
including business travel,
waste recycling, well to tank
and transport and distribution.
747
5,372
Legionella
Total GHG emissions
9,250
13,562
**For 2013/14 scope 3 voluntary reporting purposes we have included ‘well to tank,’ all
company business travel emissions and ‘transport and distribution’ figures. These were added
as suggested internal reporting categories this year therefore there will be no correlation with
the previous year.
Facility
2012/3
Scope 2
Emissions
2013/4
Scope 2
Emissions
2012/3
Average
Headcount
2013/4
Average
Headcount
Melksham
3,300
2,686
Cadillac
2,062
2,066
Picayune
Belcamp
913
149
1,019
155
196
304
46
40
205
304
37
44
Johnson Creek
2,072
2,259
156
160
2014 has seen an increase in focus regarding the prevention of
any Legionella outbreak within the workplace by the Health
and Safety Executive (HSE). There has been a concerted effort
to inspect all premises in the UK with a cooling tower. Our
Melksham site had a HSE inspection earlier in the year with a total
clean bill of health given, however we as an organisation have
decided to do more than our legal requirements by increasing
our external servicing and cleanliness agreements.
Safety teams
A best practice initiative from our Cadillac site, which we will
roll out across all sites next year, is that of empowering our
employees to become more involved in health and safety
decisions and best practices. Safety teams will be established at
each of the facilities to conduct internal audits, inspections and
lead by example, further increasing the positive safety culture
throughout our organisation.
NUR TURING
TALENT
Avon is committed to recognising, developing and recruiting new
talent across our businesses. We believe that engaging bright
talented people is the backbone to real innovation. UK A’ Level
student Georgiana joined the Melksham design team this year for
work experience in design and engineering.
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37
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E N V I R O N M E N TA L A N D C O R P O R AT E S O C I A L R E S P O N S I B I L I T Y
Corporate social responsibility
Investing in our people
Our success depends on our people. The Group recognises
the importance of our employees in helping us to achieve our
corporate goals.
We are committed to providing a working environment where
everyone feels respected and valued and pursue 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.
During the year, the Board put in place a formal diversity policy
setting out its approach to diversity, a copy of which can be
found in the corporate governance section of our website.
The Group aims to support all employees to develop to their full
potential and we are committed to recognising, encouraging
and developing talent across our business. 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.
During the year we launched our flagship global ‘Professional
Development Programme’ which enabled participants across
our business to manage their own career development through
setting self-learning objectives with the help and guidance of a
mentor from within the organisation.
We strive to be a great place to work for all our employees and it
is under this banner that we have reinvigorated and re-launched
our CREED recognition and reward programme. 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
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D
Understanding and delivering our CUSTOMER
(internal or external) needs and expectations
Motivating our people through appropriate
RECOGNITION and reward programmes
Providing responsibility through meaningful
employee EMPOWERMENT
Ensuring a friendly and ENGAGED environment
that embraces worthwhile communications
where innovation is encouraged
Recognising the value of cultural DIVERSITY
and talent across our business
All employees have a part to play in ensuring Avon remains a
great place to work. One of our corporate values is to motivate our
people through appropriate recognition and reward programmes.
Under our CREED reward programme, employees can nominate
colleagues whom they believe embody one or more of the CREED
values in their job performance. Each month all those nominated
receive a recognition award from the Group, with a quarterly and
annual winner selected from those nominated.
Nurturing talent
In the UK we support student engineers by enabling two
second year university students to spend a year as members 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. We are also able to provide additional opportunities
through secondments between our global sites.
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
Group 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 payroll deductions.
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
The gender of our staff at 30 September 2014 was as follows:
Non-Executive Directors
Executive Directors
Senior Managers
Other Employees
Total
Male
Female
2
2
14
475
493
1
-
4
262
267
Six of the senior managers (four male, two female) are also
directors or officers of subsidiary undertakings.
Employee Opinion Survey
We understand that to provide growth and expand our future
opportunities, we need a happy and motivated workforce.
Understanding and acting on the concerns of our employees
is the key to our future and we encourage active engagement
across our sites throughout the year. Our annual employee
opinion survey gives the opportunity for employees to give
anonymous feedback to management, which we assess and use
to inspire improvement plans.
The survey helps to ensure Avon listens to its employees and
strives for continuing improvement. The responses are evaluated
by every manager level and it will continue to be an annual forum
that helps Avon invest in its people and drive success.
The launch of our ‘Professional Development Programme’
will help employees develop to their full potential
The reinvention of CREED, our recognition and reward
programme will encourage, reward and motivate our people
We listen and drive forward
improvements to make Avon a
Great Place to Work
Community and charitable contributions
We aim to work with and for the communities in which we
operate, recognising our role as a major employer in our
geographical site locations. We are aware of the impact the
Group has on its local environment and seek to contribute to its
economic, social and environmental sustainability.
Engaging with, and giving back positively to, the local community
ensures that we are supporting our employees, their friends and
families. We also work with many charitable organisations who
work in the areas of business in which we operate.
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 serving, and a number of
our employees are part of service families. We support their
commitment and dedication to serve.
In the US we support our employees and their families in
extracurricular activities through sponsoring local sports and
school teams. In the UK, we have regular charitable giving events
aimed at raising funds for both local and national causes.
Listed below are a few examples of the organisations we have
helped this year across our US and UK sites:
• Cadillac Firefighters
• CAPS - Soccer Field Improvement
Target
2014
2013
• Creative Embroidery
Response rate
>50%
45%
71%
• Friends of the Library
Avon is a great place to work
>60%
75%
80%
• Mercy Hospital surgical wing
The survey results are another of the Group's key
performance indicators.
• Pines Pin Busters
• Wexford Habitat sponsorship of a habitat house
We listened to the 2013 results and acted to make positive change
across the company:
A new group wide HR role will bring HR policies into line
across all sites
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
39
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• Wexford County historical museum restoration
• Cancer Research UK
• American Red Cross - Service to Armed Forces
• 1st Bowerhill Scout Group, Melksham
• Cadillac Community Schools
• Alzheimer’s Support, Trowbridge
• Cadillac Area Festival hospice motorcycle ride
• Splash Wiltshire, Melksham
• First Baptist Church shepherd's table
• Children’s Hope Charity
• United Way - Corp Pledge
Community action
• Cadillac Leadership lakefront playground
• Cadillac Area Hockey
• Franklin PTO technology upgrade
• Tight Lines for Troops
• CAPS Center Lake Fund field trips for school kids
• The Cadillac Wellness Team (and their families) participated in
the Cadillac Rotary Club Memorial Day 5K. Funds raised from
this race help support Rotary community projects, including
a student exchange programme
• Donation of rubber benches and assistance to a Melksham
primary school playground renovation
• French American Chamber table sponsorship for comerica
• Provided employee sponsorship through the Cadillac Chamber
• Wexford Missaukee CTC
• CASA - Sponsorship of baseball team
•
JDRF - Diabetes Ride sponsorship
• Cadillac Leadership playground project
• Oasis Family Resource cigar dinner
• Alex Harrison Memorial bullying stance
• DbarD Ranch Ride for A Cure, Spectrum Health Cancer Center
• Cadillac Leadership Programme. This programme realises
the fundraising and completion of a community project.
This year’s class will provide the build of a play structure
along the community lakefront in Cadillac.
• Representation on the Baker College Advisory Committee,
Wexford-Missauke, Career Technical Center Advisory
Committee, Cadillac Chamber Leadership Board,
MAT2 Initiative, Mercy Hospital Board, SHRM Cadillac
Chapter, and Cadillac Area Health Coalition, CAIG group,
Cadillac Area Industrial Foundation, Mercy Finance
Committee and Cadillac Area Chamber Board of Directors
• Feeding America Food Truck
• Army Cricket Officials Association & Combined
Cricket Officials Association India 2013 tour
• British Mastitis Conference
• KL National Herdsman’s Conference
• National Mastitis Council Regional
Miles Ingrey-Counter
Company Secretary
19 November 2014
40
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
B O A R D O F D I R E C T O R S
David Evans
Chairman
“The successful implementation of our strategy has delivered exceptionally
strong growth and excellent cash generation in 2014. We remain convinced
of the long-term growth potential for both our Protection & Defence and
Dairy businesses.”
Aged 68. 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
and has 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.
Peter Slabbert
Chief
Executive
Stella Pirie OBE
Non-Executive
Director
Aged 52. 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 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 64. Stella was appointed as a
Non-Executive Director in March 2005
and at the completion of 10 years’
valuable service will retire from the
Board at the annual general meeting
on 29 January 2015. Stella 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. Stella was awarded
the OBE in 1999.
Andrew Lewis
Group Finance
Director
Richard Wood
Non-Executive
Director
Aged 43. Andrew joined Avon in
September 2008 as Group Finance
Director. He holds a first 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 Directors' 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 69. 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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D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
41
D I R E C T O R S ' R E P O R T
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
The 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 2014. 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
The only significant agreements to which the Company is a
business (including by reference to key performance indicators),
party which take effect, alter or terminate upon a change
a description of the principal risks and uncertainties facing the
of control of the Company following a takeover bid are
Group, and commentary on likely future developments is set out
the Company's revolving credit facility agreement and the
on pages 11 to 33.
Performance Share Plan.
Financial results and dividend
The unsecured revolving credit facility of up to $40 million
provided by Barclays Bank PLC and Comerica Bank contains
The Group statutory profit for the year after taxation amounts
a provision which, in the event of a change of control of the
to £10,811,000 (2013: £8,837,000). Full details are set out in the
Company, gives the lending banks the right to cancel all
Consolidated Statement of Comprehensive Income on page 74.
commitments to the Company and to declare all outstanding
An interim dividend of 1.87p per share was paid in respect of the
credit and accrued interest immediately due and payable.
year ended 30 September 2014 (2013: 1.44p).
A change of control will be deemed to have occurred if any
The Directors recommend a final dividend of 3.74p per share
(2013: 2.88p) resulting in a total dividend distribution per share for
the year to 30 September 2014 of 5.61p (2013: 4.32p).
Share capital
As at 19 November 2014, the issued share capital of the Company
was 31,023,292 ordinary shares of £1 each. Details of the shares in
issue during the financial year are set out in note 20 of the financial
statements.
person or persons acting in concert (as defined in the City Code
on Takeovers and Mergers) gains direct or indirect control 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
The rights and obligations attaching to the Company’s shares are
contain any specific right to compensation for loss of office on
set out in the Company’s Articles of Association ('Articles'), copies
a takeover bid.
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, to attend and speak at general
meetings of the company, to exercise voting rights in person or
Substantial shareholdings
At 10 November 2014, the following shareholders held 3% or
by appointing a proxy and to receive a dividend where declared
more of the Company’s issued ordinary share capital:-
or paid out of profits available for that purpose. 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
Schroder Investment Management
BlackRock Investment Management
JPMorgan Asset Mangement
of the Companies Act 2006, or where the holder is precluded from
Henderson Global Investors
transferring or voting by the Financial Services Authority’s Listing
Avon Rubber p.l.c. Trustees
Rules or the City Code on Takeovers and Mergers. The 1,081,810
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 terms which provide voting rights to the Trustee
and, in certain circumstances under the terms of joint ownership
awards, to the recipient of the awards.
Franklin Templeton Investments
18.0%
11.5%
5.2%
3.5%
3.5%
3.3%
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
Acquisition of own shares
During the year the Directors had the power to make market
The Board confirms that Mr Wood has contributed substantially
purchases of up to 4,608,492 of the Company’s own shares in
to the performance of the Board. The Chairman gives his full
issue on the basis as set out in the explanatory note on page 137.
support to Mr Wood’s offer of re-election and draws the attention
The Company did not acquire any of its own shares in 2014.
of shareholders to his profile on page 41.
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 last 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. During the year the Company
issued 300,000 ordinary shares of £1 each at par to ACS HR
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. Neither of the Executive
Solutions Share Plan Services (Guernsey) Limited (in its capacity
Directors is currently appointed as a non-executive director of
as the trustee of the Company's Employee Share Ownership Trust
any limited company outside the Group.
No.1) as described in note 20.
These resolutions remain valid until the conclusion of this
year’s AGM when resolutions to renew these authorities will be
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
proposed. Dividends on shares held by the two Employee Share
ordinary shares of the Company can be found on page 70.
Ownership Trusts have been waived.
Directors
Directors’ and officers’ indemnity insurance
Subject to the provisions of the Companies Act 2006 ('the
The names of the Directors as at 19 November 2014 are set out on
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.
page 41.
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 no changes to the membership
of the Board. The Board is satisfied that Mr D R Evans, Mrs S J Pirie
and Mr R K Wood are independent Non-Executive Directors.
Mrs S J Pirie, having completed nine years as Non-Executive
Director in March 2014, will retire from the Board with effect from
the conclusion of the AGM.
The search for Mrs Pirie’s replacement, led by David Evans as
Chairman of the Nominations Committee, is underway as at the
date of this report. Mr Wood will replace Mrs Pirie as the Senior
Independent Director following her retirement.
Mr A G Lewis retires by rotation and, being eligible, offers himself
for re-election.
The Board confirms that Mr Lewis has contributed substantially
to the performance of the Board. The Chairman gives his full
support to Mr Lewis’ offer of re-election and draws the attention
of shareholders to his profile on page 41.
Mr R K Wood retires by rotation and, being eligible, offers himself
for re-election.
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43
D I R E C T O R S ' R E P O R T
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
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 £7,046,000 (2013: £6,407,000) further details of which
are contained in the Strategic Report on pages 11 to 33.
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 including reference to our policy on diversity are
set out on pages 34 to 40.
Political and charitable contributions
No political contributions were made during the year or the
prior year. Contributions for charitable purposes amounted to
£13,542 (2013: £15,305) 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
There have been no significant events affecting the Company or
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 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 other
irregularities.
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.
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
Having taken advice from the Audit Committee, the Board
The auditors, PricewaterhouseCoopers LLP, have indicated
considers that the annual report and accounts, taken as a whole,
their willingness to continue in office and a resolution
is fair, balanced and understandable and provides the information
concerning their reappointment will be proposed at the annual
necessary for shareholders to assess the Company’s performance,
general meeting.
business model and strategy.
Each of the Directors, whose names and functions are listed on
Corporate governance
page 41 confirm that, to the best of their knowledge:
The Company’s statement on corporate governance can be
the Group financial statements, which have been prepared
in accordance with IFRSs as adopted by the EU, give a true
and fair view of the assets, liabilities, financial position and
profit of the Group; and
the Strategic Report contained on pages 11 to 33 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 2014, the number of days' purchases
outstanding at the end of the financial year for the Group was
found in the Corporate Governance Report on pages 46 to 50.
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 our
Hampton Park West facility, Semington Road, Melksham,
Wiltshire SN12 6NB on 29 January 2015 at 10.30am. The Notice
of Meeting can be found on pages 132 to 137. Registration will
be from 10:00am.
Miles Ingrey-Counter
Company Secretary
two (2013: 19 days) based on the ratio of trade creditors at the
19 November 2014
end of the year to the amounts invoiced during the year by trade
creditors. At 30 September 2014 there were no trade creditors in
the balance sheet of the parent company (2013: nil).
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.
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Statement of compliance with the UK Corporate Governance Code
The Board of Directors believes in high standards of corporate governance, notwithstanding the Company’s size and status as a member
of the FTSE SmallCap index, 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 2014. 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 54 to 73.
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. Stella Pirie, having
completed nine years as Non-Executive Director, will retire
with effect from the conclusion of the AGM in January 2015.
Richard Wood, who was appointed to the Board as a Non
Executive Director on 1 December 2012 will replace Mrs Pirie as
the Senior Independent Director.
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. 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 41. 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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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
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
Consideration and approval of all proposed acquisitions
and mergers
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 arrangements in place
for succession planning, and the procedure for appointing new
directors to the Board, and the need for all directors to be given
the opportunity to regularly update and refresh their skills and
knowledge. 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.
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Committees of the Board
Of particular importance in a governance context are the 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 as Chairman. Mrs S J Pirie
will remain Chairman of the Audit Committee and Senior
Independent Non-Executive Director until her retirement from
the Board at the conclusion of the AGM. The Board is satisfied
that Mrs Pirie has recent relevant financial experience and her
profile appears on page 41. It is the Board’s intention that Mrs
Pirie’s replacement takes her place as Chairman of the Audit
Committee and will therefore have recent relevant financial
experience. Mr D R Evans is Chairman of the Nominations
Committee and Mr R K Wood is Chairman of the Remuneration
Committee.
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 54 to 73. The Board
schedules eight regular meetings per year.
Meetings during year ended 30 September 2014
Board
Committee
Audit Remuneration Nominations
Committee
Committee
S.J. Pirie
R.K. Wood
D.R. Evans
P.C. Slabbert
A.G. Lewis
* Attendance by invitation
8
8
8
8
8
3
3
3
3*
3*
4
4
4
4*
-
2
2
2
2*
-
This year four further meetings have been held on an ad hoc
basis, including by telephone conference, in connection
with the renegotiation of the Company's banking facility
arrangements, the allotment and issue of new shares and
internal transactions. In addition, between them, the three
Non-Executive Directors visited the Group’s main US sites
accompanied by the Chief Executive.
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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At the annual general meeting on 29 January 2015, 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 plans 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.
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 52 to 53 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 30 and 31.
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.
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C O R P O R AT E G O V E R N A N C E
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 44 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
19 November 2014
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 Code of Conduct which reinforces the
importance of a robust internal control framework throughout
the Group. The Board recognises that an open and honest
culture is key to understanding concerns within the business
and to uncovering and investigating any potential wrongdoing.
The Code sets out the procedure whereby individuals may raise
concerns in matters of financial reporting or any other matter
of concern with management and directly with the Chairman of
the Audit Committee to ensure independent investigation and
appropriate follow up action. The 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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N O M I N AT I O N S C O M M I T T E E R E P O R T
The Committee met twice during the year in connection with
identifying a replacement for Mrs Pirie, who will retire from the
Board at the next AGM.
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
pages 34 to 40.
David Evans
Chairman
19 November 2014
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 Nominations Committee is also responsible for the Board’s
policy on diversity which was adopted in September 2014.
The Board recognises the benefits of diversity. Diversity of skills,
background, knowledge, international and industry experience,
and gender, amongst many other factors, will be taken into
consideration when seeking to appoint new directors to the
Board. Notwithstanding the foregoing, all Board appointments
will always be made on merit.
The Board’s diversity policy can be found in the Corporate
Governance section of the website.
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A U D I T C O M M I T T E E R E P O R T
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.
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 2014 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 closure
of the Lawrenceville facility. The Committee agreed that the
position taken in the financial statements is appropriate
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 2014 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 2014 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
Review and approval of a new Code of Conduct
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 2014 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.
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PricewaterhouseCoopers LLP ('PwC') have been the Company’s
external auditors for a number of years. The Committee last
reviewed the external audit mandate in 2012 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. The provision of external audit
and tax compliance are separated and tax compliance services
are provided by BDO in the US and Tax Partner in the UK. The
Committee considers the reappointment of the external auditor
and their independence on an annual basis.
The new regulatory requirement to rotate the external audit
mandate does not affect the Company until 2020 however,
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.
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. 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 87 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.
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 2014 and 2015.
The Committee 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
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, the new business management software
system continued to be rolled out throughout the Group.
The 2014 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. The rollout will
continue towards completion in 2015.
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 46 to 50.
Stella Pirie OBE
Chairman of the Audit Committee
19 November 2014
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F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
Letter from the Chairman of the Remuneration Committee
I wrote to you last year setting out a proposal for a three year
remuneration package for Executive Directors and to outline
the general remuneration policy that we would adopt for the
Company to prepare for the challenges ahead and to align
remuneration with changing City guidelines.
Before proposing this new policy I consulted and took into
account the views of a number of leading shareholders.
The new policy and the package for Executive Directors was
overwhelmingly supported by shareholders at the Annual
General Meeting in February 2014. It has since been used to
incentivise the Executive team during the current financial year
with great effect.
Conceptually, it aimed to reward success for driving sustained
high levels of growth based on a new strategic approach
introduced by the new Chairman and approved by the Board.
The remuneration changes were aimed at rewarding success
and not failure and included a greater proportion of variable
pay for achievement together with a 25% deferment to protect
against under or variable performance and a claw back for mis-
statements.
It is apparent from the impressive results being reported
this year that the new remuneration policy has contributed
significantly.
Last year we did not review the fees for Non-Executive Directors,
although they were due for review in 2012, but informed
shareholders that we would do so this year on a new three year
cycle under the new remuneration policy. I will comment on
that review later in this letter and explain how we propose to
align fees better with the challenges placed on a small board
while keeping them within the guiding benchmark levels for
similarly sized companies.
As was the case last year, my report covers the remuneration of
both Executive and Non-Executive Directors and is split into a
section that sets out the policy approved last year and which
will remain in force for another two years, together with an
annual remuneration section that gives details of remuneration
for this year. The section on annual remuneration will be subject
to an advisory vote by shareholders, but it will not be necessary
to hold a shareholder vote on remuneration policy as it is not
being changed.
Key features of the current remuneration policy are:-
1. Base salaries
1.1 Executive Directors
The current remuneration policy for Executive Directors froze
basic salaries for three years from October 2013. Accordingly,
the 2% annual cost of living increase awarded to the wider
workforce this year will not be paid to the Executive Directors.
1.2 Non-Executive Directors
Non-Executive Director fees have not been reviewed since 2009
and the Company Chairman’s fee has not been reviewed since
2011. Last year the review was postponed to allow the Company
Chairman to assess the composition and demands required of
the Board to implement the new growth strategy approved
by the Board. Both fees have now been reviewed with effect
from 1 October 2014 in line with the methodology proposed
in the remuneration policy and approved by shareholders in
February 2014. The policy aims to provide compensation in line
with the demands of the roles at a level that attracts high calibre
individuals and reflects their experience and knowledge.
The new fees will be fixed for three years from 1 October 2014.
Having taken into account the EY benchmark study, which
reviewed fees against those paid in other similar sized UK
listed companies, together with the different demand pattern
of Board work required by the Company, we have decided
to increase base fee levels from £35,000 to £38,500 per year.
In addition we have adjusted committee fees to reflect the
increased level of work expected in a small board where
non-executive directors have overlapping roles and are required
to sit on several committees. Whilst the Committee Chairman
fee will remain at £10,000 per year we have introduced a new
fee for committee membership of £2,000 per year.
In order to maintain the Company Chairman’s independence
we do not propose to make any form of committee payments
to him, although he does sit on all the Company committees
and chairs the Nominations Committee. Instead, we have
increased his total fee from £100,000 to £125,000, which is the
median level of fee in the benchmarking study of similar sized
businesses prepared by EY in October 2014.
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2. Executive Directors' variable pay
Last year the Committee increased the cap on the quantum of
variable pay in order to reward exceptional performance but
this increase was counterbalanced by measures designed to
protect against under or variable performance.
For the first 100% of salary, the split of targets is consistent with
those used in previous years. The additional 50% of salary is
calculated according to a ratchet based on earnings per share
growth occurring in excess of 20% growth over the previous
year earnings per share. Details of the ratchet are set out in the
remuneration policy report.
This has been the first year of operation for the new maximum
award levels and given the strength of the financial results,
the Committee firmly believes that the ratcheted performance
condition and the increased level of the bonus cap have been
sensibly applied to good effect.
The new deferral rule requires 25% of all annual bonus
payments related to the performance of the business 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 over that
period, any reduction in the share price will reduce the value
of the bonus. The number of shares subject to the deferral
arrangement is set out in the annual remuneration report.
3. Long-term incentives for Executive Directors
To balance the increased short and medium-term incentives
introduced last year, the Committee decided to make no
changes to the conditional awards made under the Performance
Share Plan approved by shareholders in 2010. Grants for both
the Chief Executive and Group Finance Director were therefore
equal to 100% of salary in December 2013 and the same will
apply to the awards that will be made in December 2014.
The Committee regularly monitors changes in market practice
and shareholder expectations concerning the operation of
long-term incentive schemes. To coincide with the half-way
point in the life of the Performance Share Plan, the Committee
will review the operating conditions of the current plan during
the coming financial year with a view to making the changes
that are necessary to bring future awards made under the Plan
in to line with market practice by the end of 2015. With regard
to the three-year performance period for awards under the
Performance Share Plan which ended on 30 September 2014,
the earnings per share target is expected to be met in full
and the total shareholder return is expected to lie between
the median and upper quartiles. Under the scheme rules,
approximately 90% of the awards are therefore likely to vest
in December 2014.
An announcement on the vesting will be made at the time.
Conclusions
The Committee takes an active interest in shareholder views
and developments in best practice. I held a constructive
consultation with major shareholders last year and will do
so in future years when we seek to make changes to the
remuneration policy beyond the existing discretion it contains.
The Committee believes that the new remuneration structure
has incentivised the Executive team this year to deliver
strong and sustainable growth by offering increased reward
for exceptional performance. We remain comfortable that
the policy has not encouraged undue risk taking as the
performance metrics have been fully aligned with targeted
improvements in the Company's key performance indicators.
Incentive bonuses are subject to claw back provisions and
part of the annual bonus will, for the first time this year, be
deferred into Company shares. These features, allied to our
share ownership guidelines, continue to ensure that the current
remuneration policy is aligned with short, medium and long-
term shareholder interests.
On behalf of the Board, I would like to thank shareholders for
their continued support. The Committee hopes that the new
form of reporting we adopted for the first time last year is clear
but I would welcome your feedback and suggestions
for improvements.
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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. 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. EY provide annual performance
monitoring data and share award valuations for review by the
Committee in relation to the Performance Share Plan. EY also
provide remuneration benchmarking 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.
The Committee addressed the following main issues during the
last year:
Reviewed the remuneration of the Executive Directors and
the other members of the Group Executive management
team and decided to make adjustments with effect from 1
October 2013
Approved the annual bonus payments to the Executive
Directors in November 2013
Approved the annual bonus plan for the Executive Directors
for the 2014 financial year
Reviewed and confirmed the vesting of the 2010/11
Performance Share Plan awards in December 2013
Reviewed and approved the 2013/14 Performance
Share Plan awards granted in December 2013 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 2014 financial year, the Committee has:
Recommended fee increases for the Non-Executive
Directors for the 2015 financial year effective 1 October
2014, which were approved by the Chairman and the
Executive Directors
Recommended a fee increase for the Chairman for the
2015 financial year effective 1 October 2014, which was
approved by the Senior Independent Director and the
Executive Directors
Approved the annual bonus payments to the Executive
Directors and the Group Executive management team,
following completion of the external audit in
November 2014
Approved the annual bonus plan for the Executive
Directors and the Group Executive management team
for the 2015 financial year
Made preparations for the 2014/15 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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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:
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.
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 2013 EY
benchmarking report have been relied upon in setting the
remuneration packages for the Executive Directors and this
remuneration policy. Employees have not been specifically
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 all management 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
Last year the Chairman of the Remuneration Committee consulted
with the three largest Company shareholders with a combined
holding of 40% on the (then) proposed remuneration policy. 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 were adopted.
There has been no further engagement with shareholders in
relation to the remuneration policy since the last annual
general meeting.
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Detailed policy
The table below summarises the main components of the remuneration policy approved by shareholders at the February 2014 annual
general meeting for the three year period commencing 6 February 2014.
The Remuneration Committee has 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 2013
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
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
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.
Paid in cash except 25% is
deferred into shares to be held
for two years
2013/14 (% of salary):
PC Slabbert 150%
AG Lewis 150%
2014/15 and 2015/16
(% of salary):
No change
Not pensionable
Up to 150% of basic salary for
the CEO and the FD in 2014
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
Not applicable
No change
No change
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
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Element of
remuneration
Purpose and
link to strategy
Operation
Maximum
potential value*
Performance
targets
Changes
from 2013
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
2013/14 (% of salary)
PC Slabbert 100%
AG Lewis 100%
2014/15 and 2015/16
(% of salary)
No change
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%)
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
200% of salary for
Executive Directors for
awards vesting from
December 2014
Not applicable
No change
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
2013/14 (% of salary)
PC Slabbert 15%
AG Lewis 15%
2014/15 and 2015/16
(% of salary)
No change
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There are no elements of remuneration other than basic salary,
benefits and pension that are not subject to performance
requirements.
The chart below illustrates for both the Chief Executive and
Group Finance Director how the remuneration packages vary at
different levels of performance under the current policy, shown
as a percentage of total remuneration opportunity.
100% of variable pay vests
(maximum award)
32%
41%
27%
50% of variable pay vests
(target)
48%
31%
21%
0% of variable pay vests
100%
0% 20% 40% 60% 80% 100%
Salary, benefits and pension
Bonus
Performance shares
Basic salary and benefits
The basic salary for each Executive Director is 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 2014
£330,000
£252,000
Year commencing 1 October 2014
£330,000
£252,000
Percentage increase
0%
0%
The Group's employees have received an increase of approximately
2.6% over the same period, including annual cost of living,
promotional increases and increases based on exceptional
performance.
The Committee first used EY 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
Based upon the report, the significant growth delivered and
the future prospects for growth, the Committee implemented
a remuneration strategy in October 2011 which targeted the
median pay level identified in the EY 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 growth
and shareholder return consistently delivered by the Executive
Directors and the Group Executive management team, the
Committee confirmed that the final incremental step increase to
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salaries should be made to achieve the median level identified in
the EY 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 are now frozen until the next benchmarking review to be
carried out in 2016.
Details of the comparator group used in the 2011 EY
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.
Annual cash bonus
The Executives' annual bonus arrangements are focused on the
achievement of the Company's short and medium 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.
2013/14
For the year ended 30 September 2014, 120% of the Executive
Directors’ bonus potential, capped at 150% of salary, was based on
the achievement of Group financial targets. The remaining 30% was
based on achieving measurable personal performance targets, as
shown below:
PC Slabbert
AG Lewis
1. FINANCIAL TARGETS
(a) Group profit budget achievement (Group PBITE)
25%
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)
25%
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 and other adjustments
from both measures.
(d) Earnings per share growth in excess of 20% over the previous year
50%
50%
Calculated according to a ratchet mechanism set in more detail below.
2. PERSONAL PERFORMANCE TARGETS
A portion of bonus can be earned based on an individual reviewer's assessment of personal
performance against personal performance targets set at the beginning of the financial year.
30%
30%
TOTAL potential bonus 2014 as a percentage of basic salary
150%
150%
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Performance measures (a) to (c) were the same as in previous
years 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.
Performance measure (d) was introduced for the first time for
the 2013/14 year and allows the Executive Directors to earn
annual bonus in excess of 100% of salary in return for delivering
exceptional EPS growth in excess of 20% each year.
These percentages are fixed for the three years of the current
policy and will be reviewed in 2016.
The additional 50% of salary is only payable for truly exceptional
performance, calculated according to a ratchet based on EPS.
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:
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 IAS 19
(revised) and the amortisation of acquired intangible assets.
% ADDITIONAL BONUS EARNED
V EPS GROWTH %
Y
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F
O
%
0
0
1
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E
50
40
30
20
10
0
N
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D
A
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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 placed on salaries moving
forward only at the median level when the Committee is trying
to implement a strategy for growth targeted to be well above the
median in the comparator group. It is expected that this bonus
policy will be fixed for the life of the current remuneration policy to
reflect the challenge placed on the team of achieving sustainable
high growth in a non-turnaround situation.
At the same time the Committee 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 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.
This will be applied for the first time this year in connection with
the annual bonus payments to be made in November 2014.
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 an updated plan. 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). These
financial performance conditions remain appropriate for a growing
business and the expectations of shareholders over the life of the
current policy. They will therefore be applied to the next cycle of
awards in December 2014. Non-financial performance conditions
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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
three year period 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
percentage 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 with 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 diversity 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:
If the Company's TSR performance is below the median TSR
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
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%. In the
coming year the Committee intends to review the operating
conditions of the Plan with a view to making the changes that
are necessary to bring future awards in line with current market
practice by the end of 2015. This may include a further reduction
in the minimum TSR vesting target.
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 with 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 to be 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 targets
are ahead of the expectations for those businesses in the
Company's sector where longer-term forecasts are published.
EPS growth targets
At or less than RPI +3%
% of award vesting
Nil
100%
If the Company's TSR performance is between the median
At or greater than RPI +8%
and upper quartile TSR of the comparator group, shares may
vest on a pro rata basis
In addition, the Committee has discretion to 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.
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The maximum value that can currently be granted under the
Plan rules in any year remains at 100% of salary.
The current remuneration 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 EY benchmarking report.
This is fixed until 2016 when it will be reviewed by reference to a
new benchmarking report.
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 loans 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 2013, 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. A further award will be made in
December 2014 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 was
equivalent to 1.5 times base salary and for other recipients the
shareholding requirement was 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 awards that vest from
December 2014 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 71.
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 £150, 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. The maximum
contribution for each 12 month period is $3,000 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 a year, with the end result that after eight years,
no reduction would apply if Mr Slabbert retired on or after his
55th birthday.
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
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.
During the year to 30 September 2014 Mr Slabbert has been a
member of the money purchase section of the Plan.
Under the current remuneration policy any UK-based Executive
Directors joining the Company are offered defined contribution
arrangements.
Mr Lewis is 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.
Monthly contributions have been paid to Mr Slabbert as a salary
supplement since then. 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 during the life of the current policy.
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
Service contracts and policy on
payments for loss of office
P.C. Slabbert
28 September 2009
A.G. Lewis
28 September 2009
8
22
12 months 12 months
12 months 12 months
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. 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.
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D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
65
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
6 February 2014
1 December 2012
7 February 2013
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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 EY. Under the policy approved by shareholders in February
2014, fee levels for the Chairman and Non-Executive Directors
are benchmarked every three years and adjusted to the
median level of the comparator group. The aim is to provide
compensation in line with the demands of the roles at a
level that attracts high calibre individuals and reflects their
experience and knowledge. The first benchmarking recently
took place and increases have been made, 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:
2015
2014
% increase
Chairman
£125,000
£100,000
Base fee Non-Executive
Committee Chairman fee
Committee attendance fee
£38,500
£10,000
£2,000
£35,000
£10,000
n/a
25%
10%
-
n/a
The Chairman and the Non-Executive Directors each have a
letter of appointment. The initial period of appointment for
Mrs SJ 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 DR Evans
was also three years and this was extended on a rolling annual
basis on 31 May 2010. Mr RK 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 annual
general meeting 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 reached nine years' service on 1 March
2014 and is standing down from the Board at the annual general
meeting on 29 January 2015.
Details of her successor will be communicated in due course,
but his or her remuneration will be at the levels described
above.
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
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 2014 was as follows:
Basic salary
Pension/ other
and fees
£000
supplements
£000
Annual
bonus*
£000
Other
benefits**
£000
Executive Directors
A.G. Lewis
P.C. Slabbert (highest paid Director)
Non-Executive Directors
D.R. Evans (Chairman)
S.J. Pirie OBE
R.K. Wood (appointed 1 December 2012)
The Rt Hon. Sir Richard Needham (resigned 7 February 2013)
Total 2014
Total 2013
252
330
100
45
45
-
772
677
38
50
-
-
-
-
88
72
370
452
-
-
-
-
822
390
2
3
4
-
-
-
9
5
Total
2014
£000
662
835
104
45
45
-
1,691
Total
2013
£000
381
566
100
45
36
16
1,144
* 2014 bonus payments as a percentage of salary were 137% for Mr Slabbert and 147% for Mr Lewis, against maximum percentages of 150%.
** 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 2014 (2013: 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 2014 and 2013.
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
P.C. Slabbert
2014
A.G. Lewis
2013
2014
2013
330
280
252
200
50
42
38
30
3
3
2
2
Subtotal
£000
383
325
292
232
Annual
bonus
£000
PSP*
Subtotal
£000
£000
452
241
370
149
703
808
388
397
1,155
1,049
758
546
Total
Remuneration
£000
1,538
1,374
1,050
778
* 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 2014 was 570p and in 2013 was 351p.
The table of Directors' remuneration for the year ended 30 September 2014 above gives the single total figure for the Non-Executive
Directors for 2014 and 2013.
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Percentage change in remuneration of the CEO compared with other employees (unaudited)
Last year the Committee decided it was not appropriate to compare the percentage change in remuneration of the CEO with the wider
workforce because increases had been made to bring the CEO’s salary (and those of other executives) up to the median level, whereas the
wider workforce were largely already at the median level. This year, in line with current practice, we have reported changes in the CEO’s
remuneration against the wider workforce.
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 employees across the Group:
CEO
All employees
2012/2013
2013/2014
2012/2013
2013/2014
Salary
Benefits
0%
0%
Annual Bonus
+126%
+18%
0%
+88%
+3%
0%
+74%
+3%
0%
+15%
The ratio of CEO fixed pay to average employee fixed pay is 11:1 for the year under review.
Relative importance of spend on pay (unaudited)
The following table shows actual expenditure of the Group and the change in expenditure 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:
Other expenditure in £'000 and as a percentage of global remuneration spend
Global
remuneration
spend
Dividends to
shareholders
Profit
retained
Research
and development
expenditure
Expenditure
on property, plant
and machinery
2014
2013
2012
£'000
32,423
33,314
30,261
£'000
1,422
1,132
941
%
£'000
%
£'000
%
£'000
%
4.4%
3.4%
3.1%
9,389
29.0%
7,046
21.7%
3,731
11.5%
7,705
23.1%
6,407
19.2%
6,175
18.5%
6,888
22.8%
6,627
21.9%
4,789
15.8%
68
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
Annual bonus
The Remuneration Committee determined at its meeting on 13 November 2014 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:
1. Financial Targets
(a) Group profit budget achievement (Group PBITE)
(b) Profit growth on previous year (year on year PBITE growth)
(c) Group cash generation (ratio of operating cashflow to operating profit)
(d) Earnings Per Share growth (ratchet based on additional EPS
growth above 20% over the previous financial year)
2. Personal Performance Targets
PC Slabbert
AG Lewis
Actual
Max.
Actual
Max.
25%
25%
20%
50%
17%
25%
25%
20%
50%
30%
25%
25%
20%
50%
27%
25%
25%
20%
50%
30%
Total potential bonus as a percentage of basic salary
137%
150%
147%
150%
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 2013/14
Accrued pension at 30 September 2014
£
1,762
68,138
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 2014.
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 (2013: nil) because Mr Slabbert reached the standard lifetime allowance in January 2012. During the
year £50,000 (2013: £42,000) 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 £38,000 (2013: £30,000).
All transfer values have been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11.
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D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
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R E M U N E R AT I O N R E P O R T
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
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 2014
was £328,157 (2013: £318,748).
Directors' shareholdings and share interests
Beneficial interests of Directors, their families and trusts in
ordinary shares of the Company were:
S.J. Pirie
D.R. Evans
R.K. Wood
P.C. Slabbert
A.G. Lewis
At the end
of the year
At the beginning
of the year
73,000
40,000
-
202,645
121,110
82,710
40,000
-
187,116
100,496
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 71.
The only change in the interests set out above between 30
September 2014 and 19 November 2014 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 202,690 and 121,155 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 71.
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, 2012/13 and 2013/14 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.
The twofold test based on TSR performance and EPS is in line
with market practice and encourages 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 2013/14 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 2013/14 awards.
The Committee determined in December 2013 that the 2010/11
award vested in full on the basis that the TSR over the three years
from 1 October 2010 to 30 September 2013 was significantly
ahead of the upper quartile of the comparator group. As a
consequence, and as announced to shareholders in December
2013, 123,424 shares were awarded to Mr Slabbert and 68,067
shares were awarded to Mr Lewis.
The Directors' contingent interests in ordinary shares under
the Plan at 30 September 2014 were as follows:
Outstanding awards granted annually under the Plan were
as follows:
30 Sept
2013
Granted in Exercised in
the year**
the year*
Lapsed in
30 Sept
the year 2014***
P.C. Slabbert
292,987
A.G. Lewis
164,960
56,926
43,471
(123,424)
(68,067)
- 226,489
- 140,364
Other senior
employees**** 695,745
159,296
(268,810)
(26,168) 560,063
Total
1,153,692
259,693
(460,301)
(26,168) 926,916
*
**
The award price at the date of grant was 579.7 pence
The market price at the vesting date for the 2010/11 award was 570.0 pence
*** The weighted average remaining life of the awards outstanding at the
year-end is 1.6 years (2013: 1.1 years).
**** This figure includes 201,755 (2013: 241,267) in respect of key management
as defined in note 9 of the financial statements.
70
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
Outstanding awards granted annually under the Plan were
as follows:
Position under shareholding guidelines
2011
2012
2013
Total at 30
Sept 2014*
87,500
50,000
82,063
46,893
56,926
43,471
226,489
140,364
203,258
206,820
149,985
560,063
P.C. Slabbert
A.G. Lewis
Other senior
employees
Shareholding as
Actual
Target Achievement****
Shares held
voluntarily in
at 30 Sept 2014* Value**
Value***
excess of guideline
Number of shares
£000
£000
%
Number of shares
PC Slabbert
202,645
1,247
AG Lewis
121,110
745
495
378
378
296
122,223
59,697
Total
340,758
335,776
250,382
926,916
*
Taken from the table on page 70.
*
In relation to the awards outstanding at 30 September 2014, deferred loan
payments for the awards granted in 2011/2012, 2012/2013 and 2013/2014 will
become due to the Company as follows: PC Slabbert £10,000 (2013: £10,000);
AG Lewis £10,000 (2013: £6,642).
** Using the closing share price on 30 September 2014 of 615p.
*** 150% of current salary for Executive Directors for awards vesting up to
December 2014. Salaries used are those effective 1 October 2014.
**** Actual value as a percentage of current salary.
The award price for the 2013/14 award was 579.7 pence, for the 2012/13 award was
349.5 pence, for the 2011/12 award it was 300.0 pence and for the 2010/11 award it
Dilution
was 196.0 pence.
PSP performance
30 Sept
30 Sept
30 Sept
period years
2011
2012
2013
30 Sept
2014***
30 Sept
2015****
30 Sept
2016****
ending
(Cycle A)
(Cycle B)
(Cycle C)
(Cycle D)
(Cycle E)
(Cycle F)
TSR element*
100%
100%
100%
50%
50%
50%
EPS element**
-
-
-
50%
50%
50%
Total exercisable
rate (% of grant) 100%***** 100%****** 100%*******
-
-
-
*
**
***
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. 90% of the awards are currently expected to vest.
****
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%.
******* These awards vested in full in December 2013 on the basis of a Company TSR
of 214% compared to the upper quartile of the comparator group at 122%
In respect of the 5% and 10% limits recommended by the
Association of British Insurers, the relevant percentages were
7.6% and 9.7% respectively based on the issued share capital at
30 September 2014.
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 2014, 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 Trust gives 2,356,214 shares.
This represents 7.6% dilution against the 10% discretionary plan
dilution limit.
As at 30 September 2014, 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 Trust gives 3,006,760 shares which
represents 9.7% 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 2013 the Avon Rubber p.l.c. Employee Share Ownership
Trust No. 1 subscribed to 300,000 new shares to be used in relation
to future awards under the Plan. At 30 September 2014 there were
1,081,810 shares held in the Employee Share Ownership Trust which
will either be used to satisfy awards granted under the Plan to date,
or in connection with future awards. Of these, 624,214 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.
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
71
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R E M U N E R AT I O N R E P O R T
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
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.
A V O N R U B B E R P L C - T O TA L R E T U R N O N I N V E S T M E N T
r
e
k
n
a
B
e
n
O
n
o
s
m
o
h
T
-
l
a
i
c
n
a
n
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n
o
s
i
m
o
h
T
:
e
c
r
u
o
S
900.00
800.00
700.00
600.00
500.00
400.00
300.00
200.00
100.00
0.00
01 October 2009
30 September 2014
AVON RUBBER PLC FTSE SMALL CAP
Table of historic data
CEO
2014
P.C. Slabbert
2013
P.C. Slabbert
2012
P.C. Slabbert
2011
P.C. Slabbert
2010
P.C. Slabbert
CEO single
figure of total
remuneration
£000
1,538
1,374
1,864
404
428
Annual bonus
Long term incentive
pay out
vesting rates
against maximum
against maximum
opportunity
opportunity
91%
86%
40%
74%
90%
100%
100%
100%
nil
nil
72
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
Share Incentive Plan
During the year to 30 September 2014 Mr Slabbert and Mr Lewis each purchased 263 shares pursuant to the Share Incentive Plan.
As at 30 September 2014, the market price of Avon Rubber p.l.c. shares was £6.155 (2013: £5.50). During the year the highest and lowest
market prices were £6.67 and £5.16 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 disclosure is contained in the table on pages 58 to 59 and associated commentary.
Details of the advisors to the Remuneration Committee and their fees
During the year to 30 September 2014 the Company incurred costs of £11,750 (2013: £3,750) in respect of fees for advisors to the
Remuneration Committee.
Statement of shareholder voting on the Remuneration Report
The shareholder vote on the Remuneration Report for the year ended 30 September 2013 at the AGM which took place on 6 February
2014 was as follows:
Resolution text
Votes for
% for
Votes against
% against
Total votes cast
Votes withheld
Approval of the renumeration report
21,434,185
99.23
166,591
0.77
21,600,776
355,188
The Remuneration Report has been approved by the Board of Directors and signed on its behalf by:
Richard Wood
Chairman of the Remuneration Committee
19 November 2014
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D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
73
C O N S O L I D AT E D S TAT E M E N T O F C O M P R E H E N S I V E I N C O M E
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
Note
1
Revenue
Cost of sales
Gross profit
Selling and distribution costs
General and administrative expenses
2014
2014
Statutory Adjustments*
£’000
£’000
2014
Adjusted
£’000
2013
2013
Statutory** Adjustments*
£’000
£’000
2013
Adjusted
£’000
124,779
(83,264)
41,515
(11,505)
(15,685)
-
-
124,779
(83,264)
-
-
2,678
41,515
(11,505)
(13,007)
124,851
(91,140)
33,711
(9,101)
(11,607)
- 124,851
(91,140)
-
-
-
1,220
33,711
(9,101)
(10,387)
Operating profit
1
14,325
2,678
17,003
13,003
1,220
14,223
Operating profit is analysed as:
Before depreciation and amortisation
Depreciation and amortisation
Operating profit
Finance income
Finance costs
Other finance expense
Profit before taxation
Taxation
Profit for the year
11,12
20,486
(6,161)
2,417
261
22,903
(5,900)
19,220
(6,217)
803
417
20,023
(5,800)
14,325
2,678
17,003
13,003
1,220
14,223
4
4
4
5
6
1
(275)
(187)
-
-
12
1
(275)
(175)
13,864
(3,053)
2,690
(450)
16,554
(3,503)
1
(348)
(253)
12,403
(3,566)
-
-
33
1
(348)
(220)
1,253
(122)
13,656
(3,688)
10,811
2,240
13,051
8,837
1,131
9,968
Other comprehensive expense
Items that are not subsequently reclassified to the income statement
Actuarial loss recognised on retirement benefit scheme
Items that may be subsequently reclassified to the income statement
Net exchange differences offset in reserves
10
(4,851)
(306)
-
-
(4,851)
(9,180)
(306)
(74)
Other comprehensive expense for
for the year, net of taxation
(5,157)
-
(5,157)
(9,254)
-
-
-
(9,180)
(74)
(9,254)
Total comprehensive income / (expense) for the year
5,654
2,240
7,894
(417)
1,131
714
Earnings per share
Basic
Diluted
8
36.2p
35.0p
43.7p
42.3p
30.0p
28.8p
33.8p
32.5p
* See page 19 for further details of adjustments.
** Restated for the change in accounting for pension costs. See Accounting Policies.
74
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
C O N S O L I D AT E D B A L A N C E S H E E T
AT 3 0 S E P T E M B E R 2 0 1 4
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
2014
£’000
2013
£’000
11
12
13
14
19
15
16
18
17
6
10
18
20
20
17,240
19,575
36,815
12,887
19,157
2
2,925
34,971
17,755
1,846
6,852
26,453
16,541
20,387
36,928
13,374
20,677
214
184
34,449
16,680
616
6,073
23,369
8,518
11,080
-
2,315
16,029
1,973
20,317
11,059
2,977
11,279
1,997
27,312
25,016
20,696
31,023
34,708
500
(932)
(40,283)
25,016
30,723
34,708
500
(626)
(44,609)
20,696
These financial statements on pages 74 to 112 were approved by the Board of Directors on 19 November 2014 and signed on its behalf by:
Peter Slabbert Andrew Lewis
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
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C O N S O L I D AT E D C A S H F L O W S TAT E M E N T
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
Cash flows from operating activities
Cash generated before the impact of exceptional items
Cash impact of exceptional items
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 purchased 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
2014
£’000
2013
£’000
26,500
(983)
25,517
1
(315)
(513)
(2,903)
21,787
19
(3,753)
(3,062)
(50)
15,541
(241)
15,300
1
(365)
(592)
(2,229)
12,115
2
(6,339)
(4,715)
(439)
(6,846)
(11,491)
(10,805)
(1,422)
-
(12,227)
2,714
184
27
2,925
2,281
(1,132)
(1,765)
(616)
8
176
-
184
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
C O N S O L I D AT E D S TAT E M E N T O F C H A N G E S I N E Q U I T Y
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
At 1 October 2012
Profit for the year **
Unrealised exchange differences on
overseas investments
Actuarial loss recognised on 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 scheme
At 30 September 2013
Profit for the year
Unrealised exchange differences on
overseas investments
Actuarial loss recognised on retirement
benefit scheme
Total comprehensive income / (expense) for the year
Dividends paid
Issue of shares
Purchase of shares by the employee benefit trust
Movement in respect of employee share scheme
Note
Share
capital
£’000
30,723
-
Share
premium
£’000
34,708
-
-
-
-
-
-
-
-
-
-
-
-
-
30,723
-
34,708
-
-
-
-
-
300
-
-
-
-
-
-
-
-
10
20
24
10
7
20
20
24
Other
reserves
£’000
Accumulated
losses
£’000
Total
equity
£’000
(52)
-
(74)
-
(74)
-
-
-
(41,482)
8,837
23,897
8,837
-
(74)
(9,180)
(9,180)
(343)
(1,132)
(1,765)
113
(417)
(1,132)
(1,765)
113
(126)
-
(306)
(44,609)
10,811
20,696
10,811
-
(306)
-
(4,851)
(4,851)
(306)
-
-
-
-
5,960
(1,422)
-
(300)
88
5,654
(1,422)
300
(300)
88
At 30 September 2014
31,023
34,708
(432)
(40,283)
25,016
Other reserves consist of the capital redemption reserve of £500,000 (2013: £500,000) and the translation reserve of £932,000 (2013: £626,000).
All movement in other reserves relates to the translation reserve.
** Restated for the change in accounting for pension costs. See Accounting Policies.
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D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
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F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
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
on a going concern basis 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).
The Group’s approach to these is as follows:
a) Standards, amendments and interpretations effective in 2014
Costs associated with investment management are deducted
from the return on plan assets (which is unchanged from the
previous standard). Other expenses are recognised in the
income statement as incurred.
This has resulted in 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 previous standard and a 2.6p reduction in earnings per
share, with a similar impact on the comparatives for the year ended 30
September 2013 as shown below:
Year to 30 September 2013
Reported
£’000
Restate
£’000
Restated
£’000
13,423
1
(348)
118
13,194
(3,566)
9,628
(420)
-
-
(371)
(791)
-
(791)
13,003
1
(348)
(253)
12,403
(3,566)
8,837
Operating profit
Finance income
Finance costs
Other finance income/(expense)
Profit before taxation
Taxation
Profit for the year
Actuarial loss recognised on
retirement benefit scheme
(9,971)
791
(9,180)
Net exchange differences offset
in reserves
(74)
-
(74)
The following standards and amendments have been adopted for the
year ended 30 September 2014:
Other comprehensive expense
for the year, net of taxation
(10,045)
791
(9,254)
IFRS 10, ‘Consolidated financial statements’
Total comprehensive expense
-
-
-
-
-
-
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’ (IAS 19 (R))
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.
for the year
(417)
-
(417)
Earnings per share
Basic
Diluted
32.7p
31.4p
(2.7p)
(2.6p)
30.0p
28.8p
In the analysis above, the discount rate has been applied to the net
deficit. Administration costs have been charged against operating
profit and investment management costs have been included in other
comprehensive expense.
On the face of the consolidated statement of comprehensive income,
adjusted results have been disclosed which exclude defined benefit
pension scheme costs as these relate to a scheme closed to future
accrual and are not therefore relevant to current operations.
No adjustment has been made to other comprehensive expense.
The classification of overhead costs between selling and distribution
costs and general and administrative expenses has been represented
to provide more relevant information. There is no impact on
operating profit.
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b) Standards, amendments and interpretations to existing standards
issued but not yet effective in 2014 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 2013 and have not been adopted early:
- Amendment to IFRS 7, ‘Financial instruments: disclosures’
-
-
IFRS 9, ‘Financial instruments’
IFRS 15, ‘Revenue from Contracts with Customers’
- Amendment to IAS 32, ‘Financial instruments: presentation’
- Amendment to IAS 36, ‘Impairment of assets’
- Amendment to IAS 39, ‘Financial instruments: recognition
and measurement’
- Annual improvements cycle 2009-2011.
Basis of consolidation
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
positional 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.
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 transaction at 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
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
contract or development 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
All resulting exchange differences are recognised as a separate
component of equity.
Pension obligations and post-retirement benefits
The Group has both defined benefit and defined contribution plans.
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F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
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. Costs associated with investment
management are deducted from the return on plan assets, (which is
unchanged from the previous standard). Other expenses are recognised
in the income statement as incurred.
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.
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 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.
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.
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In general, the rates used are:
· Freehold – 2.5%
if longer). If not, they are presented as non-current liabilities. They are
initially recognised at fair value and subsequently held at amortised
cost.
· Short leasehold property – over the period of the lease
· Plant and machinery – 6% to 50%.
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.
Inventories
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
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.
Borrowings
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.
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F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
Deferred income tax is provided on temporary differences arising on
investments in subsidiaries and associates, except where the timing
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 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 (R) 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, deferred income,
claims, onerous contractual obligations and warranties based on the
judgement of management taking into account the nature of the
claim or 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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N O T E S T O T H E G R O U P F I N A N C I A L S TAT E M E N T S
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
1 S E G M E N T I N F O R M AT I O N
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 2014
Revenue
92,818
31,961
124,779
Protection &
Defence
£’000
Dairy
£’000
Unallocated
£’000
Group
£’000
Segment result before depreciation, amortisation, exceptional items and
defined benefit pension scheme costs
Depreciation of property, plant and equipment
Amortisation of development costs and software
Segment result before amortisation of acquired intangibles, exceptional items
and defined benefit pension scheme costs
Amortisation of acquired intangibles
Exceptional items
Defined benefit pension scheme costs
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
6,600
(771)
(94)
(2,239)
(67)
(9)
5,735
(2,315)
18,542
(3,289)
(1,670)
13,583
(261)
(2,017)
11,305
5,735
11,305
5,735
(400)
(2,715)
1
(275)
(187)
(3,176)
(3,053)
22,903
(4,127)
(1,773)
17,003
(261)
(2,017)
(400)
14,325
1
(275)
(187)
13,864
(3,053)
11,305
5,735
(6,229)
10,811
52,128
13,501
6,157
71,786
12,011
1,946
32,813
46,770
2,725
1,898
337
1,825
-
8
3,062
3,731
The Protection & Defence segment includes £43.4m (2013: £51.9m) of revenues from the US DOD, the only customer which individually
contributes more than 10% to Group revenues.
R
A
E
Y
E
H
T
F
O
W
E
I
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R
E
V
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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
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N
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A
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D
L
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R
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
83
N O T E S T O T H E G R O U P F I N A N C I A L S TAT E M E N T S C O N T I N U E D
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
1 S E G M E N T I N F O R M AT I O N ( C O N T I N U E D )
year ended 30 September 2013
Revenue
93,137
31,714
Protection &
Defence
£’000
Dairy
£’000
Unallocated
£’000
Segment result before depreciation, amortisation, exceptional items
and defined benefit pension scheme costs
Depreciation of property, plant and equipment
Amortisation of development costs and software
Segment result before amortisation of acquired intangibles, exceptional items
and defined benefit pension scheme costs
Amortisation of acquired intangibles
Exceptional items
Defined benefit pension scheme costs
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 2014
Revenue
Non-current assets
year ended 30 September 2013
Revenue
Non-current assets
Group
£’000
124,851
20,023
(3,896)
(1,904)
14,223
(417)
(383)
(420)
13,003
1
(348)
(253)
12,403
(3,566)
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
(420)
(2,424)
1
(348)
(253)
(3,024)
(3,566)
10,247
5,180
(6,590)
8,837
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
UK
£’000
US
£’000
Group
£’000
23,508
5,346
101,271
31,469
124,779
36,815
UK
£’000
24,028
4,897
US
£’000
100,823
32,031
Group
£’000
124,851
36,928
84
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
2 E X P E N S E S B Y N AT U R E
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
2014
£’000
3,343
50,139
32,423
6,161
1,457
1,809
2,377
2,573
10,172
2013
£’000
1,828
49,954
33,314
6,217
2,173
1,705
2,465
2,185
12,007
Total cost of sales, selling and distribution costs and general and administrative expenses
110,454
111,848
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Y
E
H
T
F
O
W
E
I
V
R
E
V
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S
E
N
I
S
U
B
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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
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A
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
85
N O T E S T O T H E G R O U P F I N A N C I A L S TAT E M E N T S C O N T I N U E D
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
3 A M O R T I S AT I O N O F ACQ U I R E D I N TA N G I B L E A S S E T S A N D E XC E P T I O N A L I T E M S
Amortisation of acquired intangible assets (note 11)
Exceptional items
Relocation of AEF facility
Relocation of Lawrenceville facility
Acquisition costs
2014
£’000
261
2014
£’000
-
2,017
-
2,017
2013
£’000
417
2013
£’000
304
-
79
383
The tax impact of the above is a £0.45m reduction in overseas tax payable (2013: £0.12m)
The Lawrenceville relocation costs relate to the consolidation of our Protection & Defence operations from four US sites into three ahead of the
expiry of the lease on our Lawrenceville, Georgia facility in 2015.
The acquisition costs in 2013 relate to the purchase of VR Technology Holdings and other potential acquisitions investigated that year.
4 F I N A N C E I N CO M E A N D CO S T S
Interest payable on bank loans and overdrafts
Finance income
Other finance expense
Net interest cost: UK defined benefit pension scheme (note 10)
Provisions: Unwinding of discount (note 18)
2014
£’000
(275)
1
(274)
2014
£’000
(12)
(175)
(187)
2013
£’000
(348)
1
(347)
2013
£’000
(33)
(220)
(253)
86
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
5 P R O F I T B E F O R E TA X AT I O N
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
Loss on disposal of intangibles
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
Compensation received regarding taxation services
Total fees
2014
£’000
-
137
209
149
4,127
735
1,773
261
2,533
182
-
1,809
30
80
110
-
110
2013
£’000
230
-
24
62
3,896
848
1,904
417
2,780
438
5
1,705
30
80
110
(128)
(18)
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.
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Y
E
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O
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E
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E
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S
E
N
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S
U
B
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U
O
N
U
R
E
W
W
O
H
D
E
M
R
O
F
R
E
P
E
W
W
O
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N
O
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A
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D
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R
A
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
87
N O T E S T O T H E G R O U P F I N A N C I A L S TAT E M E N T S C O N T I N U E D
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
6 TA X AT I O N
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
2014
£’000
4,605
(961)
3,644
(185)
(406)
(591)
3,053
2013
£’000
3,313
(139)
3,174
253
139
392
3,566
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 22.0% (2013: 23.5%)
Permanent differences
Losses for which no deferred taxation asset was recognised
Differences in overseas tax rates
Adjustment in respect of previous periods
Tax charge
The income tax charged directly to equity during the year was £nil (2013: £nil).
2014
£’000
13,864
3,050
179
397
794
(1,367)
3,053
2013
£’000
12,403
2,915
(238)
255
634
-
3,566
88
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
6 TA X AT I O N ( C O N T I N U E D )
Deferred tax liabilities
At 1 October 2012
Charged against/(credited to) profit for the year
Exchange differences
At 30 September 2013
(Credited to)/charged against profit for the year
Exchange differences
At 30 September 2014
Accelerated
capital
allowances
£’000
Other
temporary
differences
£’000
3,538
(415)
4
3,127
(1,003)
(121)
2,003
(954)
807
(3)
(150)
412
50
312
Total
£’000
2,584
392
1
2,977
(591)
(71)
2,315
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 23% to 21% with effect from 1 April 2014. Accordingly the average standard rate for
the year is 22%.
A number of changes to the UK corporation tax system were announced in the March 2013 Budget Statement. The Finance Bill 2013, which was
substantively enacted on 2 July 2013, includes legislation reducing the main rate of corporation tax to 20% from 1 April 2015. Starting 1 April
2015 the small profits rate will be unified with the main rate, so there will be only one corporation tax rate for non ring-fenced profits set at 20%.
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
2014
£’000
(1,355)
(733)
(3,206)
(1,529)
(6,823)
2013
£’000
(2,753)
(966)
(2,256)
(1,555)
(7,530)
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Y
E
H
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W
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
89
N O T E S T O T H E G R O U P F I N A N C I A L S TAT E M E N T S C O N T I N U E D
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
7 D I V I D E N D S
On 6 February 2014 the shareholders approved a final dividend of 2.88p per qualifying ordinary share in respect of the year ended 30
September 2013. This was paid on 21 March 2014 absorbing £862,000 of shareholders' funds.
On 30 April 2014 the Board of Directors declared an interim dividend of 1.87p (2013: 1.44p) per qualifying ordinary share in respect of the year
ended 30 September 2014. This was paid on 5 September 2014 absorbing £560,000 (2013: £424,000) of shareholders' funds.
After the balance sheet date the Board of Directors proposed a final dividend of 3.74p per qualifying ordinary share in respect of the year ended
30 September 2014, which will absorb an estimated £1,120,000 of shareholders' funds. Subject to shareholder approval, the dividend will be paid
on 20 March 2015 to shareholders on the register at the close of business on 20 February 2015. In accordance with accounting standards this
dividend has not been provided for and there are no corporation tax consequences.
8 E A R N I N G S P E R S H A R E
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 70). Adjusted earnings per share removes the effect of the amortisation of
acquired intangible assets, exceptional items and defined benefit pension scheme costs.
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)
2014
2013
29,871
979
30,850
29,451
1,231
30,682
Profit attributable to equity shareholders of the Company
Adjustments
2014
£’000
10,811
2,240
2014
Basic
eps
pence
36.2
7.5
2014
Diluted
eps
pence
35.0
7.3
2013
£’000
8,837
1,131
2013
Basic
eps
pence
30.0
3.8
2013
Diluted
eps
pence
28.8
3.7
Profit excluding amortisation of acquired intangible assets, exceptional
items and defined benefit pension scheme costs
13,051
43.7
42.3
9,968
33.8
32.5
90
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
9 E M P L OY E E S
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)
2014
£’000
26,944
2,263
1,023
2,105
88
32,423
2013
£’000
27,181
2,563
822
2,635
113
33,314
Detailed disclosures of Directors' remuneration and share options, including disclosure of the highest paid director, are given on pages 67 to 73.
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 757 (2013: 747).
Key management compensation
Salaries and other employee benefits
Post employment benefits
Share based payments
2014
Number
2013
Number
541
200
9
750
2014
£’000
2,436
120
54
2,610
533
200
9
742
2013
£’000
1,641
101
70
1,812
The key management compensation above includes the Directors plus three (2013: three) others who were members of the Group Executive
during the year.
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Y
E
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E
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N
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U
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U
O
N
U
R
E
W
W
O
H
D
E
M
R
O
F
R
E
P
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W
W
O
H
N
O
I
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A
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F
N
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
91
N O T E S T O T H E G R O U P F I N A N C I A L S TAT E M E N T S C O N T I N U E D
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
10 P E N S I O N S A N D O T H E R R E T I R E M E N T B E N E F I T S
Retirement benefit assets and liabilities can be analysed as follows:
Pension liability
Defined benefit pension scheme
2014
£’000
2013
£’000
16,029
11,279
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 Group 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 2013 when the market
value of the plan's assets was £311.5m. The actuarial value of those assets represented 98.0% of the value of the benefits which had accrued to
members, after allowing for future increases in pensions.
During the year the Group made payments to the fund of £513,000 (2013: £592,000) in respect of scheme expenses and deficit recovery plan
payments. In accordance with the deficit recovery plan agreed following the 31 March 2013 actuarial valuation, the Group will make deficit
recovery payments in 2015 of £300,000 in addition to £250,000 towards scheme expenses.
The defined benefit plan exposes the Group to actuarial risks such as longevity risk, interest rate risk and investment risk.
An updated actuarial valuation for IAS 19 (R) purposes was carried out by an independent actuary at 30 September 2014 using the projected
unit method.
92
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
10 P E N S I O N S A N D O T H E R R E T I R E M E N T B E N E F I T S ( C O N T I N U E D )
Movement in net defined benefit liability
Defined benefit obligation
Defined benefit asset
Net defined benefit liability
2014
£’000
2013
£’000
2014
£’000
2013
£’000
2014
£’000
2013
£’000
At 1 October
Included in profit or loss
Administrative expenses
Net interest cost
(300,326)
(284,543)
289,047
282,305
(11,279)
(400)
(322)
(420)
(4,126)
-
310
-
4,093
(400)
(12)
(2,238)
-
(420)
(33)
(722)
(4,546)
310
4,093
(412)
(453)
Included in other comprehensive income
Remeasurement (loss)/gain:
- Actuarial gain/(loss) arising from:
- demographic assumptions
- financial assumptions
- experience adjustment
- Return on plan assets excluding
-
(23,277)
(7,586)
2,197
(28,133)
(1,078)
-
-
-
-
-
-
-
(23,277)
(7,586)
2,197
(28,133)
(1,078)
interest income
-
-
26,012
17,834
26,012
17,834
(30,863)
(27,014)
26,012
17,834
(4,851)
(9,180)
Other
Contributions by the employer
Net benefits paid out
-
15,082
-
15,777
513
(15,082)
592
(15,777)
513
-
592
-
At 30 September
(316,829)
(300,326)
300,800
289,047
(16,029)
(11,279)
R
A
E
Y
E
H
T
F
O
W
E
I
V
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E
V
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S
E
N
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U
B
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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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N
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
93
N O T E S T O T H E G R O U P F I N A N C I A L S TAT E M E N T S C O N T I N U E D
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
10 P E N S I O N S A N D O T H E R R E T I R E M E N T B E N E F I T S ( C O N T I N U E D )
Plan assets
Equities
Liability Driven Investment
Corporate bonds
Cash
Total fair value of assets
30 Sept 2014
£’000
30 Sept 2013
£’000
146,224
97,286
31,016
26,274
300,800
130,293
84,689
30,696
43,369
289,047
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.
All equity securities and corporate bonds have quoted prices in active markets.
The aim of the Trustee is to invest the assets of the plan to ensure that the benefits promised to members are provided. In setting the
investment strategy the Trustee first considered the lowest risk allocation that could be adopted in relation to the plan's liabilities. An asset
allocation strategy was then designed to achieve a higher return than this lowest risk strategy which at the same time still represented a
prudent approach to meeting the plan's liabilities. The target weightings are 50% allocation to liability driven investment funds and cash and
50% to return-seeking investments.
Actuarial assumptions
The main financial assumptions used by the independent qualified actuaries to calculate the liabilities under IAS 19 (R) are set out below:
Inflation (RPI)
Inflation (CPI)
Pension increases post August 2005
Pension increases pre August 2005
Discount rate for scheme liabilities
2014
% p.a.
3.00
1.90
2.00
2.80
4.10
2013
% p.a.
3.10
2.10
2.10
3.00
4.50
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D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
10 P E N S I O N S A N D O T H E R R E T I R E M E N T B E N E F I T S ( C O N T I N U E D )
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
2014
22.1
24.3
The average life expectancy in years of a pensioner retiring at age 65, 20 years after the balance sheet date is as follows:
2014
23.5
25.8
Male
Female
Sensitivity analysis
Inflation (RPI) (0.25% increase)
Discount rate for scheme liabilities (0.25% increase)
Future mortality (1 year increase)
2013
22.0
24.2
2013
23.4
25.7
Defined benefit obligation
Increase/(decrease)
£’000
6,967
(10,939)
9,853
The above sensitivity analysis shows the impact on the defined benefit obligation only, not the net pension liability as it does not take into
account any impact on the asset valuation.
Each sensitivity analysis disclosed in this note is based on changing one assumption while holding all other assumptions constant. In practice,
this is unlikely to occur.
Defined contribution pension scheme
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 2014 was £415,000 (2013: £353,000).
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
95
N O T E S T O T H E G R O U P F I N A N C I A L S TAT E M E N T S C O N T I N U E D
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
11 I N TA N G I B L E A S S E T S
At 1 October 2012
Cost
Accumulated amortisation and impairment
Net book amount
Year ended 30 September 2013
Opening net book amount
Exchange differences
Additions
Acquisition (note 26)
Disposals
Amortisation
Closing net book amount
At 30 September 2013
Cost
Accumulated amortisation and impairment
Net book amount
Year ended 30 September 2014
Opening net book amount
Exchange differences
Additions
Disposals
Amortisation
Closing net book amount
At 30 September 2014
Cost
Accumulated amortisation and impairment
Net book amount
Goodwill
£’000
Acquired
intangibles
£’000
Development
expenditure
£’000
Computer
software
£’000
Total
£’000
-
-
-
-
-
-
63
-
-
63
63
-
63
63
-
-
-
-
63
63
-
63
-
-
-
-
-
167
923
-
(417)
673
1,090
(417)
673
673
-
-
-
(261)
412
1,090
(678)
412
21,778
(9,136)
12,642
12,642
68
3,317
-
(62)
(1,837)
14,128
22,450
(8,322)
14,128
14,128
(168)
2,535
(123)
(1,497)
14,875
22,138
(7,263)
14,875
1,736
(1,097)
23,514
(10,233)
639
13,281
639
2
1,103
-
-
(67)
1,677
2,848
(1,171)
1,677
1,677
(12)
527
(26)
(276)
1,890
2,604
(714)
1,890
13,281
70
4,587
986
(62)
(2,321)
16,541
26,451
(9,910)
16,541
16,541
(180)
3,062
(149)
(2,034)
17,240
25,895
(8,655)
17,240
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.
96
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
12 P R O P E R T Y, P L A N T A N D E Q U I P M E N T
At 1 October 2012
Cost
Accumulated depreciation and impairment
Net book amount
Year ended 30 September 2013
Opening net book amount
Exchange differences
Additions
Acquisition (Note 26)
Reclassifications
Disposals
Depreciation charge
Closing net book amount
At 30 September 2013
Cost
Accumulated depreciation and impairment
Net book amount
Year ended 30 September 2014
Opening net book amount
Exchange differences
Additions
Disposals
Depreciation charge
Closing net book amount
At 30 September 2014
Cost
Accumulated depreciation and impairment
Net book amount
Freeholds
£’000
Short
leaseholds
£’000
Plant and
machinery
£’000
Total
£’000
1,382
(255)
1,127
1,127
5
2,017
-
28
-
(142)
3,035
3,402
(367)
3,035
3,035
(24)
-
-
(191)
2,820
3,179
(359)
2,820
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
81
(2)
-
(52)
(27)
-
-
-
-
17,271
(162)
3,731
(176)
(3,909)
20,387
(188)
3,731
(228)
(4,127)
16,755
19,575
42,469
(25,714)
45,648
(26,073)
16,755
19,575
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
97
N O T E S T O T H E G R O U P F I N A N C I A L S TAT E M E N T S C O N T I N U E D
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
13 I N V E N T O R I E S
Raw materials
Work in progress
Finished goods
2014
£’000
8,876
2,151
1,860
2013
£’000
6,020
2,481
4,873
12,887
13,374
Provisions for inventory write downs were £1,554,000 (2013: £1,710,000).
The cost of inventories recognised as an expense and included in cost of sales amounted to £53,482,000 (2013: £51,782,000).
14 T R A D E A N D O T H E R R E C E I VA B L E S
Trade receivables
Less: provision for impairment of receivables
Trade receivables – net
Prepayments
Other receivables
2014
£’000
15,544
(249)
15,295
1,316
2,546
19,157
2013
£’000
17,009
(269)
16,740
1,141
2,796
20,677
Other receivables include £956,000 (2013: £956,000) in respect of a rent deposit relating to the Company's premises in Melksham, Wiltshire, UK.
The remaining balance comprises sundry receivables.
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
2014
£’000
269
-
(20)
249
2013
£’000
381
5
(117)
269
The creation and release of provision for impaired receivables have been included in general and administrative expenses in the consolidated
statement of comprehensive income.
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
15 C A S H A N D C A S H E Q U I VA L E N T S
Cash at bank and in hand
2014
£’000
2,925
2013
£’000
184
Cash at bank and in hand balances are denominated in a number of different currencies and earn interest based on national rates.
16 T R A D E A N D O T H E R PAYA B L E S
Trade payables
Other taxation and social security
Other payables
Accruals and deferred income
Other payables comprise sundry items which are not individually significant for disclosure.
17 B O R R O W I N G S
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
2014
£’000
440
629
152
16,534
17,755
2014
£’000
-
-
-
-
-
-
2013
£’000
4,139
282
3,289
8,970
16,680
2013
£’000
11,059
11,059
-
11,059
-
11,059
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
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99
N O T E S T O T H E G R O U P F I N A N C I A L S TAT E M E N T S C O N T I N U E D
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
17 B O R R O W I N G S ( C O N T I N U E D )
The Group has the following undrawn committed facilities:
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.
2014
£’000
24,191
24,191
-
337
24,528
2013
£’000
12,518
12,518
11,059
341
23,918
On 9 June 2014 the Group agreed new bank facilities with Barclays Bank and Comerica Bank. The combined facility comprises a revolving
credit facility of $40m and expires on 30 November 2017. This facility is priced on the dollar LIBOR plus margin of 1.25% and includes financial
covenants which are measured on a quarterly basis. The Group was in compliance with its financial covenants during 2014 and 2013.
The Group has provided the lenders with a negative pledge in respect of certain shares in Group companies.
The effective interest rates at the balance sheet dates were as follows:
Bank loans
2014
Sterling
%
2014
Dollar
%
2013
Sterling
%
-
-
2.2
2013
Dollar
%
2.8
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D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
18 P R O V I S I O N S F O R L I A B I L I T I E S A N D C H A R G E S
Balance at 1 October 2012
Unwinding of discount
Payments in the year
Balance at 30 September 2013
Charged in the year
Unwinding of discount
Payments in the year
Exchange difference
Facility
relocation
£’000
Property
obligations
£’000
-
-
-
-
1,637
-
(1,191)
8
2,993
220
(600)
2,613
1,632
175
(1,056)
1
Total
£’000
2,993
220
(600)
2,613
3,269
175
(2,247)
9
Balance at 30 September 2014
454
3,365
3,819
Analysis of total provisions
Non-current
Current
2014
£’000
1,973
1,846
3,819
2013
£’000
1,997
616
2,613
Property obligations include an onerous lease provision of £2.3m in respect of unutilised space at the Group's leased Hampton Park West
facility in the UK. £0.5m of this provision is expected to be utilised in 2015, and the remaining £1.8m over the following six 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 seven
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.
Facility relocation relates to the cost of consolidating our Protection & Defence operations from four US sites into three ahead of the expiry of
the lease on the Lawrenceville, GA facility. This is expected to be utilised within 12 months.
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
101
N O T E S T O T H E G R O U P F I N A N C I A L S TAT E M E N T S C O N T I N U E D
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
19 F I N A N C I A L I N S T R U M E N T S
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
2014
£’000
15,295
2,546
2,925
2
20,768
2014
£’000
4,307
14,967
928
566
20,768
2013
£’000
16,740
2,796
184
214
19,934
2013
£’000
2,331
16,380
585
638
19,934
102
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
19 F I N A N C I A L I N S T R U M E N T S ( C O N T I N U E D )
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
2014
£’000
Provision
2014
£’000
13,914
1,111
369
135
15
-
-
(131)
(103)
(15)
Net
2014
£’000
13,914
1,111
238
32
-
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
15,544
(249)
15,295
17,009
(269)
16,740
The total past due receivables, net of provisions is £1,381,000 (2013: £1,922,000).
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 facilities to meet foreseeable operational expenses and at the year end had facilities of £24.5m (2013: £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
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
30 September 2014
Trade and other payables
Forward exchange contracts used for hedging
- Outflow
- Inflow
17,126
17,126
17,126
-
(2)
922
-
922
-
17,124
18,048
18,048
-
-
-
-
-
-
-
-
-
-
-
-
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E
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E
N
I
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U
B
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U
O
N
U
R
E
W
W
O
H
D
E
M
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O
F
R
E
P
E
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W
O
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
D E L I V E R I N G P E R F O R M A N C E & P O T E N T I A L
103
N O T E S T O T H E G R O U P F I N A N C I A L S TAT E M E N T S C O N T I N U E D
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
19 F I N A N C I A L I N S T R U M E N T S ( C O N T I N U E D )
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
Years
£’000
More than
5 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
-
-
-
-
-
-
-
-
-
-
(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 2014 was a
£2,000 asset (2013: £214,000 asset) comprising an asset of £2,000 (2013: £214,000) and a liability of nil (2013: nil).
All forward exchange contracts in place at 30 September 2014 mature within one year.
104
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
19 F I N A N C I A L I N S T R U M E N T S ( C O N T I N U E D )
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 £415,000 (2013: £368,000) impact on the Group's current year profit before interest and tax and
a £317,000 (2013: £294,000) impact on the Group's profit after tax. The method of estimation, which has been applied consistently, involves
assessing the translation impact of the US dollar.
The following significant exchange rates applied during year:
US dollar
Euro
(b) Interest rate risk
Average rate
2014
Closing rate
2014
Average rate
2013
Closing rate
2013
1.654
1.221
1.631
1.281
1.559
1.188
1.612
1.191
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 but with net cash of £2.9m (2013: net debt £10.9m) a 1% increase in interest rates would have
no impact on interest costs (2013: increase of £0.1m).
The floating rate financial liabilities in 2013 comprised 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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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
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105
N O T E S T O T H E G R O U P F I N A N C I A L S TAT E M E N T S C O N T I N U E D
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
19 F I N A N C I A L I N S T R U M E N T S ( C O N T I N U E D )
(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 Group’s net cash/(debt) at the balance sheet date was:
Total borrowings
Cash and cash equivalents
Group net cash/(debt)
Market capitalisation of the Group at 30 September
Gearing ratio
2014
£’000
-
2,925
2,925
190,947
N/A
2013
£’000
(11,059)
184
(10,875)
168,978
6.0%
At 30 September 2014 the Group had net cash, therefore calculation of the gearing ratio is not applicable.
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
19 F I N A N C I A L I N S T R U M E N T S ( C O N T I N U E D )
(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
2014
£’000
15,295
2,546
2,925
2
-
(17,126)
Fair
value
2014
£’000
15,295
2,546
2,925
2
-
(17,126)
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)
3,642
3,642
(7,523)
(7,523)
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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107
N O T E S T O T H E G R O U P F I N A N C I A L S TAT E M E N T S C O N T I N U E D
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
2 0 S H A R E C A P I TA L
Called up, allotted and fully
paid ordinary shares of £1 each
At the beginning of the year
Issued during the year
2014
No. of
shares
2014
Ordinary
shares
£’000
2014
Share
premium
£’000
2013
No. of
shares
2013
Ordinary
shares
£’000
2013
Share
premium
£’000
30,723,292
300,000
30,723
300
34,708
-
30,723,292
-
30,723
-
34,708
-
At the end of the year
31,023,292
31,023
34,708
30,723,292
30,723
34,708
During the year, 300,000 ordinary shares with a nominal value of £1 per share were issued at par to the Avon Rubber p.l.c. Employee Share
Ownership Trust No. 1.
Details of outstanding share options and movements in share options during the year are given in the Remuneration Report on pages 54-73.
Ordinary shareholders are entitled to receive dividends and are entitled to vote at meetings of the Company.
At 30 September 2014 1,081,810 (2013: 1,242,111) ordinary shares were held by a trust in respect of obligations under 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 2014 was £6,659,000
(2013: £6,832,000). These shares are held at cost as treasury shares and deducted from shareholders' equity.
During 2013 the trust acquired 522,000 shares at a cost of £1,765,000. In 2014, 460,301 (2013: 680,070) shares were used to satisfy awards
following the vesting of shares relating to the 2010 Performance Share Plan.
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21 C A S H G E N E R AT E D F R O M O P E R AT I O N S
Profit for the year
Adjustments for:
Taxation
Depreciation
Amortisation of intangible assets
Defined benefit pension scheme cost
Finance income
Finance costs
Other finance expense
Loss on disposal of intangibles
Loss on disposal of property, plant and equipment
Movement in respect of employee share scheme
Decrease in inventories
Decrease/(increase) in receivables
Increase/(decrease) in payables and provisions
2 2 A N A LY S I S O F N E T C A S H / ( D E B T )
2014
£’000
10,811
3,053
4,127
2,034
400
(1)
275
187
149
209
88
370
1,479
2,336
25,517
2013
£’000
8,837
3,566
3,896
2,321
420
(1)
348
253
62
24
113
2,259
(6,295)
(503)
15,300
This note sets out the calculation of net cash/(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
2013
£’000
Cash flow
£’000
Exchange
movements
£’000
At 30 Sept
2014
£’000
184
2,714
184
(11,059)
2,714
10,805
(10,875)
13,519
27
27
254
281
2,925
2,925
-
2,925
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N O T E S T O T H E G R O U P F I N A N C I A L S TAT E M E N T S C O N T I N U E D
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
2 3 O T H E R F I N A N C I A L CO M M I T M E N T S
Capital expenditure committed
2014
£’000
738
2013
£’000
918
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 S H A R E B A S E D PAY M E N T S
2014
£’000
1,983
4,024
5,755
2013
£’000
2,052
5,025
6,472
11,762
13,549
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 70 and are incorporated by reference into these financial statements. The charge against profit
of £88,000 (2013: £113,000) 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.
2014
0.38
5.75
31
0.9
3.0
1.1
2013
0.21
3.41
39
1.75
3.0
1.0
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2 5 R E L AT E D PA R T Y T R A N S AC T I O N S
There were no related party transactions during the year or outstanding at the end of the year (2013: £nil). Key management compensation is
disclosed in note 9.
2 6 ACQ U I S I T I O N
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.
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 at completion
Deferred consideration paid
Deferred/contingent consideration due in future years
-
109
36
137
64
(499)
(153)
301
-
-
-
-
-
301
622
-
-
-
-
-
622
923
109
36
137
64
(499)
770
63
833
483
50
300
833
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 two 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.
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N O T E S T O T H E G R O U P F I N A N C I A L S TAT E M E N T S C O N T I N U E D
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
27 G R O U P U N D E R TA K I N G S
Held by Parent Company
Avon Polymer Products Limited
Avon Rubber Overseas Limited
Avon Rubber Pension Trust Limited
Avon Dairy Solutions (Shanghai) International Trading Company Limited
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.
Avon-Dairy America do sul Solucoes Para Ordentia LTDA
Country in which
incorporated
UK
UK
UK
China
US
US
US
US
UK
UK
US
Brazil
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. 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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I N D E P E N D E N T A U D I T O R S ' R E P O R T
T O T H E M E M B E R S O F A V O N R U B B E R p . l . c .
Report on the Group financial statements
Our opinion
In our opinion, Avon Rubber p.l.c.’s Group financial statements (the “financial statements”):
give a true and fair view of the state of the Group’s affairs as at 30 September 2014 and of its 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.
What we have audited
Avon Rubber p.l.c.’s financial statements comprise:
the Consolidated Balance Sheet as at 30 September 2014;
the Consolidated Statement of Comprehensive Income for the year then ended;
the Consolidated Cash Flow Statement for the year then ended;
the Consolidated Statement of Changes in Equity for the year then ended;
the Accounting Policies and Critical Accounting Judgements;
the notes to the Group financial statements which include other explanatory information.
Certain required disclosures 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.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and IFRSs as adopted
by the European Union.
Our audit approach
Overview
M A T E R I A L I T Y
A U D I T S C O P E
Overall Group materiality: £815,000 which represents 5% of the Group profit before tax, excluding
the exceptional item of £2.0m relating to the closure of the facility in Lawrenceville, and the impact of
IAS 19 (revised) on defined benefit pension scheme administrative costs which have been reclassified
into the income statement.
The UK audit team performed an audit of the complete financial information of the two main operating
units in the USA (Avon Protection NA and Avon Dairy Solutions NA) and the two main operating units in
the UK (Avon Polymer Products Ltd (comprising of Avon Protection UK and Avon Dairy Solutions) and
Avon Rubber p.l.c.).
Taken together, these four reporting units account for 92% of Group revenue and £15.3m of the total
Group profit before tax, excluding the exceptional item of £2.0m and pension administritive costs
of £0.4m
Specific audit procedures were also performed by the UK audit team on certain other balances and
transactions at the remaining five reporting units.
Provisions for uncertain tax positions.
A R E A S O F F O C U S
Pension liabilities.
Intangible assets (development expenditure) impairment assessment.
Adequacy of working capital provisions.
Fraud in revenue recognition.
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I N D E P E N D E N T A U D I T O R S ' R E P O R T C O N T I N U E D
T O T H E M E M B E R S O F A V O N R U B B E R p . l . c .
The scope of our audit and our areas of focus
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) ("ISAs (UK & Ireland)"). We designed our
audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at
where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making
assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of
management overide of internal controls, including evaluating whether there is evidence of bias by the directors that may represent
a risk of material misstatement due to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort,
are identified as "areas of focus" in the table below together with an explanation of how we tailored our audit to address these specific
areas. This is not a complete list of all risks identified by our audit.
Area of focus
How our audit addressed the area of focus
Provisions for uncertain tax positions
As noted in the critical accounting judgements section on
page 82 and included in note 6, liabilities are recognised
for any tax positions which are uncertain in each relevant
tax jurisdiction.
We focused on this area because there are material
uncertain tax positions arising from the judgemental
interpretation of the impact of the application of aspects
of tax regulation in certain jurisdictions.
The directors have had to estimate the likelihood of the
future outcome in each case, with the valuation of any
provision involving a high degree of judgement.
In conjunction with this assessment, the directors have
determined that no deferred tax assets in respect of tax
losses should be recognised. This is based on a number of
factors including whether there will be sufficient taxable
profits in future periods to support recognition.
Valuation of the Group’s net pension deficit
We focussed on this area because of the magnitude
of the defined benefit pension deficit of £16.0m
recognised under IAS19, in the context of the overall
Group Balance Sheet.
The valuation of the net pension deficit is subject to
the directors’ judgements regarding the selection of
appropriate actuarial assumptions based on the nature
of the scheme, including the discount rate, inflation rate
and mortality rates that impact the measurement of
future liabilities.
A change in each of the above assumptions by 0.25% can
cause a material change in the value of the underlying
pension deficit (as highlighted on page 95).
We requested and obtained correspondence between the Group and
the relevant tax authorities in each tax jurisdiction for which an uncertain
tax position has been recognised, and based on our understanding
of the relevant tax regulation and independent consideration of the
correspondence with the authorities, challenged the directors'
assumptions surrounding:
the interpretation of the relevant regulation and likely outcome;
the nature of the taxable deductions taken and the consistency in
the basis for the provision; and
the likelihood of settlement and the amount of provisions required
in each jurisdiction, taking into consideration historic precedent.
We also obtained the filing positions for each jurisdiction which we read,
considered in light of our understanding of the business and reconciled
to the balances in the financial statements.
We evaluated the directors' assessment of the availability of future taxable
profits in each jurisdiction to determine whether a deferred tax asset should
be recognised, by comparing the forecasts of future profits to historical
results, and considering the impact of any uncertain tax strategies.
We considered and challenged the reasonableness of the key actuarial
assumptions selected by the directors by comparing these to our
‘in-house’ benchmark ranges based on our assessment of current
market conditions and the available actuarial data.
We evaluated whether the directors' judgements and assumptions
had been made on a consistent basis including in comparison to prior
financial years.
We also obtained supporting evidence for each of the key inputs into the
overall pension deficit calculation including independently agreeing
changes in membership census data to pension scheme records and
agreeing the scheme asset values used by actuaries in the IAS 19
calculation to independent sources, such as fund manager confirmations
and/or quoted market prices where available.
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Area of focus
How our audit addressed the area of focus
Intangible assets (development expenditure)
impairment assessment
We focussed on this area because of the magnitude of
capitalised development expenditure in the overall context
of the Group Balance Sheet (£17.2m) and the risk that, as the
Group’s product portfolio continues to expand, and as costs
associated with new product development are capitalised,
the resulting assets may not be recoverable if estimated
future sales orders cannot be delivered or regulatory
approvals are not obtained.
In particular we focussed on the capitalised development
costs relating to the suite of Protection & Defence and Dairy
products currently under development including Project
Fusion, Deltair, PAPRs and EEBD; all of which are described on
pages 15-16 of the Annual report.
Adequacy of provisions
As set out in the critical accounting judgements section
on page 82, the directors review year-end working capital
balances, such as inventory and trade receivables, in each
of the operating units and make provisions to adjust the
carrying value of those assets to the directors’ view of their
recoverable amount.
Provisions are also made for contractual obligations such
as onerous lease arrangements and dilapidation provisions,
where the directors believe that the likelihood of settlement
is probable.
We focus on this area due to the importance of working
capital to the Group's ongoing operations and the degree
of judgement the directors have to apply in determining the
amount of provision required for each different element of
the Group’s working capital and operational requirements,
and taking into consideration the aggregation of provisions
across the individual operating locations.
Risk of fraud in revenue recognition
Provisions made against revenue require judgements based
on certain contractual arrangements, which require the
directors to estimate the amount which may be due back to
customers and which should not be recognised as revenue.
ISAs (UK & Ireland) also presumes there is a risk of fraud in
revenue recognition on every audit engagement. We focused
on whether the judgements made by the directors across
the portfolio of contracts were made on a consistant basis in
accordance with contractual terms.
We tested a sample of capitalised development costs against the criteria
set out in IAS38 ‘Intangible assets’ and the Group's accounting policies,
in particular focussing on the technical feasibility, the viability of the
completion of the project and the ability for the project to generate
future economic benefits and gain necessary regulatory approvals.
We met with key operational personnel to update our understanding of
the status of major projects and assessed the controls and governance
which have been put in place around project approval, authorisation
and ongoing monitoring.
We assessed individually each of the major projects for indicators of
impairment, such as an inability to obtain regulatory approval or not
achieving forecast sales orders. We obtained evidence to support that
regulatory approvals and future sales orders have been secured. We
note the Deltair and EEBD products both now have NIOSH approval,
and Deltair products have been launched in the US.
We evaluated whether provisions have been made on a consistent
basis, in line with the Group’s accounting policies.
We obtained evidence over the recoverability of material trade
receivables, including assessing the ageing analysis and the extent of
cash collected post year end, and challenged the directors’ assumptions
over the need to provide for potentially irrecoverable amounts.
We attended physical inventory counts at a variety of locations
where material levels of inventory were held to assess the existence
and physical condition of inventory held at 30 September 2014, and
considered the adequacy of inventory provisions by comparing the
outcomes of our visits with systems data along with reviewing the
ageing of inventory held at 30 September 2014.
We also evaluated the adequacy of property related provisions,
shown in note 18, by obtaining evidence of the onenous contractual
obligations. We also obtained external valuation reports commissioned
by the directors and assessed the assumptions underpinning the
calculation of the provisions required against the value of properties
held and our knowledge of the business and the property portfolio.
We obtained the calculations of contractual revenue provisions and
challenged the key assumptions and judgements made by the directors
and the expected timing of settlement, based on our independent
reading of the relevant contractual terms and understanding of the
contracts. In doing so, we also assessed whether the Group was entitled
to, and appropriately recognised, revenue in line with their contractual
obligations and their revenue recognition policy. We also examined
the associated contracts and sales activity in the year to create our own
expectation of the provision required.
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I N D E P E N D E N T A U D I T O R S ' R E P O R T C O N T I N U E D
T O T H E M E M B E R S O F A V O N R U B B E R p . l . c .
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial
statements as a whole, taking into account the geographic structure
of the Group, the accounting processes and controls, and the
industry in which the Group operates.
The Group comprises two divisions, being Protection & Defence
and Dairy and we focused our audit work on the Group’s largest
operating units, within these divisions, in the USA and UK.
The UK audit team conducted an audit of the complete financial
information of four operating units (the two largest in the USA,
and two largest in the UK) due to their size and risk characteristics.
Taken together, these four operating units account for 92% of the
Group’s revenue and £15.3m of Group profit before tax, excluding
the exceptional item of £2.0m and the defined benefit pension
scheme administrative costs of £0.4m.
Specific audit procedures were also performed by the UK team on
certain balances and transactions material to the Group financial
statements at the five remaining reporting units. This, together with
additional procedures performed at the Group level over centralised
processes and functions, including the audit of consolidation
journals, gave us the evidence we needed for our opinion on the
Group financial statements as a whole.
Materiality
The scope of our audit is influenced by our application of
materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to
determine the scope of our audit and 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 judgement, we determined materiality
for the financial statements as a whole as follows:
Overall Group
materiality
£815,000 (2013: £650,000).
How we
determined it
5% of profit before tax, excluding the
‘one off’ exceptional item of £2.0m
relating to the closure of the
Lawrenceville location based in the
USA, and the £0.4m impact of the
reclassification of pension scheme
administrative costs to the income
statement on adoption of IAS19 (revised).
Rationale for
benchmark
applied
We have applied this profit based
benchmark, a generally accepted
auditing practice, in the absence
of indicators that an alternative
benchmark would be appropriate.
The exceptional item has been excluded
as it is considered to be a one-off
non-recurring item.
The costs for the defined benefit
pension scheme, which is closed to new
entrants, have been added back as these
costs have previously been included
in the actuarial movements in other
comprehensive income and have not
previously been included within profit
before tax. The exclusion of these items
provides us with a consistent year-on-
year basis for determining materiality.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above £50,000 (2013:
£32,500), as well as misstatements below that amount that, in our
view, warranted reporting for qualitative reasons.
Going concern
Under the Listing Rules we are required to review the directors’
statement, set out on page 50, in relation to going concern.
We have nothing to report having performed our review.
As noted in the directors’ statement, the directors have concluded
that it is appropriate to prepare the financial statements using
the going concern basis of accounting. The going concern basis
presumes that the Group has adequate resources to remain in
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.
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
Other required reporting
Consistency of other information
Companies Act 2006 opinion
In our opinion, the information given in the Strategic Report and
the Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial statements.
ISAs (UK & Ireland) reporting
Adequacy of 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. We have no exceptions to
report arising from this responsibility.
Directors’ remuneration
Under the Companies Act 2006 we are required to report to you
if, in our opinion, certain disclosures of directors’ remuneration
specified by law are not made. We have no exceptions to report
arising from these responsibilities.
Under ISAs (UK & Ireland) we are required to report to
you if, in our opinion:
Corporate governance statement
Under the Listing Rules we are required to review the part of the
Corporate Governance Statement relating to the parent company’s
compliance with nine provisions of the UK Corporate Governance
Code. We have nothing to report having performed our review.
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 44, the directors are responsible
for the preparation of the 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
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.
We have no
exceptions to
report arising
from this
responsibility.
We have no
exceptions to
report arising
from this
responsibility.
information in the Annual Report is:
− materially inconsistent with the
information in the audited 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
− otherwise misleading.
the statement given by the directors
on page 45, in accordance with provision
C.1.1 of the UK Corporate Governance
Code (“the Code”), that they consider
the Annual Report taken as a whole
to be fair, balanced and understandable
and provides the information necessary
for members to assess the Group’s
performance, business model and
strategy is materially inconsistent with
our knowledge of the Group acquired in
the course of performing our audit.
the section of the Annual Report
on pages 52 and 53, as required by
provision C.3.8 of the Code, describing
the work of the Audit Committee
does not appropriately address
matters communicated by us to the
Audit Committee.
We have no
exceptions to
report arising
from this
responsibility.
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I N D E P E N D E N T A U D I T O R S ' R E P O R T C O N T I N U E D
T O T H E M E M B E R S O F A V O N R U B B E R p . l . c .
What an audit of financial statements involves
Other matter
We have reported separately on the parent company financial
statements of Avon Rubber p.l.c. for the year ended 30 September
2014 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
19 November 2014
An audit involves obtaining evidence about the amounts and
disclosures 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;
the reasonableness of significant accounting estimates made
by the directors; and
the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the
directors’ judgements against available evidence, forming
our own judgements, and evaluating the disclosures in the
financial statements.
We test and examine information, using sampling and other
auditing techniques, to the extent we consider necessary to
provide a reasonable basis for us to draw conclusions. We obtain
audit evidence through testing the effectiveness of controls,
substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information
in the Annual Report to identify material inconsistencies with
the audited 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.
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
I N D E P E N D E N T A U D I T O R S ' R E P O R T
T O T H E M E M B E R S O F A V O N R U B B E R p . l . c .
Report on the Parent Company
financial statements
Our opinion
In our opinion, Avon Rubber p.l.c.’s Parent Company financial
statements (the “financial statements”):
apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the company acquired in
the course of performing our audit; or
otherwise misleading.
We have no exceptions to report arising from this responsibility
give a true and fair view of the state of the Parent Company’s
affairs as at 30 September 2014;
Adequacy of accounting records and information
and explanations received
have been properly prepared in accordance with United
Under the Companies Act 2006 we are required to report to you if,
Kingdom Generally Accepted Accounting Practice; and
in our opinion:
have been prepared in accordance with the requirements
we have not received all the information and explanations we
of the Companies Act 2006.
require for our audit; or
What we have audited
adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been
Avon Rubber p.l.c.’s financial statements comprise:
received from branches not visited by us; or
the Parent Company Balance Sheet as at 30 September 2014; and
the financial statements and the part of the Directors’
the Parent Company Accounting Policies; and
the Notes to the Parent Company financial statements,
and other explanatory information.
Remuneration Report to be audited are not in agreement with
the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Certain required disclosures have been presented elsewhere in the
Directors’ remuneration
Annual Report, rather than in the notes to the financial statements.
These are cross-referenced from the financial statements and are
identified as audited.
The financial reporting framework that has been applied in the
preparation of the financial statements is applicable law and United
Directors’ remuneration report - Companies Act 2006 opinion
In our opinion, the part of the Directors’ Remuneration Report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
Kingdom Accounting Standards (United Kingdom Generally Accepted
Other Companies Act 2006 reporting
Accounting Practice).
Other required reporting
Consistency of other information
Companies Act 2006 opinion
In our opinion, the information given in the Strategic Report and
the Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial statements.
ISAs (UK & Ireland) reporting
Under ISAs (UK & Ireland) we are required to report to you if, in our
opinion, information in the Annual Report is:
materially inconsistent with the information in the audited
financial statements; or
Under the Companies Act 2006 we are required to report to you
if, in our opinion, certain disclosures of directors’ remuneration
specified by law are not made. 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 44, the directors are responsible
for the preparation of the 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
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.
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I N D E P E N D E N T A U D I T O R S ' R E P O R T C O N T I N U E D
T O T H E M E M B E R S O F A V O N R U B B E R p . l . c .
This report, including the opinions, has been prepared for and
Other matter
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.
What an audit of financial statements involves
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
We have reported separately on the Group financial statements of
Avon Rubber p.l.c. for the year ended 30 September 2014.
Mark Ellis
Senior Statutory Auditor
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Bristol
misstatement, whether caused by fraud or error. This includes an
19 November 2014
assessment of:
whether the accounting policies are appropriate to the Parent
Company’s circumstances and have been consistently applied
and adequately disclosed;
the reasonableness of significant accounting estimates made
by the directors; and
the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the
directors’ judgements against available evidence, forming our
own judgements, and evaluating the disclosures in the financial
statements.
We test and examine information, using sampling and other
auditing techniques, to the extent we consider necessary to
provide a reasonable basis for us to draw conclusions. We obtain
audit evidence through testing the effectiveness of controls,
substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information
in the Annual Report to identify material inconsistencies with
the audited 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.
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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
PA R E N T C O M PA N Y B A L A N C E S H E E T
AT 3 0 S E P T E M B E R 2 0 1 4
Fixed Assets
Tangible assets
Investments
Current assets - debtors
Creditors - amounts falling due within one year
Net current assets
Total assets less current liabilities
Creditors - amounts falling due after more than one year
Bank loans and overdrafts
Provisions for liabilities
Net assets
Capital and reserves
Share capital
Share premium account
Capital redemption reserve
Profit and loss account
Total shareholders’ funds
Note
2014
£’000
2014
£’000
2013
£’000
2013
£’000
4
5
7
8
9
10
11
12
12
12
13
56,600
6,573
-
2,211
346
75,540
75,886
50,027
125,913
2,211
123,702
31,023
34,708
500
57,471
123,702
53,304
5,412
3,208
2,613
788
75,540
76,328
47,892
124,220
5,821
118,399
30,723
34,708
500
52,468
118,399
These financial statements on pages 121 to 130 were approved by the Board of Directors on 19 November 2014 and were signed on its behalf by:
Peter Slabbert Andrew Lewis
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PA R E N T C O M PA N Y A C C O U N T I N G P O L I C I E S
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
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) on the going
concern basis and 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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A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
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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N O T E S T O T H E PA R E N T C O M PA N Y F I N A N C I A L S TAT E M E N T S
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
1 PA R E N T CO M PA N Y
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 £6,637,000
(2013: £3,222,000).
The audit fee in respect of the parent company was £30,000 (2013: £30,000).
2 D I V I D E N D S
On 6 February 2014 the shareholders approved a final dividend of 2.88p per qualifying ordinary share in respect of the year ended 30
September 2013. This was paid on 21 March 2014 absorbing £862,000 of shareholders' funds.
On 30 April 2014 the Board of Directors declared an interim dividend of 1.87p (2013: 1.44p) per qualifying ordinary share in respect of the year
ended 30 September 2014. This was paid on 5 September 2014 absorbing £560,000 (2013: £424,000) of shareholders' funds.
After the balance sheet date the Board of Directors proposed a final dividend of 3.74p per qualifying ordinary share in respect of the year ended
30 September 2014, which will absorb an estimated £1,120,000 of shareholders' funds. Subject to shareholder approval, the dividend will be paid
on 20 March 2015 to shareholders on the register at the close of business on 20 February 2015. In accordance with accounting standards this
dividend has not been provided for and there are no corporation tax consequences.
3 E M P L OY E E S
The total remuneration and associated costs during the year were:
Wages and salaries
Social security costs
Other pension costs
Share based payments
2014
£’000
2,441
300
145
88
2,974
2013
£’000
1,535
299
205
113
2,152
Detailed disclosures of Directors’ remuneration and share options are given on pages 54 to 73 of the Annual Report and Accounts.
The average monthly number of employees (including Executive Directors) during the year was 7 (2013: 7), all of whom were classified as
administrative staff.
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4 TA N G I B L E A S S E T S
Cost
At 1 October 2013
Additions at cost
Transfers to other Group companies
At 30 September 2014
Accumulated depreciation
At 1 October 2013
Charge for the year
At 30 September 2014
Net book amount at 30 September 2014
Net book amount at 30 September 2013
5 I N V E S T M E N T S
Cost and net book value
At 1 October 2013
At 30 September 2014
The investments consist of a 100% interest in the following subsidiaries:
Plant and machinery
£’000
1,071
311
(710)
672
283
43
326
346
788
Investment in subsidiaries
£’000
75,540
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 Limited
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 112.
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 4
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F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
6 O T H E R F I N A N C I A L CO M M I T M E N T S
Capital expenditure committed
2014
£’000
-
2013
£’000
4
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.
2014
Land and
buildings
£’000
2013
Land and
buildings
£’000
-
814
153
967
-
814
153
967
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7 D E B T O R S
Amounts owed by Group undertakings
Other debtors
Prepayments
2014
£’000
54,317
1,948
335
2013
£’000
51,627
1,001
676
56,600
53,304
Other debtors include £956,000 (2013: £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 C R E D I T O R S – A M O U N T S FA L L I N G D U E W I T H I N O N E Y E A R
Bank overdrafts
Amounts due to Group undertakings
Other creditors
Accruals
2014
£’000
38
4,040
43
2,452
6,573
2013
£’000
-
3,051
486
1,875
5,412
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N O T E S T O T H E PA R E N T C O M PA N Y F I N A N C I A L S TAT E M E N T S C O N T I N U E D
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9 B O R R O W I N G S
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
The carrying amounts of the Company's borrowings are denominated in the following currencies:
Sterling
US dollars
2014
£’000
38
-
38
2014
£’000
38
-
38
2014
£’000
38
-
38
2013
£’000
-
3,208
3,208
2013
£’000
-
3,208
3,208
2013
£’000
1,347
1,861
3,208
On 9 June 2014 the Company agreed new bank facilities with Barclays Bank and Comerica Bank. The facility comprises a revolving credit facility
of $40m and expires on 30 November 2017. The facility is priced on the dollar LIBOR plus a margin of 1.25% and includes financial covenants
which are measured on a quarterly basis. The Company was in compliance with its financial covenants during 2014 and 2013.
The Company has provided the lenders with a negative pledge in respect of certain shares in Group companies.
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10 P R O V I S I O N S F O R L I A B I L I T I E S
Balance at 1 October 2012
Unwinding of discount
Payments in the year
Balance at 30 September 2013
Charged in the year
Unwinding of discount
Payments in the year
Balance at 30 September 2014
Analysis of provisions
Non-current
Current
Property
obligations
£’000
2,993
220
(600)
2,613
408
175
(985)
2,211
2013
£’000
1,997
616
2,613
2014
£’000
1,129
1,082
2,211
Property obligations relate to an onerous lease provision in respect of unutilised space at the Company's leased Hampton Park West facility in
the UK and former premises of the Company which are subject to dilapidation risks. All are expected to be utilised within the next seven 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 C A L L E D U P S H A R E C A P I TA L
Called up, allotted and fully paid ordinary shares of £1 each
31,023,292 (2013: 30,723,292) ordinary shares of £1 each
2014
£’000
2013
£’000
31,023
30,723
During the year, 300,000 ordinary shares with a nominal value of £1 per share were issued at par to the Avon Rubber p.l.c. Employee Share
Ownership Trust No. 1.
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12 S H A R E P R E M I U M ACCO U N T A N D R E S E R V E S
At 1 October 2012
Retained profit for the year
Movement in respect of employee share scheme
At 30 September 2013
Retained profit for the year
Purchase of shares by the employee benefit trust
Movement in respect of employee share scheme
At 30 September 2014
Share
premium
account
£’000
34,708
-
-
34,708
-
-
-
34,708
13 R E CO N C I L I AT I O N O F M O V E M E N T S I N S H A R E H O L D E R S’ F U N D S
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
Capital
redemption
reserve
£’000
Profit and
loss account
£’000
52,030
2,090
(1,652)
52,468
5,215
(300)
88
500
-
-
500
-
-
-
500
Total
£’000
87,238
2,090
(1,652)
87,676
5,215
(300)
88
57,471
92,679
2014
£’000
118,399
6,637
(1,422)
-
88
2013
£’000
117,961
3,222
(1,132)
(1,765)
113
At 30 September
123,702
118,399
During the year 300,000 ordinary shares with a nominal value of £1 per share were issued at par to the Avon Rubber p.l.c. Employee Share
Ownership Trust No. 1.
At 30 September 2014 1,081,810 (2013: 1,242,111) ordinary shares were held by a trust in respect of obligations under 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 2014 was £6,659,000
(2013: £6,832,000). These shares are held at cost as treasury shares and deducted from shareholders' equity.
During 2013 the trust acquired 522,000 shares at a cost of £1,765,000. 460,301 (2013: 680,070) shares were used to satisfy awards following the
vesting of shares relating to the 2010 Performance Share Plan.
14 S H A R E B A S E D PAY M E N T S
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 70 and are incorporated by reference into these financial statements. The charge
against profit of £88,000 (2013: £113,000) 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)
Dividend yield (%)
Volatility is estimated based on actual experience over the last three years.
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2014
0.38
5.75
31
0.9
3.0
1.1
2013
0.21
3.41
39
1.75
3.0
1.0
F I V E Y E A R R E C O R D
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
2014
£’000
2013
£’000
2012
£’000
2011
£’000
2010
£’000
Revenue
124,779
124,851
106,636
107,600
117,574
Operating profit before amortisation of acquired
intangibles, exceptional items and defined benefit pension costs
Amortisation of acquired intangibles, exceptional items
and defined benefit pension scheme costs
17,003
14,223
11,621
11,136
9,255
(2,678)
(1,220)
-
-
-
Operating profit
Net finance costs and other finance expense
Profit before taxation
Taxation
14,325
(461)
13,864
(3,053)
13,003
(600)
12,403
(3,566)
Profit attributable to equity shareholders
10,811
8,837
Ordinary dividends
Retained profit
Intangible assets and property, plant and equipment
Working capital
Provisions
Pension (liability)/asset
Deferred tax liability
Net cash/(borrowings)
(1,422)
(1,132)
9,389
7,705
6,888
36,815
7,439
(3,819)
(16,029)
(2,315)
2,925
36,928
11,512
(2,613)
(11,279)
(2,977)
(10,875)
31,159
9,278
(2,993)
(2,238)
(2,584)
(8,725)
11,621
(616)
11,005
(3,176)
7,829
(941)
11,136
(924)
10,212
(3,094)
7,118
(706)
6,412
27,187
11,714
(3,208)
280
(2,985)
(11,816)
9,255
(2,121)
7,134
(2,808)
4,326
-
4,326
25,762
9,628
(4,373)
(7,134)
(2,517)
(12,589)
Net assets employed
25,016
20,696
23,897
21,172
8,777
Financed by:
Ordinary share capital
Reserves attributable to equity shareholders
31,023
(6,007)
30,723
(10,027)
30,723
(6,826)
30,723
(9,551)
30,723
(21,946)
Total equity
25,016
20,696
23,897
21,172
Basic earnings per share
Adjusted basic earnings per share
Dividends per share paid in cash
36.2p
43.7p
4.75p
30.0p
33.8p
3.84p
26.9p
26.9p
3.2p
25.2p
25.2p
2.5p
8,777
15.2p
15.2p
-
2010, 2011 and 2012 are as presented in the consolidated financial statements for those years.
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N O T I C E O F A N N U A L G E N E R A L M E E T I N G
F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2 0 1 4
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 2014
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 29
January 2015 at 10.30 a.m. for the following purposes:
Ordinary Business
To consider and, if thought fit, pass resolutions 1- 7 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 2014.
Resolution 2
To approve the Directors’ Remuneration Report for the year ended
30 September 2014.
Resolution 3
To declare a final dividend of 3.74p per ordinary share as
recommended by the Directors.
Resolution 4
To re-appoint Andrew Lewis as Director who retires by rotation.
Resolution 5
To re-appoint Richard Wood as Director who retires by rotation.
Resolution 6
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 7
To authorise the Directors to determine the auditors’ remuneration.
Special Business
To consider and if thought fit, pass resolution 8 as an Ordinary
Resolution and resolutions 9, 10 and 11 as Special Resolutions:
Resolution 8
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 £10,341,097 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 11
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
19 November 2014
Resolution 9
That, subject to the passing of Resolution 8, 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 8 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:
(a) be limited to the allotment of equity securities up to an
aggregate nominal amount of £1,551,164; 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 10
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 4,653,492;
(b) the minimum price which may be paid for each share is 1p;
(c) the maximum price (excluding expenses) which may be paid for
each ordinary share is an amount equal to the higher of:
(i) 105% (one hundred and five per cent) 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
(ii) the value of an ordinary share calculated on the basis of the
higher of the price quoted for the last independent trade of
and the highest current independent bid for any number of
the Company’s ordinary shares on the London Stock
Exchange Official List at the time the purchase is agreed; and
(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.
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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 AGM, 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 AGM.
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 (available from https://euroclear.com). 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 RA 10) 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 27 January 2015 (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 AGM.
(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.
(8) Under section 319A of the Act, the Company must answer any
question you ask relating to the business being dealt with at the
AGM unless:
(i) answering the question would interfere unduly with
the preparation for the AGM or involve the disclosure of
confidential information;
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(ii) the answer has already been given on a website in the form
(iii) copies of the letters of appointment of the non-executive
of an answer to a question; or
Directors of the Company.
(iii) it is undesirable in the interests of the Company or the good
order of the AGM that the question be answered.
(14) Please note that the Company takes all reasonable precautions
(9) Appointment of proxy by joint members
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).
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.
(10) Termination of proxy appointments
(15) Pursuant to Chapter 5 of Part 16 of the Act (sections 527 to
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 Registrars, PXS, 34
Beckenham Road, Beckenham, Kent BR3 4TU no later than 27
January 2015 at 10.30 am.
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.
(11) Biographical details of the Directors are shown on page 41 of
the Annual Report.
(12) The issued share capital of the Company as at 19 November
2014 was 31,023,292 ordinary shares, carrying one vote each and
representing the total number of voting rights in the Company.
(13) The following documents are available for inspection at the
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 AGM 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
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
(ii)
(iii) the statement may be dealt with as part of the business of
the AGM.
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
(iv) must be received by the Company at least one week before
the AGM.
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
(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:
- a 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.
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-
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a 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.
a 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 sections 338 and 338A 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 the AGM or require the Company to
include in the business to be dealt with at the AGM a matter
(other than a proposed resolution) which may properly be
included in the business.
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 or the matter of business must not be
defamatory of any person, frivolous or vexatious.
The Company is required to give notice of a resolution or the matter
of business 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:
-
a 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.
-
a 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.
a 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)
for a resolution, 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;
(ii) for a matter of business, must identify the matter of business
by either setting out the matter for business in full or, if
supporting a statement sent by another member, clearly
identify the matter of business which is being supported; and
(iii) must be received by the Company not later than 6 weeks
before the date of the AGM.
Explanatory notes
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 2014. These are contained in the Company’s
2014 Annual Report.
Resolution 2 - Directors’ Remuneration Report
This resolution seeks approval for the Directors’ Remuneration Report
for the year ended 30 September 2014 contained on pages 54 to 73 of
the Annual Report.
The Company’s Remuneration Policy was approved by shareholders
at the 2013 AGM and will remain in effect for three years or until
shareholders are asked to approve an amended version. No
amendments to the Directors’ Remuneration Policy are proposed at
this year’s AGM.
Resolution 3 – 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 2014 of 3.74p will be paid.
Resolutions 4&5 – Re-election of Directors
Andrew Lewis retires by rotation and, being eligible, offers himself for
re-election.
Richard Wood retires by rotation and, being eligible, offers himself for
re-election.
Stella Pirie will retire at the AGM and will not stand for re-election.
Biographies of the Directors can be found on page 41 to of the
Annual Report.
Resolution 6&7 – Reappointment and remuneration of Auditors
Resolutions 6&7 propose the reappointment of
PricewaterhouseCoopers LLP as Auditor of the Company and
authorise the Directors to set their remuneration.
Resolution 8 – Directors’ authority to allot
This Resolution deals with the Directors’ authority to allot Relevant
Securities in accordance with section 551 of the Act. 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 the Investment
Management Association Share Capital Management Guidelines
issued in July 2014 and will, if passed, authorise the Directors to allot
Relevant Securities up to a maximum nominal amount of £10,341,097,
which is equal to approximately one-third of the issued share capital
of the Company as at 19 November 2014.
The Directors have no present intention of exercising this authority
except in connection with the Company’s employee share schemes.
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.
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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 9 – Disapplication of pre-emption rights
This Resolution will, if passed give the Directors power, pursuant to
the authority to allot granted by Resolution 8, 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 £1,551,164 which represents approximately 5% of the
Company's issued share capital as at 19 November 2014 and renews
the authority given at the annual general meeting in 2014.
In compliance with the guidelines issued by the Pre-Emption Group,
the Directors, will ensure that, other than in relation to a rights issue,
no more than 7.5% of the issued ordinary shares (excluding treasury
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.
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 10 – 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 4,653,492 ordinary shares of £1 each, representing just
under 15% of the Company's issued ordinary share capital as at 19
November 2014.
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 the date of this Resolution and the Company's next
annual general meeting.
As of 19 November 2014 there were options to subscribe outstanding
over 932,765 ordinary shares, representing 3.01% of the Company’s
ordinary issued share capital. If the authority given by Resolution 10
were to be fully exercised, these options would represent 3.5% of the
Company’s ordinary issued share capital after cancellation of the
re-purchased shares. As of 19 November 2014 there were no warrants
outstanding over ordinary shares.
The Directors intend to exercise the power given by Resolution 10
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 earnings per ordinary 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. 10 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 11- Notice of Meeting
Resolution 11 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 11 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
Companies Act 2006 and when the Directors consider it appropriate
to do so.
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N O T E S
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S H A R E H O L D E R I N F O R M AT I O N
Shareholding
On 10 November 2014 the Company had 1,659 shareholders, of which
987 (59%) had 1,000 shares or fewer.
Financial calendar
Interim results announced in May and final results in November.
In respect of the year ended 30 September 2014 the annual general
meeting will be held on 29 January 2015 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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