A transformed
outlook
ANNUAL REPORT AND ACCOUNTS
2019
Avon Rubber p.l.c. | Annual Report & Accounts 2019
56
Focusing on our people
6
Active trials with MCM100
underwater rebreather
Avon Rubber is an innovative technology group which designs
and produces specialist products and services to maximise
the performance and capabilities of its customers.
We have transformed the business by delivering against our
strategic priorities of growing the core, selective product
development and value enhancing acquisitions.
4
$340m new contracts
with M53A1 and M69
22
Market Review of the
milkrite | InterPuls division and
its progress during the year
1
For the latest investor relations information, go to our website at:
www.avon-rubber.com/investors
Group Highlights
£173.3m
£166.0m
£181.9m
£40.4m
£37.8m
£165.5m
£159.2m
£179.3m
£30.0m
‘17
‘18
‘19
‘17
‘18
‘19
‘17
‘18
‘19
Orders received
Closing book order
Revenue
£181.9m
£40.4m
£179.3m
£31.3m
£22.8m
£26.1m
£27.3m
£20.1m
£46.5m
£48.3m
£14.4m
£24.7m
‘17
‘18
‘19
‘17
‘18
‘19
‘17
‘18
‘19
Adjusted operating profit
Operating profit
Net cash
£31.3m
£14.4m
£48.3m
83.8p
77.1p
91.7p
71.6p
64.9p
20.83p
46.9p
16.02p
12.32p
‘19
‘18
‘17
Adjusted basic earnings
per share
91.7p
‘17
‘18
‘19
Basic earnings
per share
46.9p
‘17
‘18
‘19
Dividend
per share
20.83p
A full glossary of terms is available on page 152.
A reconciliation of Operating Profit to Adjusted Operating Profit and Profit for the Year to Adjusted Profit for
the Year is available in note 2.2 of the financial statements.
Contents
Overview
1 Group Highlights
2 At a Glance
10 Why Invest in Avon Rubber?
12 Chairman’s Statement
Strategic Report
16 Our Business Model
18 Our Product Portfolio
20 Avon Protection Market
22 milkrite | InterPuls Market
24 Delivering on Our Strategy
28 How We Measure Our Performance
30 Chief Executive Officer’s Review
36 Avon Protection Review
38 milkrite | InterPuls Review
40 Financial Review
46 Principal Risks and Risk Management
52 Environment and Corporate Social Responsibility
Governance
62
Board of Directors
64 Corporate Governance Report
68 Nomination Committee Report
69 Audit Committee Report
73 Remuneration Report
90 Directors’ Report
Financial Statements
96 Independent Auditors’ Report
104 Consolidated Statement
of Comprehensive Income
105 Consolidated Balance Sheet
106 Consolidated Cash Flow Statement
107 Consolidated Statement
of Changes in Equity
108 Accounting Policies and Critical
Accounting Judgements
114 Notes to the Group
Financial Statements
143 Parent Company Balance Sheet
144 Parent Company Statement
of Changes in Equity
145 Parent Company Accounting Policies
147 Notes to the Parent Company
Financial Statements
151 Five Year Record
152 Glossary of Financial Terms
153 Abbreviations
Other Information
154 Notice of Annual General Meeting
160 Shareholder Information
OverviewOther informationFinancial Statements GovernanceStrategic Report 2
Avon Rubber p.l.c. | Annual Report & Accounts 2019
At a Glance
We specialise in Chemical, Biological, Radiological and
Nuclear (‘CBRN’) respiratory protection systems, as
well as milking point solutions through our two businesses
72%
OF REVENUES
28%
OF REVENUES
Avon Protection is the recognised global
leader in advanced Chemical, Biological,
Radiological and Nuclear (CBRN) respiratory
protection systems for the world’s Military,
Law Enforcement and Fire markets.
262
Agents & Distributors
milkrite | InterPuls is a global leader providing
complete milking point solutions to dairy
farmers across the world with the aim
of improving every farm it touches.
2,117
Agents & Distributors
More information on Page 18
More information on Page 18
3
Key
milkrite | InterPuls
Avon Protection
Distribution countries
800
EMPLOYEES
Rest of World
£38.0m
Europe
£34.7m
Avon Protection
milkrite | InterPuls
USA
– Cadillac
– White Marsh
U.K.
– Melksham
– Poole
9
SITES
USA
– Johnson Creek
– Modesto
Italy
– Albinea
U.K.
– Melksham
Brazil
– Castro
China
– Shanghai
90+
COUNTRIES
Revenue split
by destination
60%
North America
£106.6m
21%
19%
OverviewOther informationFinancial Statements GovernanceStrategic Report 4
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Key collaborative development programmes with
the U.S. Department of Defense (DOD) for both
the M53A1 mask and powered air system and M69
aircrew mask, are exceptional examples of our
leading development capabilities. The contracts
were awarded in the first half of the year with
initial deliveries dispatched in the second half.
These contracts solidify our position as the principal
choice with the U.S. DOD for CBRN respiratory protection
with four major branches of the DOD using our products
including the Army, Navy, Air Force and Marine Corps.
We continue to pursue a number of other identified
opportunities with the U.S. DOD and Rest of World
Military customers, both to extend our portfolio
further and broaden our customer base.
For more information, go to our website at:
www.avon-rubber.com/investors/
5 year contracts totalling
$340m
M69 Aircrew Mask
The M69 aircrew mask has been
specifically developed to meet
the unique requirements of
aircrew wearers who require
CBRN respiratory protection
at all altitudes up to 40,000ft
(12,000m). It was developed for
use on 10 U.S. DOD fixed wing
airframes, with potential to add
more aircraft in the future and to
sell to other allied Rest of World
(RoW) militaries.
Growing the coreM53A1 and M69 New sole-source contracts to supply the DOD with the M53A1 and M69 come from demonstrating our capability of collaborative development. 5
M53A1 Mask and Powered Air System
A technical evolution of the 50 series
mask platform, the M53A1 mask and
powered air system is a modular
platform that was specifically
designed to meet the unique
requirements of Special Mission
Units while providing them with
maximum operational flexibility.
OverviewOther informationFinancial Statements GovernanceStrategic Report 6
Avon Rubber p.l.c. | Annual Report & Accounts 2019
87units
DELIVERED IN 2019
Development expenditure in the year has
predominantly focused on Avon Protection, with
significant investment in the continued development
of the MCM100. We launched our MCM100 deep-water
rebreather in 2018 and completed the first large order
from the Norwegian Military during this year.
The MCM100 has opened up a significant number of new
opportunities with the U.S. DOD, European and Rest of
World Militaries and we have had an active year of dive
trials and supplied a number of evaluation units, which has
enabled us to demonstrate our leading next generation
technology to this demanding user group of military divers.
Our MCM100 underwater rebreather specialises in long
endurance and deep dive operations. The system ensures
maximum user capability during a range of military or
tactical diving disciplines, such as mine clearance or
explosive disposal.
For more information, go to our website at:
www.avon-rubber.com/investors/
Selected product developmentMCM100Avon Protection continues to remain at the forefront of technology with the MCM100 underwater rebreather, a high performance, deep diving, air and mixed gas, electronically controlled rebreather. 7
Pioneering innovation in military rebreather technology...
Safety critical
Fully electronically controlled
Fast deployment capability
Multiple redundancy pathways have
been integrated into the system to
ensure user safety during all operations.
Users, if necessary, can operate the
system manually.
Our 'smart' rebreather ensures user
operation is at its simplest. Command
based actions are generated to direct the
user to an immediate solution above and
below the water.
Automated pre-dive sequence and
breath detection allows users to rapidly
set up the system.
OverviewOther informationFinancial Statements GovernanceStrategic Report
8
Avon Rubber p.l.c. | Annual Report & Accounts 2019
In August we signed an agreement to acquire 3M's
ballistic protection business and the rights to the
Ceradyne brand.
Operating primarily from three sites in the U.S. with
approximately 280 employees, the business is a leading
provider of next generation armour solutions, and is a
trusted supplier to U.S. and Rest of World Military and
Law Enforcement customers.
We are delighted to have identified an opportunity that fits
our clear commercial and financial criteria, with a strong
cultural fit. The acquisition is expected to close in the
first half of the Group's 2020 financial year, subject to U.S.
regulatory approvals and customary closing conditions.
For more information, go to our website at:
www.avon-rubber.com/investors/
Global opportunity
Avon Protection's established and growing customer
base in Rest of World Military and Law Enforcement
markets, ensures there is a clear opportunity to
accelerate the business's non-U.S. Military sales as well
as approaching potential new customers with a wider
product range.
Customer
U.S. Military
Rest of World Military
Law Enforcement
90%
4%
6%
2018 revenue
$85.4m
Product
Helmets
Body Armour
Flat Armour
58%
33%
9%
2018 revenue
$85.4m
Value enhancing acquisitions 3M’s ballistic protection business Milestone transaction for Avon Rubber; in line with our strategy and acquisition criteria. 9
The business is a leading provider of next generation
armour, including ballistic helmets and body armour
plates to the U.S. DOD Soldier Protection System.
Ballistic helmets
Body armour plates
Flat armour
Customisable, lightweight
ballistic helmets for
Military and Law
Enforcement customers.
Body armour solutions
consisting of ceramic and
composite components.
Rotary wing
protection systems.
OverviewOther informationFinancial Statements GovernanceStrategic Report 10
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Why Invest in Avon Rubber?
We have a clear strategy to generate long-term earnings
growth through maximising the opportunity from our
current portfolio and selective product development
to maintain our technology leadership position.
Our strong financial position and cash generation will
allow us to enhance the returns from our organic strategy
with additional value enhancing acquisitions, whilst
maintaining a progressive dividend policy.
Organic sales growth
Value enhancing acquisitions
+3%
Through a focus on innovative products
designed for global growth markets we
target 3%+ per annum constant currency
organic revenue growth
We are targeting carefully selected, value
enhancing acquisitions to complement
our organic growth
HOW DID
WE PERFORM
IN 2019?
4.2%
Revenue growth at
constant currency
$91.0m
Acquisition of 3M's ballistic
protection business
11
There are significant medium-term growth opportunities
for both Avon Protection and milkrite | InterPuls. The
transformed outlook provides us with the ability to
continue delivering value to our customers, our people
and our shareholders in the future.
Attractive EBITDA margins
Strong cash generation
Dividend growth
+20%
Using our proprietary product expertise
to develop market leading products, we
target sustainable EBITDA margins of
greater than 20%
+90%
Our objective of delivering cash EBITDA
conversion of 90% or more provides the
cash flow to fund our growth strategy
+30%
Under our progressive dividend policy,
we expect to continue to grow dividends
ahead of earnings until we reach a cover
of two times adjusted earnings per share
22.0%
+70bps at constant currency
63.5%
£48.3m net cash
+30%
20.83p dividend per share
OverviewOther informationFinancial Statements GovernanceStrategic Report 12
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Chairman’s Statement
We have delivered another strong
performance and have made further progress
implementing our strategic objectives.
DIVIDEND PER SHARE
20.83p
2019 has been a transformational year for the
Group. The continued successful execution of
our strategy has both strengthened the outlook
for the business and delivered sustainable,
profitable growth for our shareholders.
I recognise that our success depends on our
people. Our strong financial performance
is a result of the skills, experience and hard
work of our employees. On behalf of
the Board I would like to personally thank
our employees, who have worked tirelessly
to deliver these excellent results.
milkrite | InterPuls returned to revenue
growth in the second half across all lines
of business.
Strategy
Our strategy is to deliver organic growth by
maximising sales from our current product
portfolio and selective product development.
Alongside this, we aim to complement our
organic growth through carefully selected,
value enhancing acquisitions.
The contract awards announced during the
year from the U.S. Department of Defense
for the M53A1 and M69 mask systems
demonstrate delivery against one of our
strategic priorities – to broaden our customer
base and maximise sales growth from our
current product portfolio. These long-term
contracts underpin our medium-term
outlook and confirm Avon Protection as the
sole source provider of General Purpose
Masks, Tactical Masks, Powered Air Systems
and Tactical Self Contained Breathing
Apparatus across the entire U.S. DOD.
Dairy market conditions in the first half
of the year were challenging, but the
now improved market conditions have
resulted in better trading conditions and
In August of this year we signed an agreement
to acquire 3M’s ballistic protection business
and the rights to the Ceradyne brand. The deal
is contingent on U.S. regulatory approval and
is expected to complete in the first half of our
2020 financial year. This acquisition is expected
to be significantly earnings enhancing for
the Group and will both broaden our current
product range and deepen our presence in
the U.S. and our relationship with the U.S. DOD
This important strategic step for the business
accords with our previously communicated
acquisition strategy of targeting businesses
with the appropriate commercial and financial
criteria to complement our organic growth.
Shareholder returns
During 2019 we delivered a total shareholder
return of 30.5%. The Company’s share price
rose from £12.90 at the start of October 2018 to
£16.62 on 30 September 2019, and dividends
totalling £5.4m were paid to shareholders.
The Board considers the dividend to be
an important component of shareholder
returns and as such has a policy to deliver
a progressive dividend year on year. The
Board is pleased to be recommending
an increased final dividend of 13.89p per
share, making a total dividend for the year
of 20.83p, which is a 30% increase on the
previous year and reflects our confidence
in our outlook.
Governance and the Board
The Board remains committed to the highest
standards of corporate governance and
the Board continues to perform strongly in
ensuring the effectiveness of our governance
processes throughout the business. We are
reporting this year against the requirements
of the U.K. Corporate Governance Code 2016
('the Code'). The Board has also spent time
considering the changes brought in by the
2018 U.K. Corporate Governance Code (the
'new Code') and The Companies (Miscellaneous
Reporting) Regulations 2018 (the 'Regulations')
and how we can ensure compliance. We
will report against the new Code and the
Regulations fully in the 2020 Annual Report.
I have been a member of what has proved to be
a strong and stable Board since 2007. I have held
the role of Chairman since 2012 and am proud
to have overseen the development of the Group
and, in particular, the impressive results under
Paul McDonald over the last three years. The
Board and I recognise that under the new Code
the Chair should not remain in post beyond nine
years from the date of their first appointment
to the Board. This period can be extended for
a limited time, particularly where the Chair
was an existing Non-Executive Director when
appointed Chair, as I was, if that helps facilitate
effective succession planning or a diverse board.
Succession planning for the Board during the
last year has resulted in the commencement of
the recruitment process for two additional Non-
Executive Directors, with a particular focus on
diversity. Together with Pim Vervaat and Chloe
Ponsonby, the new Non-Executive Directors will
form a pool from which the future Chairman will
be appointed.
“ Our strategy is to deliver organic growth by maximising sales from
our current product portfolio and selective product development.”
13
I will remain in post for a limited period while this
recruitment process runs its course into early 2020
and the new Non-Executive Directors settle into their
roles through the remainder of the 2020 financial year.
I therefore intend to step down as Chairman and
member of the Board at the Annual General Meeting
in 2021. Between now and then I will continue to
focus on demonstrating objective judgement and
promoting constructive challenge amongst the
members of our Board.
Our internal Board evaluation in 2019 robustly
challenged all aspects of the Board including my
performance as Chairman and that of each Director,
the Board Committees and the Board as a whole. I am
pleased to report that the Board continues to function
effectively as a cohesive body with a good balance of
support and challenge and that its individual members
are performing to a high standard.
In 2019 we changed the Group’s external auditor to
KPMG LLP from PricewaterhouseCoopers LLP. The
process around this change was fully reported on in
the 2018 Annual Report and I am pleased to report
that the transition occurred without any disruption
to the business.
Developing our people and culture is an ongoing
priority for the forthcoming year and the Board
recognises the importance of its role in setting
the right tone and behaviours at the top and
embedding them throughout the Group. Our Code
of Conduct, which is reviewed annually by the
Board, sets out our expectations around behaviours
and is given to all employees. It is also available to
all stakeholders including customers and suppliers.
Strong Results in a transformational year
2019 was another strong year of delivery. Looking ahead
the Board are confident that our strong balance sheet,
ambition and talented leadership team will enable the
Group to continue to succeed and grow in future years.
David Evans
Chairman
13 November 2019
LINK TO STRATEGY
Listening to
our Employees
Developing the opportunities
for employee voices to be heard
by integrating technology.
This year’s annual Employee Opinion Survey introduced
major changes to how we communicate to our employees.
By collaborating with Culture Amp we have been able to
redesign how we communicate and receive feedback from
our employees. Culture Amp’s unique software enables us
to look deeper into the results than ever before, drawing
meaningful conclusions from the data and implementing
changes that have far-reaching impacts.
We are continually challenging ourselves to be a better
company to work for, and pride ourselves on listening to
employees and acting in their best interests. This year will
see the introduction of quarterly surveys, which will make
us more agile in addressing concerns, and capitalising
on opportunities.
For more information, go to our website at:
www.avon-rubber.com/investors/
OverviewOther informationFinancial Statements GovernanceStrategic Report
14
Avon Rubber p.l.c. | Annual Report & Accounts 2019
“ We have a reputation for
technological excellence and
innovation, with a strong tradition
of new product development.”
15
Strategic Report
16 Our Business Model
18 Our Product Portfolio
20 Avon Protection Market
22 milkrite | InterPuls Market
24 Delivering on Our Strategy
28 How We Measure Our Performance
30 Chief Executive Officer’s Review
36 Avon Protection Review
38 milkrite | InterPuls Review
40 Financial Review
46 Principal Risks and Risk Management
52 Environment and Corporate Social Responsibility
OverviewOther informationFinancial Statements GovernanceStrategic Report 16
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Our Business Model
Our products and services maximise the capabilities of our
customers and create value for all our key stakeholder groups.
Key inputs
What we do
Leading positions in
attractive growth markets
We are recognised as the leader within our chosen
market segments.
Differentiated technology
We have a reputation for technological excellence
and innovation, with a strong tradition of new
product development.
Deep product expertise
We partner closely with our customers to design
products to enhance their capability.
Established global
distribution networks
We have a mature agent and distributor network
to provide a range of commercial products in over
90 countries.
Skilled people
We have a highly skilled workforce of 800
employees across nine sites.
Experienced management
Our Board alone has over 147 years of combined
management experience.
We are an innovative
technology group which
designs and produces
specialist products and
services to maximise the
performance and capabilities
of our customers.
We specialise in Chemical,
Biological, Radiological and
Nuclear ('CBRN') respiratory
protection systems, as well
as milking point solutions.
We re-invest
17
S
R C O M MUNITIE
£38k
CHARITABLE
CONTRIBUTIONS
A G E NTS & D
I
S
T
R
I
B
U
T
O
R
S
90+
DISTRIBUTION
COUNTRIES
How we operate
Our values
We have a set of principles and cultural
values that are rigorously pursued and
adhered to across the Group.
Robust risk management
We have an established process for the
identification and management of risk.
Responsible approach
to sustainability
We are committed to minimising
the impact of our operations on the
environment and our employees.
Effective governance
We are committed to high standards
of corporate governance, as set out in
the U.K. Corporate Governance Code.
The value we create
for stakeholders
U R P EOPLE
O
61%
EMPLOYEE
ENGAGEMENT
U
O
Stakeholder
value creation
H
S
R
U
O
H O L D ERS
A R E
20.83p
DIVIDEND
PER SHARE
OverviewOther informationFinancial Statements GovernanceStrategic Report 18
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Our Product Portfolio
Our strategic focus is to improve and expand our product offering
to provide a broader portfolio of products to meet more of the
needs of our customer base.
Avon Protection markets
Military
Global leader within Military CBRN for masks and filters, with leading portfolio of
respirators, filters, powered air, supplied air and underwater rebreathers and long-
term pedigree for military contracting and supply chain excellence. Avon Protection
is the sole-source supplier to the U.S. DOD for the Joint Service General Purpose
Mask (JSGPM), as well as the M69 and M53A1, whilst expanding into wider respiratory
technology applications in both air and sea.
Law Enforcement
Supplying a range of NIOSH and CE approved mask solutions for global Law
Enforcement customers, whilst organically expanding a wider portfolio of filters,
hoods and powered air offerings to complement the mask, to increase capability
of the Law Enforcement community in responding to global threats.
Fire
Leading provider of thermal imaging camera technology.
milkrite | InterPuls Markets
Interface
milkrite | InterPuls is the market leader for cluster technology to remove milk from
the animal in the most efficient way and maximise the performance of the farm
with improved cost benefits for the farmer and improved animal health.
Precision, Control & Intelligence (PCI)
Precision refers to the set up of the air system within the milking process to maximise
the performance and efficiency of the system to provide the most efficient milking
process. Control is the physical control of the milking system to provide automation
opportunities to minimise labour inputs. Intelligence is the critical part of the dairy
system which extracts data from the animal and integrates this within the farm
herd management system or dairy management system when supplied as an
integrated solution.
Farm Services
Whilst offering the entire product range on a resale basis, milkrite | InterPuls have
developed the unique Farm Services offering, where clusters, pulsators and tags are
offered to the farm on a lease hire basis, with a fully incorporated service and warranty
scheme managed directly with the farm.
19
Supplied air image
RESPIRATORS
Our respirators are specifically designed to meet
the latest military user requirements. We have a
long-standing relationship with the U.S. DOD and
over two million 50 series respirators have been
issued in the U.S. alone.
POWERED AIR
Our range of Powered Air Purifying Respirators
(PAPR) provide clean breathable air through the
filters and hoses that are connected to the
respirator. The PAPR reduces breathing resistance
which makes breathing more comfortable.
SUPPLIED AIR
Supplied Air includes our range of self-contained
breathing apparatus that contain and deliver
breathable compressed air. Supplied Air can be
combined with PAPRs to deliver an adaptable
protection factor.
ESCAPE HOODS
Our escape hoods are the smallest and most
compact CBRN hoods on the market and give
the user 15 minutes of protection to escape
a hostile situation.
UNDERWATER
Our MCM100 is a fully closed circuit, electronically
controlled, mixed gas rebreather suitable for a
large range of military or tactical diving disciplines
such as mine clearance or explosive disposal.
THERMAL IMAGING
Our premium lightweight thermal imaging
cameras have an Industry leading dynamic range
and an oversized display for top performance in
the most extreme firefighting environments.
LINERS
The liner is the only part of a milking system to be
exposed to the teat. Our Impulse and Impulse Air
liners use triangular technology for cow comfort,
whilst the Ultraliner range uses classic round milk
liner technology.
PULSATORS
We are the world-leading manufacturer of state of
the art electronic pulsators designed to facilitate
gentle, complete and uniform milking.
CLUSTER EXCHANGE
Through the Cluster Exchange Service, farmers
lease complete milking clusters and outsource
their liner change process to us. This is managed
through service centres established in our existing
facilities, with the support of our dealers and
third-party logistics specialists.
MILK METER
Our milk meters use state of the art technology
with advanced electronics and sensors to display
real time milk yield, temperature, milking time,
animal number and conductivity.
LEG AND NECK TAG
Leg and Neck Tags represent the next step
in automation, tracking every potentially
problematic signal regarding the animal's health
and reporting it back to the farmer.
OverviewOther informationFinancial Statements GovernanceStrategic Report 20
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Avon Protection Market
Increased spending by NATO and affiliated countries and more focus on CBRN
protection places Avon Protection in a strong position to meet more of the needs
of a broad range of customers.
Increased
awareness
of threat
55%
Rest of
World
Increased
Spending
45%
U.S.
DOD
Broader
CBRN product
portfolio
As the intensity of terrorism and state use of
chemical weapons has increased over the
last two decades, its impact has also spread
to more countries around the world.
The U.S. DOD currently make up 45% of
the total addressable global military spend,
however, there is significant opportunity
for growth in Rest of World countries,
which have committed to increase military
spending to 2% of GDP.
Avon Protection is well positioned to extend
military and first responder offerings to the
U.S. and Rest of World countries.
“ Since 2012, more than 60 countries experience
at least one fatal terrorist attack each year.”
Global Terrorism Index
Top 20 military spenders
Increased
counter-terrorism
spending and security
measures have
reduced the lethality
of attacks
Source: World Defence Almanac 2018
Top 20 military spender – addressable market
Top 20 military spender – non-addressable market due to ITAR regulations
21
£32.4m
Rest of
World
62.8%
of Avon Protection's
Military revenue is
from the U.S. DOD
£54.8m
U.S.
DOD
5%
of revenue
R&D spend + £75m
over the last
ten years
$91m
acquisition of 3M's
ballistic protection
business
Link to our
strategy
Growing the core
Selective product development
Value enhancing acquisitions
The award of two significant long-term
contracts with the U.S. DOD for the M69
aircrew mask and M53A1 mask and powered
air system marks our transition away from
the historic focus on M50 mask system, to
a multi-product modular portfolio meeting
a wider range of needs for the U.S. DOD, as
well as expanding our opportunities with
our Rest of World customers.
The development of the next generation
hood has allowed us to begin talks with
the U.S. DOD. We see a strong addressable
market to provide ready-to-use, one-size-fits-
all respirator to families of soldiers on military
bases and other adjacent markets.
The acquisition of 3M's ballistic protection
business will significantly strengthen our
current technology and personal protection
product offering by adding the leading next
generation helmets and body armour.
The evolution of Avon Protection’s product portfolio
Mask as a part of a
modular platform
Building on the technology
of the M50 mask system,
a wider range of products
was developed to integrate
with the respirator including
powered and supplied air.
The ST54 is a good example
of this and is a central
product attached to the
framework of the M53A1
and M69 contracts with the
U.S. DOD.
Standalone mask and filter
Avon Protection won a ten
year sole-source contract to
supply the U.S. DOD with
the M50 mask system
2008
Summary
Integrated systems
As part of the acquisition
of 3M’s ballistic protection
business, Avon Protection
will have a much broader
technology and product
portfolio that includes
ballistic helmets and
body armour.
2019
Outlook
In response to the wider awareness of the CBRN threat, militaries and first responders are investing in new technologies and capabilities to
protect themselves from new emerging threats. Since 2014, NATO countries have a commitment to increase military spending to 2% of their
GDP, including the U.S. which has already surpassed this commitment. European countries such as the U.K., France, Germany and Italy, which
are some of the top 20 military spenders, have been increasing their military spend to meet their 2024 commitments.
Avon Protection is a trusted provider of specialist CBRN protection with a strong distributer network. As well as supplying to the U.S. DOD, U.K.
MOD and Rest of World military Avon Protection is a major supplier of CBRN protection to Law Enforcement customers.
When the acquisition of the 3M's ballistic protection business is complete Avon Protection will be able to utilise the strong distributor
network to offer a broader portfolio to our customers.
OverviewOther informationFinancial Statements GovernanceStrategic Report 22
Avon Rubber p.l.c. | Annual Report & Accounts 2019
milkrite | InterPuls Market
As the global demand for dairy products continues to grow, the rate of farm
consolidation and integration of new technology increases the opportunity
to expand our market-leading portfolio.
5.4%
Large
farms
Increased
demand
22.2%
Business
farms
Global farm
consolidation
Investment in
technology
72.4%
Small
farms
By 2030, driven by an expected population
growth of 1.2 billion and increasing per
capita milk consumption of 16%, total milk
production needs to increase by 35%. Some
of this increased milk production will be met
by a modest increase in the cow and buffalo
population of 12% on 2017 figures. The rest
will be met by increased farm efficiency and
higher milk yields.
The dairy market is increasingly moving
towards industrialised farming with greater
levels of closures and consolidation of
smaller farms (farms with less than 30 cows)
but importantly with no reduction to cow
numbers as mega farms (farms with more
than 20,000 cows) grow. Efficiency can be
realised as overhead costs are spread over
more cows.
The milkrite | InterPuls portfolio is focused
on efficiency and animal welfare. Combined
with our milking technology and service
focus we see positive opportunity for
medium and long-term growth as farms look
to utilise our product portfolio to increase
milk production and milk yield per cow.
70% of dairy costs are attributed to feed price. Therefore,
the relationship between milk price and feed cost is a critical
relationship governing farm investment.
Western Europe
Eastern Europe and CIS
South Asia
East & Southeast Asia
North America
Latin America excl.
BR, AR, CL, PY, UY
“By 2030,
average milk yield
is expected to be
23% higher than 2017,
supported by the use
of technologies”
Source: IFCN 2019
Near & Middle East
Oceania
Africa
BR, AR, CL, PY, UY
Cows on large farms (greater than 1000 cows)
Cows on business farms (between 30 to 1000 cows)
milkrite | InterPuls site
23
500%
increase in mega farm
customers in China
since 2015
1st
shipment of iMilk600
to Russian mega
farm with MyFarm
software
3
Farm Service offerings
across three major
continents
Link to our
strategy
Growing the core
Selective product development
Value enhancing acquisitions
milkrite | InterPuls command a leading
position within the interface market and have
had great success targeting mega farms with
Impulse Air technology who recognise the
benefits that come with our product range.
milkrite | InterPuls have built on this existing
platform and now offer PCI products and
Farm Services to mega farms.
The development of our iMilk range ensures
milkrite | InterPuls have an advanced
portfolio of electronic milk meters to
deliver milking point efficiency. The recently
launched iMilkNano has enabled us to
broaden our sheep and goat offerings as
well as provide an alternative compact milk
meter for business farms.
The integration of the acquired PCI products
range into the Farm service model has
enabled milkrite | InterPuls to broaden their
portfolio, whilst providing farms with the
opportunity to enhance their efficiency
with minimal upfront costs.
The evolution of milkrite | InterPuls’s Product Portfolio
Interface
Precision, Control, Intelligence
Farm Services
milkrite | InterPuls launched the revolutionary
Impulse Air technology designed to maximise
animal health and milking efficiency.
milkrite | InterPuls broadened their portfolio
following the acquisition of InterPuls to include
best-in-class products for improving efficiency.
Our Farm Service model was developed to provide
an alternative entry point to the core elements of our
product portfolio including clusters, pulsators and
tags on a lease hire basis. Farm Services ultimately
provides milkrite | InterPuls with the future delivery
platform for our new products.
2010
2015
Evolution
Summary
Over the past 20 years the global dairy industry has been responding to increased milk demand by improving farm efficiency and increasing
average milk yield per cow. The dairy market has seen a 76% growth of large farms since 1996, as well as the investment in advanced
technologies to improve farm efficiencies.
Larger farms target greater efficiency as overhead costs are spread over more animals. This supports the continued growth in mega farms in
key locations such as the U.S., China, Australia and Saudi Arabia where there are less limiting factors. In addition, average farm size is expected
to rise by 29% between 2017 and 2030, increasing the number of addressable business farms and large farms.
milkrite | InterPuls products and services are well positioned to support the farms of today and the future who are seeking to use innovative
technologies to improve farm efficiency and deliver excellent animal health.
OverviewOther informationFinancial Statements GovernanceStrategic Report 24
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Delivering on Our Strategy
Our strategy is to generate shareholder value through growing the
core business by maximising sales growth, supported by selective
product development and value enhancing acquisitions.
WING
E CORE
H
T
O
R
G
S
E
L
E
D
C
E
V
T
I
E
V
L
E
O
P
P
R
M
O
E
N
T
D
U
C
T
How we
grow value
VALUE ENHA N C I N G
ACQUISIT I O N S
25
Growing the core
We are recognised as the leader within our chosen market segments.
There are further opportunities to maximise growth from our product
and service portfolio.
Revenue growth
+4.2%1
at constant currency
Revenue
£179.3m
(2018: £165.5m)
1
8.3% including impact of currency movements
How we achieve this
• Expanding our reach through
• Leveraging the product and customer
base. There is considerable scope to
cross sell the wider product portfolio
to our existing customers and further
improve margins.
• Responding to customers’ growing needs.
Through our focus on innovation we are
constantly enhancing the functionality
and capability of our product range. As
the demands of our customers grow, we
see a clear opportunity to migrate them
to our premium product offerings as their
requirements increase.
• Offering new models and solutions.
We see alternative ownership models
and value-added services as an additional
differentiator that has scope to open up
a broader market.
distribution. We participate in growing
global markets with a large and diverse
base of potential customers. Expanding
our distribution network of agents and
dealers will allow us to access wider
market opportunities more quickly,
in both new and existing territories.
• Continuing focus on operational
excellence. We have invested in a
global manufacturing capability and
supply chain to meet the high quality
requirements of our products and
customers. We pursue a continuous
improvement culture to further reduce
costs and enhance product margins and
will benefit from improved operational
gearing as we optimise the utilisation of
our global operations.
Performance in FY19
Strategy in action
We ensure a continuous focus on operational
efficiency. For Avon Protection our efficient
manufacturing operation enables excellent
product quality and reliability. For
milkrite | Interpuls we took the opportunity
to consolidate all EU commercial operations
into our existing Italian facility.
• Expanding our Military product
portfolio from the awards of two
significant long-term contracts.
• Strategic focus on Military customers
for our SCBA market.
•
Impacted Law Enforcement
momentum by the partial shutdown
of the U.S. Government at the start
of the year.
• Maintaining our global market-
leading position in Interface.
• Expanding Precision, Control &
Intelligence (PCI) sales support.
• Farm Services lease ownership
model impacted by difficult
market conditions in the first half.
ACQUISIT I O N S
OverviewOther informationFinancial Statements GovernanceStrategic Report 26
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Delivering on Our Strategy continued
Selective product development
We have a reputation for technological excellence and
innovation, with a strong tradition of new product development.
Total R&D expenditure
(2018: £9.7m)
£8.2m
£75m+
spent on R&D over past ten years
How we achieve this
Moving up the value chain
in respiratory protection.
Whilst we will continue to expand the
portfolio of mask platforms, variant
systems and consumables to cater for the
specific needs of particular customers or
applications, we are actively developing
more advanced systems targeted at more
specialist customer groups.
Enabling technologies
and integrated systems.
The equipment of the military fighter of
the future is expected to be increasingly
sophisticated, with seamless integration
of protection and technology systems.
We are investing in our expertise in enabling
technologies, following an Internet of Things
principle, to allow greater integration of
respiratory protection systems with data
and communications technology.
Building the milkrite | InterPuls portfolio
around the service proposition.
We have expanded the Farm Services
product portfolio to include Cluster
Exchange, Pulsator Exchange and Tag
Exchange to leverage the unique value
of this product range.
Performance in FY19
Strategy in action
We launched our MCM100 deep-water
rebreather in 2018 and have had an active
year of dive trials and supplied a number
of evaluation units, which has enabled us
to demonstrate our leading position in
the MCM100 product capability for this
demanding user group.
• The development expenditure in
the year has predominantly focused
on Avon Protection.
• Significant investment in the U.K.
GSR, MCM100 and next generation
hood programme.
• Upgraded Milk Meter equipment
and subsequent ICAR approval
together with the PCI heavy duty
equipment for North America
to meet the needs of our larger
industrial customers.
27
Value enhancing acquisitions
We are targeting carefully selected, value enhancing
acquisitions within Avon Protection and milkrite | InterPuls
to complement our organic growth.
Management have maintained a very clear
focus on capital discipline and ensuring
that any opportunity meets its financial
and commercial criteria.
Commercial criteria:
• Strong brand recognition
• Technology which broadens our
product range
• Expands our geographic reach
• Secure revenue streams or another
source of profitable growth
• Strong management
Financial criteria:
• EPS enhancement
• Organic revenue growth, margins
and cash conversion potential in line
with our strategic growth objectives
• Returns exceeding our WACC
• Post-acquisition net debt to EBITDA
less than two times
$91.0m
Acquisition of 3M's ballistic
protection business
Performance in FY19
• Avon Rubber has signed an agreement to acquire 3M’s ballistic protection business
and the rights to the Ceradyne brand.
• The acquisition represents a very attractive opportunity in line with our strategy.
• The core strengths of the business are closely aligned with those of the Group.
OverviewOther informationFinancial Statements GovernanceStrategic Report 28
Avon Rubber p.l.c. | Annual Report & Accounts 2019
How We Measure Our Performance
The Group uses a variety of key performance indicators which
are in line with our updated strategy and investor proposition.
£40.4m
£37.8m
£30.0m
8.7%
22.4%
21.3%
22.0%
4.5%
4.2%
‘17
‘18
‘19
‘17
‘18
‘19
‘17
‘18
‘19
Closing Order
Book
£40.4m
+6.9%
Constant currency
revenue growth1 (%)
4.2%
-4.5%
Adjusted EBITDA
Margin1 (%)
22.0%
+0.7%
Reason for choice
Reason for choice
Reason for choice
Provides an indication of
revenue to be recognised
in the next financial period.
Indicates the rate at which
the Group’s business activity
is changing over time.
Provides a measure of the
underlying profitability of
the ordinary activities of the
business and their potential
to generate cash.
How we calculate
How we calculate
How we calculate
Orders received by the Group
and not yet fulfilled. This is
measured by the value of
future revenue attached
to orders not yet fulfilled.
The growth in revenue
comparing current
year revenue with
prior year revenue
retranslated at current
year exchange rates.
The ratio of Adjusted
EBITDA to revenue. Adjusted
EBITDA is defined as
operating profit before
depreciation, amortisation,
exceptional items and defined
benefit pension scheme
costs. It excludes any effect
of discontinued operations.
Comments on results
Comments on results
Comments on results
Strong closing order book of
£40.4m provides excellent
revenue visibility and
confidence for 2020.
Strong core revenue
growth across our Military
business with both the
U.S. DOD and our Rest
of World customers has
resulted in constant
currency growth of 4.2%,
above our 3%+ objective.
First deliveries of our higher
margin M53A1 mask systems
and lower volumes of
lower margin M50 systems,
contributed to EBITDA margin
growing by 70bps to 22.0%;
significantly ahead of our
20%+ objective.
1
The Directors believe that adjusted measures provide a more useful comparison of business trends and performance.
The metrics are also used internally to measure and manage the business
29
5.9%
5.2%
4.6%
108.2%
98.1%
63.5%
91.7p
83.8p
77.1p
25.0%
23.3%
23.9%
‘17
‘18
‘19
‘17
‘18
‘19
‘17
‘18
‘19
‘17
‘18
‘19
Product development
% of revenue
4.6%
-1.3%
Cash
conversion (%)
63.5%
-44.7%
Adjusted earnings
per share1 (%)
Return on capital
employed (%) (ROCE)
91.7p
+18.9%
23.9%
+0.6%
Reason for choice
Reason for choice
Reason for choice
Provides a measure of the
Group’s investment in new
products and processes.
Investment provides a
foundation for the Group’s
future growth.
Provides a measure of the
management of working capital
and the ability of the Group to
convert profits to cash.
Measures the ability to
generate a return to
shareholders. It takes into
account our success in
growing our business
organically and by acquisition
coupled with management of
the Group’s financing and tax.
Reason for choice
Measures profitability and the
efficiency with which capital
is employed.
How we calculate
How we calculate
How we calculate
How we calculate
The ratio of cash generated
from operations before the
effect of exceptional items
to adjusted EBITDA.
Total expenditure on
research and development
including amounts funded
by customers, development
expenditure capitalised and
amounts expensed directly
to the Income Statement
expressed as a percentage
of revenue.
Adjusted operating profit as a
percentage of average capital
employed. Capital employed
is the sum of shareholders’
funds, non-current liabilities
and current borrowings.
Adjusted profit for the year
divided by the weighted
average number of shares
in issue. Adjusted profit
excludes the amortisation of
acquired intangibles and the
after tax effect of exceptional
items, defined benefit
pension scheme costs and
discontinued operations.
Comments on results
Comments on results
Comments on results
Comments on results
4.6% of revenue has been spent
on product development which
has predominantly focused on
Avon Protection, with significant
investment in the U.K. GSR,
MCM100 and next generation
hood programmes. Development
expenditure for milkrite | InterPuls
included the compact milk meter
to address the market for smaller
milk producing animals.
Our continued focus on cash
management was impacted by
the timing of the fulfilment of
the $16.6m Rest of World mask
contract, which resulted in 63.5%
of EBITDA being converted into
cash, below our objective of
90%+. This is purely timing with
the receipt expected in the first
quarter of the 2020 financial year.
Strong core revenue and
profit growth combined with
the benefit of concluding
some uncertain tax
provision releases resulted
in a significant increase in
adjusted earnings per share
of 18.9%.
Our 10.4% improvement in
profit has offset the effects of
the continued strong net cash
balance throughout the year
which has increased our ROCE
to 23.9%.
A full glossary of terms is available on page 152
A reconciliation of Operating Profit to Adjusted Operating Profit and Profit for the Year to Adjusted Profit for the Year is available in note 2.2 of the financial statement
OverviewOther informationFinancial Statements GovernanceStrategic Report 30
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Chief Executive Officer’s Review
We have a greater and wider range of
opportunities for both Avon Protection
and milkrite | InterPuls.
NEW MILITARY CONTRACTS
£340m
I am delighted to report on a
transformational year for Avon Rubber
where we have delivered against all
three elements of our growth strategy.
The results reflect ongoing initiatives
to grow our core revenue and selected
product development to create a business
that is more sustainable for the future with
improving operating profits and cash flows.
Our strategy has been focused on enhancing
the future visibility and sustainability of our
growth through diversifying the revenue
we generate from our product portfolio by
delivering more products to our existing
customers, as well as broadening our
customer base. This has supported the
growth in our order intake and revenue in
2019, as well leaving us well positioned for
2020 with a strong opening order book. The
broader range of products and customers
provides the Group with more flexibility to
deliver consistent growth in revenue and
operating profits going forward. This was
evidenced by our performance in the second
half of 2019, following the challenging market
conditions experienced earlier in the year.
The strong balance sheet position and cash
generation from the business has allowed
us the scope and confidence to pursue
both acquisition opportunities and invest
in product development to support future
growth. The acquisition of 3M’s ballistic
protection business is a milestone moment
for Avon Rubber which will significantly
add to our personal protection portfolio
and greatly accelerate our future growth
prospects. We remain committed to
research and development and investing
in our product portfolio maintaining the
competitive advantage for our existing
range, as well as continuing to develop new
products in partnership with our customers
to meet their ongoing needs.
I am confident that our achievements this
year have transformed the outlook for the
business. We have a greater and wider range
of opportunities for both Avon Protection
and milkrite | InterPuls to continue delivering
value for our customers, our people and our
shareholders in the future.
Strategy
Our strategy is based upon creating
shareholder value through three key elements:
• Growing the core by maximising organic
sales growth from our current product
portfolio and improving our operational
efficiency;
• Pursuing selective product development
to maintain our innovation leadership
position; and
• Targeting value enhancing acquisitions
to complement our existing businesses.
Growing the core
Avon Protection
Excellent growth across our Military business
with both the U.S. Department of Defense
and our Rest of World customers has resulted
in Avon Protection delivering another
record year. This was achieved through our
strategic focus on improving and expanding
our product offering to provide a broader
portfolio of products to meet more of the
needs of our customer base.
Expanding our Military product
portfolio and customer base
The award of two very significant long-
term contracts with the U.S. DOD for the
M69 aircrew mask and the M53A1 mask
and powered air system, which have a
combined maximum contract value of
$340m, confirm Avon Protection as the sole
source provider of General Purpose Masks,
Tactical Masks, Powered Air Systems and
Tactical SCBAs across the entire U.S. DOD.
“ I am confident that our achievements this year
have transformed the outlook for the business.”
31
The M53A1 framework contract, which also
covers additional Avon Protection products,
including the ST54 self-contained breathing
apparatus, has a maximum value of $246m and
a minimum five-year duration. This framework
is accessible to a number of different and new
customers within the U.S. DOD, including
all four military service branches and other
national and federal agencies. We received
the first order under the contract earlier in the
year, worth $20.2m, which we have partially
completed during the year and expect further
orders during 2020.
The M69 sole source contract to supply the
U.S. DOD with the M69 Joint Service Aircrew
Mask for Strategic Aircraft, related accessories
and engineering support, extends Avon
Protection’s portfolio reach into the aviation
sector for the first time and has a maximum
value of $93m and a minimum five-year
duration. As with the M53A1, we received the
first order under the contract, worth $17.8m,
earlier in the year and we also partially
completed the first deliveries this year.
These important contract awards from
the U.S. DOD mark our transition away
from the historic focus on the M50 mask
system, to a multi-product modular
portfolio meeting a wider range of needs
across all military branches of the U.S. DOD.
Notwithstanding this, the M50 mask system
remains an important part of the portfolio
and positive discussions regarding the
future requirements of the U.S. DOD and
their anticipated sustainment volumes are
ongoing and we expect to receive a contract
award in the new financial year. In addition,
we have a highly visible pipeline of Rest of
World military opportunities and are in active
dialogue with a broad range of customers
who are looking to upgrade their capability
to the FM50 mask system.
LINK TO STRATEGY
U.K. MOD GSR
The U.K. MOD General Service
Respirator is now in production
and work has begun to deliver
the first order.
Avon Protection was awarded the five-year contract to
supply and provide in-service support for the GSR with the
U.K. MOD in February 2018. After a year of development,
samples of the GSR were provided to DSTL for laboratory
testing and user evaluation. These tests were successfully
passed and the GSR was accepted into service in September.
Avon Protection received the first order for respirators and
spares at the beginning of October. To meet the needs of
full-scale production, two new manufacturing lines have
been created to assemble the mask and filter systems,
creating a number of jobs for people in the local area.
This major milestone in our history demonstrates the
significant lead we have regarding production and
development capabilities compared to our competitors,
whilst ensuring we are now positioned as the leading
supplier for CBRN respiratory protection.
For more information, go to our website at:
www.avon-rubber.com/investors/
OverviewOther informationFinancial Statements GovernanceStrategic Report 32
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Chief Executive Officer’s Review continued
We re-established our relationship with the
U.K. Ministry of Defence ('U.K. MOD') when
we won the contract last year to supply their
GSR mask. Subsequent to the award, we have
been preparing the tooling and processes
for the full manufacturing requirements as
well as undertaking customer acceptance
testing, which was completed in the final
quarter of the year. We expect the first
orders and deliveries to follow in early 2020.
Through those activities we have been able
to demonstrate to the U.K. MOD our focus
on quality and technical expertise, and as
a result, we see further opportunities to
deepen our relationship with the U.K. MOD,
leveraging from our wider product portfolio.
We launched our MCM100 deep-water
rebreather in 2018 and completed the first
large order from the Norwegian Military
during this year. The MCM100 has opened
up a significant number of new opportunities
with the U.S. DOD, European and Rest of
World Militaries. We have had an active
year of dive trials and supplied a number
of evaluation units, which has enabled us
to demonstrate our leading next generation
technology to this demanding user group
of military divers.
Our continuing strong relationship with all
branches of the U.S. Military has enabled
us to develop and bring to market a full
suite of respiratory protection products
including masks, PAPRs and SCBAs. Due to
the modularity of our product offering, we
can offer a unique and combined product
solution to meet the budgets and differing
usage requirements of other potential
Military customers.
The breadth of our product offering, and
commitment to ongoing investment in
research and development in partnership
with our customers is a core strength of
our model. This means we are in a very
strong position to continue to deepen our
existing customer relationships and pursue
new opportunities that our world-leading
reputation is continuing to generate.
Growing our Law Enforcement business
This year the strong momentum in our Law
Enforcement business was interrupted by the
impact of the partial shutdown of the U.S.
Government at the start of 2019, restricting
some of our key user communities’ access
to their operational funding and their
administrative capability to place orders.
The shutdown had a significant impact
during 2019 and whilst purchasing activities
returned to normal in the second half,
affected customers were unable to accelerate
their procurement processes to fully mitigate
the first half delays. Despite the interruption,
the Law Enforcement community is still
showing a strong demand for our protection
products as the elevated environment of
CBRN threats remains high on the agenda.
We continue to see good market penetration
with U.S. and Rest of World Law Enforcement
customers, where we have been able to
demonstrate the benefits our market leading
portfolio and modular product range
to meet the diverse needs of a broader
section of customers who are responding
to the changing threat levels. We expect
to continue to grow our market share in
all of our key markets, which will support a
return to growth in 2020 in anticipation of a
more stable political environment to allow
us to leverage from our product innovation
leadership position.
Exiting the Fire SCBA market
Given the breadth of our personal protection
offering following the acquisition of 3M’s
ballistic protection business, we have
reviewed our participation in the Fire SCBA
market. Participation in this market has helped
us develop and advance our capability with
our SCBA portfolio while meeting the needs
of our Fire customers. The capabilities and
knowledge that we have gained during our
participation in the Fire market has supported
the development of the ST53 and ST54 SCBA
products for users in our core Military and
Law Enforcement customer base. In 2019
we sold more of our current range of SCBA
products to Military and Law Enforcement
customers than to the Fire market. The ST54
is one of the central products attached
to the framework $246m M53A1 contract
award this year to meet all the tactical
requirements of the U.S. DOD. The expertise
we have generated in SCBA technology
now sits within our wider Military and Law
Enforcement R&D teams who will ensure we
retain our technology leadership in this area.
“ The MCM100 has opened up a significant number of
new opportunities with the U.S. DOD, European and
Rest of World Militaries.”
33
U.K. GSR user
acceptance
testing passed
The Fire market remains highly competitive
with a fragmented customer base where we
have a small market position and compete
against much larger players. This means
we generate margins and returns that are
significantly below our strategic targets.
We have therefore taken the decision that
it is the right time to move away from our
participation in the Fire SCBA market and
reallocate resources to focus on our core
growth opportunities with our Military
and Law Enforcement customers. In 2019
revenues relating to the Fire SCBA product
line were £6.7m.
We will continue to stay committed to the
argus thermal imaging camera technology
which continues to contribute to our
revenues and profit. The argus range is a
trusted brand for firefighters and the full
range of NFPA approved products provides
customers with multiple entry points on a
cost or capability basis. During the year we
saw increased volumes across our full range
of products from the premium Mi-TIC S to
the more cost effective Mi-TIC E solution
to maintain Avon Protection’s position as a
leading global supplier of certified thermal
imaging cameras.
Moving forward to the half year results in
May 2020, we will report on a combined ‘First
Responders’ line of business that incorporates
both Law Enforcement and Fire.
milkrite | InterPuls
We have continued to focus our strategy
on enhancing our position as the globally
recognised milking point experts. The dairy
market is increasingly moving towards
industrialised farming with greater levels of
closures and consolidation of smaller farms
but importantly with no reduction to cow
numbers as mega dairies grow. At the same
time, the growing global population and
increasing consumption of dairy products
per capita has resulted in increasing demand
for dairy-based products which support
these market dynamics and the drive to
deliver improvements in farm efficiency
and animal welfare. The milkrite | InterPuls
product portfolio is primarily focused on
efficiency and animal welfare and, combined
with our knowledge of our customers and
service focus, we see medium and long-term
opportunities for broadening the geographic
reach of our products to maximise the benefit
from these changing market dynamics.
Maintaining our Interface leadership
We have a global market-leading position
in Interface, with our Impulse and Impulse
Air ranges designed to maximise animal
health and milking efficiency. Our focus
on innovation in Interface products ensures
that we maximise our competitive advantage
and maintain our market leadership
position. In addition, we continue to focus
on expanding our global dealer network
to maximise market coverage and access
to new customers.
Expanding Precision, Control &
Intelligence (PCI) sales support
We have an advanced range of PCI products
designed to deliver milking point efficiency
and our emphasis is on establishing reference
farms alongside a specially trained and focused
sales force who can support a broad technical
dealer network to provide an upgraded sale
and support capability to our customer base
across all geographies. During the year, we
have continued the progress from 2018 by
focusing on our technical sales specialists and
capability in our North American team. We are
focused on leveraging from our established
PCI reference farms and market leading
Interface platform to align the more technical
PCI products to the benefits they can bring
to our customers in the performance and
efficiency of milk production. The PCI products
are importantly fully compatible with legacy
OEM dairy systems which provides farmers
and dealers flexibility to choose the best
equipment solution.
Growing the Farm Services lease
ownership model
The unique Farm Services model was
developed to offer farmers an alternative
entry point to some of the core elements of
our product portfolio including our clusters,
pulsators and tags on a lease hire basis. The
model offers a fully incorporated service and
warranty scheme managed directly with the
farm and provides farmers with an additional
option of accessing the whole product
portfolio and the full purchase model of
Interface and PCI.
This year we have seen a pause in the
growth of this model due to difficult
market dynamics particularly in North
America during the first half of the year.
Our customers continue to see the benefit
of accessing our product range on a lease
hire basis but the growth from farms taking
up Farm Services was offset by closures of
smaller farms, as dairy farms consolidate.
Farm Services ultimately represents the
future delivery platform for our increasingly
advanced products, which provides a
direct contact for service and support
with our customers.
With stabilising market conditions we expect
Farm Services to return to growth in 2020.
OverviewOther informationFinancial Statements GovernanceStrategic Report 34
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Chief Executive Officer’s Review continued
Continuous focus on
operational efficiency
Ensuring we deliver maximum operational
efficiency whilst not compromising on
excellent customer service is a constant
strategic focus across the manufacturing
and service operation for Avon Protection
and milkrite | InterPuls.
For Avon Protection our well established
and efficient manufacturing operation has
enabled us to maintain excellent product
quality control and reliability across our
product range. As we continue to expand
our product portfolio and move up the value
chain in personal protection, with greater
focus on more technical solutions for mask
systems and supplied and powered air
products, we are focused on ensuring that
we maintain high productivity levels whilst
being able to meet all of our customers’
requirements. To better align product
development and manufacturing, we will
be relocating our Chelmsford, U.K. thermal
image camera development facility to our
main U.K. site in Melksham.
For milkrite | InterPuls to achieve a greater
level of production efficiency and customer
service levels, during the year we took the
opportunity to consolidate all our European
commercial operations into our existing
Italian facility. This provides a single customer
service point for all customers. At the same
time, we have also transferred European
liner production in house to support our
operational efficiency.
Selective product development
Continued investment to maintain our
competitive advantage and to expand
our product range
We have continued our investment this
year in enhancing the technical capability
of our existing portfolio and developing
new products that will deliver future
growth for the business. The majority of
our development pipeline is designed in
partnership with our customers to ensure
that their performance requirements are
met whilst ensuring we deliver the highest
commercial returns on our investment.
The development expenditure in the
year has predominantly focused on Avon
Protection, with significant investment in
the U.K. GSR, MCM100 and next generation
hood programmes. Development
expenditure for milkrite | InterPuls included
the compact milk meter to address the
market for smaller milk producing animals.
This reflects our confidence in our ability
to innovate to meet the future technical
needs of our customers thereby generating
revenue and profit growth.
Value enhancing acquisitions
Milestone acquisition of 3M’s ballistic
protection business
The acquisition of 3M’s ballistic protection
business is an important strategic step for the
Group and Avon Protection. The business we
are acquiring is high quality, backed by leading
proprietary technology, established contract
platforms and well invested manufacturing
operations which will accelerate the growth
prospects for the Group.
This acquisition will significantly strengthen
our current technology and our personal
protection product offering by adding the
leading next generation helmets and body
armour. It also deepens our already strong
relationship with the U.S. DOD as a key
supplier of helmets and body armour. Avon
Protection will also be able to cross sell the
helmets and body armour to its existing Rest
of World and Law Enforcement customers.
In 2019, we invested a total of £8.2m
(2018 £9.7m), representing 4.6% of revenue
(2018: 5.9%), in research and development.
Over the medium-term we expect to
maintain the level of funding at around
5% of revenue for product development.
3M’s ballistic protection business enhances
the Group’s research and development
capability and supports further growth
and an expected combined and integrated
future product range. The acquisition
ultimately places Avon Protection at the
“ The acquisition of 3M’s ballistic protection business is an
important strategic step for the Group and Avon Protection.”
35
AGREEMENT TO ACQUIRE 3M'S
BALLISTIC PROTECTION BUSINESS
$91m
forefront of future evolution in CBRN
and ballistic armour protection. In the
short-term however we will be focused
on ensuring a successful and efficient
integration of the business, including the
realisation of identified financial synergies.
We will continue to explore other acquisition
opportunities where we see the potential
to deliver significant strategic and financial
value. Following the acquisition of 3M’s
ballistic protection business we will continue
to maintain a strong balance sheet, with
leverage not expected to exceed one times
EBITDA at close, together with an extended
bank facility of $85m and a larger cash
generative business supporting an expected
return to a net cash position during 2021. This
financial position, our strong cash conversion,
as well as our willingness to extend leverage
up to two times EBITDA, means we are
well positioned to pursue other potential
acquisitions that also meet our criteria and act
quickly and decisively where we identify them.
People
We continue to evolve the Executive
leadership of both businesses as we look
to deliver on the clear strategic direction
and alignment for the Group as a whole.
In recognition of the extensive Law
Enforcement growth opportunities within
Avon Protection, I am delighted to welcome
David Mack to the Executive leadership
team to lead our global Law Enforcement
business. David is an internal appointment
who comes with extensive experience in
this market and his addition will greatly
enhance our strategic delivery in Avon
Protection to support our ambitious and
exciting growth strategy in our core Law
Enforcement business in the future.
Outlook
Our strong opening order book of £40.4m
provides good visibility as we enter the new
financial year, and we are well positioned to
continue our strong momentum into 2020.
Within Avon Protection, we expect to
complete the acquisition of 3M’s ballistic
protection business in the first half of the
financial year as we continue to make good
progress with the regulatory clearance
process. We expect to receive follow-on
orders for the M69 aircrew masks and M53A1
mask and powered air system together with
the five-year sustainment contract for the
M50 mask system during the financial year.
We expect the revenue opportunities from
a full year of delivery of the M69 and M53A1
mask systems to offset the impact of the
anticipated reduction in M50 mask system
sustainment volumes. We also expect to
receive the first orders for the U.K. GSR and
to make the first deliveries to the U.K. MOD
together with the receipt of further orders
for the MCM100 following the extensive
trials in 2019. Alongside this, we expect
a return to sustainable growth from the
widening customer and product base in
Law Enforcement in a more stable political
environment. We will see a reduction in Fire
revenues following our strategic review of
our participation in the North American
SCBA market but the benefits of refocusing
our resources will support growth and
overall returns in Avon Protection.
Dairy market conditions have stabilised
over the last six months and although there
remains market caution around the wider
political environment, we currently anticipate
that the growth trends experienced by
milkrite | InterPuls in the second half of
2020 will continue in the new financial year.
We have transformed the business over
the last year through delivering against
our strategic priorities of growing the core
and selective product development and
value enhancing acquisitions. This leaves
us looking ahead with confidence, well
positioned to deliver further success in
2020 and beyond.
Paul McDonald
Chief Executive Officer
13 November 2019
OverviewOther informationFinancial Statements GovernanceStrategic Report 36
Avon Rubber p.l.c. | Annual Report & Accounts 2019
“ 2019 has been another successful
year. We have delivered a strong
performance and have made
good progress implementing
our strategic objectives.”
Revenue growth at constant currency
5.9%
11% including the impact
of currency movements
Revenue
£128.4m
(2018: £115.7m)
Revenue
£128.4m
Military
Law Enforcement
Fire
Avon Protection Review
“ Momentum in Military order intake and
international growth in Law Enforcement
underpins confidence in 2020.”
Financial performance
Orders received of £129.8m (2018: £124.6m)
supported an increase in revenue to £128.4m
(2018: £115.7m). On a constant currency basis,
revenue grew by 5.9% with Military revenue
growing by 26.1%, more than offsetting a
27.1% decrease in Law Enforcement and
5.3% decline in Fire, reflecting the more
challenging conditions in both markets.
Our adjusted EBITDA margin strengthened to
24.5% (2018: 23.0%), being an increase of 1.6%
on a constant currency basis. This primarily
reflected the benefits of the new higher margin
products, with the first deliveries of M53A1 mask
and powered air systems offsetting the reduced
volumes of the lower margin M50 mask systems
shipped in 2019 compared to last year. Adjusted
EBITDA was £31.4m (2018: £26.6m); eliminating
the currency movements, adjusted EBITDA grew
by 13.4% at constant currency.
Adjusted operating profit grew very strongly to
£26.2m (2018: £21.5m), whilst operating profit
was down to £17.0m (2018: £19.5m) due to the
impact from the one-off exit costs of £5.4m from
the fire SCBA market. Eliminating the benefit of
currency movements, adjusted operating profit
grew by 17.6% on a constant currency basis.
Military
Military revenue grew significantly to £87.2m
(2018: £66.1m) and was up 26.1% on a
constant currency basis.
U.S. DOD revenue totalled £54.8m versus
£52.7m in 2018, reflecting the first deliveries
of the new M69 aircrew mask and M53A1
mask and powered air system products.
This was offset by the expected lower
volumes of the M50 mask system although
there was an increased volume of spares and
accessories reflecting the significant installed
base of M50 mask systems.
As expected, we delivered 96,000 M50 mask
systems and 166,000 filter pairs, compared
with 179,000 mask systems and 150,000
pairs of filter spares in 2018 with the new
programmes coming through to offset the
lower volumes of mask systems. U.S. DOD
spares and development costs revenue
increased to £12.2m (2018: £12.0m).
Revenue from our Rest of World Military
business totalled £32.4m (2018: £13.4m), a
significant 142.8% increase on the prior year,
on a constant currency basis. The growing Rest
of World pipeline of opportunity is reflected in
the $16.6m Rest of World mask system contract.
Together with other mask system and hoods
sales, the fulfilled orders for the MCM100
underwater rebreathers and sales of our
powered and supplied air range, this supported
significant revenue growth over 2019.
The award of the M69 and M53A1 mask
system contracts and the receipt and partial
fulfilment of the first orders during the year
has provided us with a strong opening order
book and excellent visibility for the outlook
of Military sales for 2020. Discussions with
the U.S. DOD for the replacement M50 mask
system sustainment contract are continuing
and we expect to receive a new contract
award in the first half of 2020.
2018
% Change
Orders received
Closing order book
Revenue
Adjusted EBITDA
Adjusted EBITDA margin
Adjusted operating profit
Operating profit
2019
£129.8m
£36.7m
£128.4m
£31.4m
24.5%
£26.2m
£17.0m
£124.6m
£35.3m
£115.7m
£26.6m
23.0%
£21.5m
£19.5m
% Change
at constant
currency
0.2%
(1.1%)
5.9%
13.4%
1.6%
17.6%
4.2%
4.0%
11.0%
18.0%
1.5%
21.9%
(12.8%)
(16.5%)
37
Law Enforcement
Law Enforcement revenue reduced to £27.3m
(2018: £35.4m), a 27.1% decline on a constant
currency basis. This was significantly impacted
by both the extended U.S. Government partial
shutdown during the first half of the year,
which blocked the availability of Government
funds and created the permanent timing
impact of the delayed order intake from our
U.S. customers, and the strong comparator of
our 2018 performance. The permanent delay
in the timing of orders received resulted in the
anticipated 12.0% reduction in order intake on
a constant currency basis. The carry over of
orders into 2020 has resulted in an increased
opening order book of £4.3m (2018: £3.5m).
We expect a stronger performance in 2020 for
Law Enforcement due to the stronger opening
order book and other identified opportunities
for respirators, hoods and powered air systems.
Fire
Fire order intake grew on a constant currency
basis by 5.0% to £15.4m due to increased
sales in the Rest of World markets. The
scheduling of fulfilment for those orders
meant that Fire revenue dropped to £13.9m
(2018: £14.2m) a reduction of 5.3% on a
constant currency basis.
The decision to focus our SCBA portfolio on
our core growth markets of Military and Law
Enforcement customers, and exit from the
Fire market, means that our future Fire orders
and revenues will be from our leading thermal
image camera range together with fulfilling the
ongoing user requirements of our legacy SCBA
customers. In 2018 revenues from the sale of
original SCBA equipment to Fire customers
was £6.3m, with exit costs in 2019 of £5.4m.
The strength of our opening order book of
£3.0m (2018: £1.6m) from the ongoing Fire
product portfolio gives us confidence that
we will be able to continue to grow the non
SCBA portfolio.
James Wilcox David Mack
President,
President,
Law Enforcement and Fire
Military
OverviewOther informationFinancial Statements GovernanceStrategic Report 38
Avon Rubber p.l.c. | Annual Report & Accounts 2019
“ The line of business trends reflect the difficult
global dairy market trading conditions over
the first half of the year. Improved farmer
confidence is highlighted by the order intake
growing ahead of revenue."
Orders received growth
at constant currency
+4.5%
7% including the impact of
currency movements
Orders received
£52.1m
(2018: £48.7m)
Orders received
£52.1m
Interface
Precision, Control & Intelligence
Farm Services
39
milkrite | InterPuls Review
“ Looking ahead, stronger market conditions and
benefits from improved operational efficiency in
Europe put the business in a strong position to
return to growth in 2020.”
Financial performance
Revenue increased to £50.9m (2018: £49.8m);
however, excluding the impact of the
favourable currency movements revenue
reduced marginally by 0.3% on a constant
currency basis.
On a constant currency basis, Interface grew
revenue by 0.8% but there were reductions
in PCI revenue of 3.8% and Farm Services
of 1.6%. The line of business trends reflect
the difficult global dairy market trading
conditions over the first half of the year.
Improved farmer confidence in the second
half is a reflection of increased global
milk prices, with stable feed prices and
moderate production volume growth. This
is highlighted by the order intake growing
ahead of revenue at £52.1m (2018: £48.7m),
increasing 4.5% at constant currency and an
opening order book of £3.7m (2018: £2.5m)
providing confidence into 2020.
Adjusted operating profit and adjusted
EBITDA reduced to £7.5m (2018: £8.0m) and
£10.5m (2018: £10.9m) respectively, with
constant currency decreases of 9.5% and
6.6% respectively. Operating profit was down
to £3.8m (2018: £6.0m) taking into account
the impact of the one-off vacant property
impairment of £1.1m recognised in the
year. The adjusted EBITDA margin of 20.6%
(2018: 21.9%) reduced by 1.3% on a constant
currency basis. The profit trends reflect the
negative operational leverage from lower
revenues and the costs of consolidating the
European commercial operations into Italy.
Looking ahead, stronger market conditions
and benefits from improved operational
efficiency in Europe put the business in a
strong position to return to growth in 2020.
Interface
Interface revenue increased to £36.9m
(2018: £35.6m), including the impact of
favourable currency movements. On a
constant currency basis, Interface revenues
grew by 0.8% driven by a stronger
performance in Europe and Asia Pacific in
the second half of the year highlighting the
impacts of recovering farmer confidence
and our strong relationships with customers.
North America revenues of £18.5m (2018:
£17.8m) declined by 1.5% on a constant
currency basis, reflecting the challenging
market conditions over the year with
increased farm closures and consolidation
in the sector.
In Europe, revenue grew by 7.4% to £11.1m at
constant currency. Asia Pacific liner revenues
increased by 10.2%, at constant currency, as
a result of our continued market penetration
in these important Chinese and European
markets during 2019.
Orders received
Closing order book
Revenue
Adjusted EBITDA
Adjusted EBITDA margin
Adjusted operating profit
Operating profit
2018
% Change
% Change
at constant
currency
£48.7m
£2.5m
£49.8m
£10.9m
21.9%
£8.0m
£6.0m
7.0%
48.0%
2.2%
(3.7%)
(1.3%)
(6.3%)
4.5%
48.1%
(0.3%)
(6.6%)
(1.3%)
(9.5%)
(36.7%)
(38.9%)
2019
£52.1m
£3.7m
£50.9m
£10.5m
20.6%
£7.5m
£3.8m
Precision, Control & Intelligence
The sales of our PCI range were most
affected by the difficult trading over the first
half of the year with farmers more hesitant
to invest during uncertain market conditions.
Revenue fell to £8.7m (2018: £9.0m), a
reduction of 3.8% at a constant currency rate
as dairy farmers sought to delay investment
in our PCI products until more certainty
returned to the market. The stabilising
market conditions from the spring onwards
meant that farmers were more confident to
invest in farm efficiency again, highlighted
by the order intake of £9.1m (2018: £8.3m), an
increase of 5.5% on a constant currency basis.
The strong closing order book of £1.4m
(2018: £1.0m) gives us confidence in the
stronger performance of PCI looking into 2020.
Farm Services
The challenging market conditions in
North America impacted Farm Services
and interrupted the growth of the lease
model with the addition of new farms
offsetting farm closures and consolidations.
Reflecting the impact of the changing
market dynamics, revenue of £5.3m (2018:
£5.2m) was down 1.6% at constant currency.
The constant currency decline was focused
on North America which reduced by 5.3%,
offset by an increase of 6.0% in Europe. The
consolidation of the North American dairy
market we’ve seen in 2019 will fundamentally
support the return to growth in Farm
Services as the larger dairies are most
focused on labour and farm efficiency and
animal welfare which is well supported by
the full service model and direct to farm
relationship of Farm Services.
Craig Sage
Managing Director, milkrite | InterPuls
OverviewOther informationFinancial Statements GovernanceStrategic Report
40
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Financial Review
The results reflect our ongoing initiatives to grow our
core revenue and selected product development to
create a business that is more sustainable for the future.
The Group has delivered a strong financial
performance during the year with revenue
and adjusted operating profit increasing
at constant currency by 4.2% and 10.4%
respectively.
Given our U.S. businesses constitute over
70% of the Group’s revenue and profit, the
weaker pound experienced across the year
resulted in reported revenue increasing by
8.3% to £179.3m (2018: £165.5m) and reported
adjusted operating profit increasing by 14.7%
to £31.3m (2018: £27.3m) at actual currency.
As a result of the benefits from the first
deliveries of the higher margin new products
to the U.S. DOD, our adjusted EBITDA margin
of 22.0% was 0.7% higher than last year on
a constant currency basis.
After a tax charge of £3.4m (2018: £3.7m),
an adjusted effective rate of 10.8% (2018:
13.6%), the Group recorded an adjusted
profit for the year after tax of £28.0m
(2018: £23.5m). The reduced tax rate
resulted in adjusted basic earnings per
share increasing to 91.7p (2018: 77.1p).
On a reported basis, after taking account
of the amortisation of acquired intangibles,
defined pension and administration
costs and the one off charge for benefit
enhancements and to equalise the pension
benefits for men and women, the 3M ballistic
protection acquisition costs, a one-off
property valuation write-down and asset
impairments relating to discontinuing our
Fire SCBA product line, operating profit
before tax was £14.4m (2018: £22.8m). Profit
before tax was £13.7m (2018: £21.6m) and,
after a tax credit of £0.6m (2018: £1.8m),
which resulted in an effective rate of tax of
(4.4%) (2018: 8.3%), profit from continuing
operations was £14.3m (2018: £19.8m).
Basic earnings per share from continuing
operations were 46.9p (2018: 64.9p).
Operational cash generation has been
impacted by the timing of the shipment
of the $16.6m Rest of World Military mask
system contract which means we will receive
payment in the first quarter of 2020. As a
result, adjusted EBITDA cash conversion was
lower than usual at 63.5% (2018: 108.2%).
The operational cash performance and
the costs incurred in the year in relation to
the acquisition of 3M’s ballistic protection
business, resulted in a £1.8m increase in
net cash during the year and a closing net
cash balance of £48.3m (2018: £46.5m). This
continuing strong cash position provides
funding to enable the completion of the
acquisition from 3M in the first half of 2020
and to support our organic growth strategy,
investment in new product development
and further value enhancing acquisitions.
Against this transformed outlook, the
Board has increased the final dividend by
30% to 13.89p (2018: 10.68p) resulting in
total dividends for the year of 20.83p (2018:
16.02p), also up 30% on 2018. This level of
dividend increase is in line with our policy,
and reflects our ongoing confidence in the
future performance of the Group.
The closing order book of £40.4m reflects the
continued strong performances across all the
markets in which we operate and provides
excellent visibility heading into the new
financial year.
“ The closing order book of £40.4m reflects the continued strong
performances across all the markets in which we operate and
provides excellent visibility heading into the new financial year.”
41
CLOSING ORDER BOOK
£40.4m
(2018: £37.8m)
2018
£m
124.6
48.7
173.3
35.3
2.5
37.8
115.7
49.8
165.5
19.5
6.0
(2.7)
22.8
21.5
8.0
(2.2)
27.3
26.6
10.9
(2.2)
35.3
23.0%
21.9%
21.3%
Growth
%
Growth at
constant currency
%
4.2%
7.0%
5.0%
4.0%
48.0%
6.9%
11.0%
2.2%
8.3%
(12.8%)
(36.7%)
137.0%
(36.8%)
21.9%
(6.3%)
9.1%
14.7%
18.0%
(3.7%)
9.1%
11.9%
1.5%
(1.3%)
0.7%
0.2%
4.5%
1.4%
(1.1%)
48.1%
(0.7%)
5.9%
(0.3%)
4.2%
(16.5%)
(38.9%)
129.2%
(39.4%)
17.6%
(9.5%)
8.3%
10.4%
13.4%
(6.6%)
8.3%
7.7%
1.6%
(1.3%)
0.7%
2019
£m
129.8
52.1
181.9
36.7
3.7
40.4
128.4
50.9
179.3
17.0
3.8
(6.4)
14.4
26.2
7.5
(2.4)
31.3
31.4
10.5
(2.4)
39.5
24.5%
20.6%
22.0%
Segmental information
Orders received
Avon Protection
milkrite | InterPuls
Total
Closing order book
Avon Protection
milkrite | InterPuls
Total
Revenue
Avon Protection
milkrite | InterPuls
Total
Operating profit
Avon Protection
milkrite | InterPuls
Unallocated corporate costs
Total
Adjusted operating profit
Avon Protection
milkrite | InterPuls
Unallocated corporate costs
Total
Adjusted EBITDA
Avon Protection
milkrite | InterPuls
Unallocated corporate costs
Total
Adjusted EBITDA margin
Avon Protection
milkrite | InterPuls
Total
OverviewOther informationFinancial Statements GovernanceStrategic Report 42
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Financial Review continued
Profit for the year
Finance costs
2019
£m
2018
£m
Adjusted operating
profit
Adjustments
Operating profit
Net finance costs
Profit before taxation
Taxation
Profit from continuing
operations
Discontinued
operations
Profit for the year
31.3
(16.9)
14.4
(0.7)
13.7
0.6
14.3
–
14.3
27.3
(4.5)
22.8
(1.2)
21.6
(1.8)
19.8
1.6
21.4
Adjustments
Adjustments of £16.9m (2018: £4.5m)
excluded from adjusted operating profit
comprise of: £2.9m (2018: £0.9m) of one
off cash costs incurred in the year related
to the acquisition; £5.4m (2018:£nil) of one
off non-cash asset write-downs related to
the exit from the North American Fire SCBA
market; £1.1m (2018: £nil) in relation to a
market driven surplus property non-cash
write-down in Italy; amortisation of acquired
intangible assets of £3.5m (2018: £3.1m);
pension administration costs of £0.5m (2018:
£0.5m); and the one off charge to equalise
the pension benefits for men and women
and past service costs of £3.5m (2018: £nil).
Net interest income was £0.2m (2018: £nil).
Other finance expenses of £0.9m (2018:
£1.2m) primarily represents the unwinding
of the discount on the net pension liability
and, as in previous years, have been excluded
from adjusted profit for the year.
Taxation
Taxation was a credit of £0.6m (2018: £1.8m
charge) which consists of a £2.8m charge
relating to the current year and a £3.4m
credit in respect of previous periods. The
£3.4m credit in respect of previous periods
includes a £3.1m credit in connection with
the release of provisions following the
successful resolution of a number of prior
year uncertain tax positions.
Profit from discontinued operations
The profit from discontinued operations of
£1.6m in 2018 was comprised of the profit
after tax of AEF up to the date of disposal on
30 March 2018 of £0.5m and the post tax gain
on disposal of £1.1m.
Net cash and cash flow
Cash generated from operations was £23.2m,
compared to £37.9m in 2018 and was
impacted by the timing of the cash receipt in
respect of the $16.6m Rest of World Military
mask system contract, which given the timing
of the shipment of goods we will receive in
the first quarter of 2020. This also impacted
operating cash conversion from adjusted
EBITDA which reduced to 63.5% (2018: 108.2%).
Cash flows from
continuing operations
before the impact of
exceptional items
Cash impact of
exceptional items
and discontinued
operations
Cash flows from
operations
Net interest
Payments to
pension plan
Tax
Purchase of property,
plant and equipment
Capitalised
development costs
and purchased
software
Acquisitions
Divestments
Purchase of
own shares
Dividends to
shareholders
Foreign exchange
and other items
Increase in net cash
2019
£m
2018
£m
25.1
38.2
(1.9)
(0.3)
23.2
0.2
(1.5)
(6.1)
37.9
–
(1.5)
(5.0)
(3.9)
(3.3)
(4.0)
–
–
(1.3)
(5.4)
0.6
1.8
(5.6)
(1.4)
6.5
(1.1)
(4.1)
(0.6)
21.8
“ Our strong balance sheet gives us the capacity to both complete on the
acquisition of 3M’s ballistic protection business in the first half of 2020
as well as to fund our growth strategy and make further acquisitions.”
43
R&D SPEND AS A % OF REVENUE
4.6%
2019
2018
Less customer
funded
Group
expenditure
Capitalised
Income statement
impact of current
year expenditure
Amortisation
Total income
statement
impact before
exceptionals
Revenue
R&D spend as %
of revenue
Avon
Protection
£m
milkrite |
InterPuls
£m
Total expenditure
7.3
Group
£m
8.2
(2.5)
5.7
(3.7)
2.0
3.3
Avon
Protection
£m
milkrite |
InterPuls
£m
8.6
(3.0)
5.6
(5.0)
0.6
2.2
1.1
–
1.1
(0.5)
0.6
0.3
Group
£m
9.7
(3.0)
6.7
(5.5)
1.2
2.5
0.9
–
0.9
(0.5)
0.4
0.3
(2.5)
4.8
(3.2)
1.6
3.0
4.6
128.4
0.7
50.9
5.3
179.3
2.8
115.7
0.9
49.8
3.7
165.5
5.7%
1.7%
4.6%
7.4%
2.2%
5.9%
In Avon Protection, the most significant
investments have been in the production
preparation for the GSR for the U.K. MOD, the
continued development of the MCM100 and
the next generation hood programmes. In
milkrite | InterPuls, investment expenditure
has been focused on the compact milk
meter for sheep and goats and updating the
software in our intelligence Farm Controller.
Accounting standards changes
With effect from 1 October 2019 the way that
leases are accounted for changes for the Group
with the underlying principle being that all
leases will be reported on the balance sheet
from that date. The Group will be required to
recognise a right of use asset for all the current
operating leases above 12 months in length
and excluding those of low value and a lease
liability representing the present value of the
lease payments to the end of the lease life.
The impact of the changes on the financial
statements from that date are that £6.5m of
leasehold assets and £10.2m of leasehold
liabilities will be added to the balance sheet
with the £3.7m net balancing figure reflected
as an opening reserves adjustment. The
changes also impact the presentation of the
income statement as the current recognition
of lease payments are moved to be included
within finance costs. This will improve the
Group’s EBITDA margin by approximately
£2.0m but with minimal impact on operating
profit and earnings per share. There are no
changes to the cash flow metrics as these
are all non-cash presentational changes.
At the year end, the Group had net cash
of £48.3m (2018: £46.5m) and an undrawn
extended U.S. dollar denominated bank facility
of $85.0m (£69.0m) (2018: $40.0m (£30.7m)),
which is committed to 6 August 2022, with
an option to extend for a further year.
Our strong balance sheet gives us the capacity
to both complete on the acquisition of 3M’s
Ballistic Protection Business in the first half of
2020 as well as to fund our growth strategy
and make further acquisitions. Our policy is
to maintain a strong financial position and
keep the ratio of net debt to adjusted EBITDA
under two times.
Acquisition of 3M’s ballistic
protection business
We signed an agreement to acquire
3M’s ballistic protection business and
the rights to the Ceradyne brand in
August for an initial cash consideration of
$91.0m (£75.0m), with a further potential
contingent consideration of $25.0m
(£21.0m). We expect to complete the
acquisition in the first half of 2020 once
U.S. regulatory approvals have been
received. We have incurred associated
acquisition costs in the year of £2.8m.
Research and development expenditure
We continue to invest for the future and
our total investment in research and
development (capitalised and expensed)
amounted to £8.2m (2018: £9.7m) as shown
below. Total research and development
as a percentage of revenue was 4.6%
(2018: 5.9%).
OverviewOther informationFinancial Statements GovernanceStrategic Report 44
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Financial Review continued
Pensions
Financial risk management
Dividends
The Group has a U.K. pension scheme which
is closed to future accrual. The net pension
liability, as measured under IAS 19 (revised), is
£43.0m (2018: £30.5m). The £12.5m increase in
the deficit over the last year is largely due to
the decrease in discount rates reflecting the
lower corporate bond return outlook which
has been slightly offset by the lower actuarial
mortality assumptions which are being
reflected in the market.
On 26 October 2018 the High Court handed
down a judgement involving the Lloyds
Banking Group’s defined benefit pension
scheme. The judgement concluded that
pension schemes should be amended to
equalise pension benefits for men and
women in relation to guaranteed minimum
pension ('GMP equalisation') benefits.
Our actuarial advisers have calculated the
additional liability for this amendment at
£3.5m and this has been booked during the
year as an adjustment to operating profit
for the year as this is an exceptional non-
recurring expense.
The results of the triennial funding valuation,
as at 31 March 2016, showed the plan to
be 90% funded on a continuing basis with
a deficit of £33.8m. As part of the deficit
recovery plan contributions of £1.5m were
paid to the pension fund during the year
(2018: £1.5m). The level of contributions will
be reassessed following the conclusion of
the triennial funding valuation which started
in March 2019 and will conclude during the
2020 financial year, and are expected to be
at least the same as the previous year.
The Group has clearly defined policies for
the management of foreign exchange
risk. Exposures resulting from sales and
purchases in foreign currency are matched
where possible and net exposure may be
hedged by the use of forward exchange
contracts. The initial consideration of $91m
for the agreement to acquire 3M’s ballistic
protection business exposed the Group to
foreign exchange risk on the U.S.$ equivalent
of the sterling net cash held on the balance
sheet and to match this risk the Group
entered into a deal contingent forward
contract to hedge £35m of cash held at the
year end. The Group does not undertake
foreign exchange transactions for which
there is no underlying exposure.
Credit and counterparty risk are managed
through the use of credit evaluations and
credit limits. Cash deposits are made at
prevailing interest rates which are not
generally fixed for more than one or two
months. Borrowings and overdrafts are at
floating interest rates. The Group does not
carry out any interest rate hedging.
Currency effect
The Group has translational exposure
arising on the consolidation of overseas
company results into sterling. Based on
the current mix of currency denominated
profit, a one cent appreciation of
the U.S. dollar increases revenue by
approximately £1.1m and operating profit
by approximately £0.2m. A one cent
appreciation of the euro increases revenue
by approximately £0.1m and has nil impact
on operating profit.
The Board is recommending a final dividend
of 13.89p per share (2018: 10.68p) which
together with the 6.94p per share interim
dividend gives a total dividend of 20.83p
(2018: 16.02p), up 30% on last year. The
final dividend will be paid on 13 March
2020 to shareholders on the register at
14 February 2020 with an ex-dividend
date of 13 February 2020.
Our policy is to maintain a progressive
dividend policy balancing dividend increases
with the rates of adjusted earnings per
share growth achieved, taking into account
potential acquisition spend and the Group’s
financing position. Over recent years, we
have grown the dividend per share by 30%
per annum and we expect to continue to
grow dividends ahead of earnings over the
medium-term. Our policy is to maintain
dividend cover (the ratio of dividend per
share to adjusted earnings per share) above
two times. This year dividend cover was
4.4 times (2018: 4.8 times). Once dividend
cover has reduced to two times we intend
to increase dividends in line with the growth
in adjusted earnings per share.
Nick Keveth
Chief Financial Officer
13 November 2019
“ Over recent years, we have grown the dividend per share by 30% per annum and
we expect to continue to grow dividends ahead of earnings over the medium-term.”
45
OverviewOther informationFinancial Statements GovernanceStrategic Report 46
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Principal Risks and Risk Management
The Group has an established process for
the identification and management of risk,
working within the governance framework
set out in our corporate governance
statement (see pages 64 to 67). Ultimately
the management of risk is the responsibility
of the Board of Directors, and our system
of risk management, which is intended to
be comprehensive and robust, continues to
evolve as the Group and the environment
in which it operates increases in size and
complexity. The planned acquisition will
significantly increase the size and complexity
of the Group and will require our system of
risk management to evolve more rapidly than
in the past to accommodate it. The Board’s
role in risk management includes promoting
a culture that emphasises integrity at all
levels of business operations and setting
the overall policies for risk management
and control.
During the year the principal risks affecting
the Group were fully reviewed and
categorised by the Group Executive team
and approved by the Board. Each risk area
continues to have priority tasks allocated
to it that are the responsibility of the
members of the Group Executive to deliver
during the financial year. This process
inherently manages risk by ensuring the
principal risks are being mitigated by
prioritised business activity.
As we move into 2020 increased focus is
being given to how effectively risk is being
mitigated by the control structures and
processes embedded throughout the Group.
Both divisional executive teams provided
feedback on this to the risk management
steering group during the year and this
group has continued the process of holding
quarterly reviews of the effectiveness of
these control structures and has established
a set of supporting key risk indicators.
The following pages include an insight into
what happened in 2019 and the key areas of
focus for 2020.
The principal risks are listed on the following
pages in order of significance and potential
financial impact on the Group. We have
made this assessment with reference to
both the volume and intensity of activity
in each risk area, and alongside, through
the assessment of the potential severity of
impact. The categorised risk themes within
the principal risk areas are shown alongside.
Available mitigations in the form of control
structures are shown next to each identified
risk area.
Risk rating and movement in 2019
h
g
H
i
1
2
3
G
N
I
T
A
R
K
S
I
R
e
t
a
r
e
d
o
M
l
a
m
r
o
N
7
5
4
6
8
9
1. Strategic initiatives
4. Cyber security and information technology
7. Manufacturing risk
2. Market threat to core business
5. Customer dependency
8. Compliance and legal matters
3. Talent management
6. Financial management
9. Political and economic stability
47
Strategic risks
Financial risks
Operational risks
Risks affecting the achievement of the
Group's strategic objectives.
Issues that could affect the finances of the
business both externally and internally.
Matters arising from the operational activities
of the Group relating to areas such as sales,
product development, procurement, and
dealings with commercial partners.
1. Strategic initiatives
Business risk
What happened in 2019
Mitigation
•
•
•
Failure to identify correct
strategic projects or to
deliver them
Failure to identify and
implement new products
Failure to identify, complete
and integrate acquisitions
Impact on
• Strategy delivery
•
•
Sales, costs and profitability
Employee morale
• $340m of long-term contracts
awarded and first orders for key
new products; M69 and M53A1
• Milestone transaction agreed to
acquire 3M's ballistic protection
business in line with strategy and
acquisition criteria
•
•
•
Strategic decision to focus SCBA
product portfolio on Military and
Law Enforcement customers
Continued commitment to capital
investment to deliver enhanced
product range to meet customer
requirements
Consolidation of milkrite | InterPuls
EU operations demonstrates focus
on operational efficiency
2. Market threat to core business
•
•
•
•
Board oversight of clear
strategy definition and
communication combined
with effective management
Product development linked
to Group strategy and customer
requirements
Intellectual property protection
considered and implemented
Clear acquisition strategy and
alignment with divisional
structures
Focus for 2020
• Delivering new
product programmes
to meet customer
requirements within
capital allocated budget
• Continued focus on
operational efficiency
and further value
enhancing acquisitions
• Transition of 3M's ballistic
protection business from
under 3M ownership to a
functioning Avon business
unit following the forecast
completion during first
half of 2020. Regular Board
oversight of this activity
Business risk
What happened in 2019
Mitigation
Focus for 2020
• Lack of sales growth/threat
to current sales
• Sustainable order intake growth
achieved in core lines of business
•
Loss of major bids/tenders
• Threat from competitors
• Product sales base expanded
with the first orders for M69
and M53A1
• Strategic decision to focus
• Customer relationships prioritised
and managed through dedicated
leadership channels
• Product differentiation/innovation
and diversification and protection
of intellectual property
Impact on
•
Sales, costs and profitability
tactical SCBA product portfolio
on core Military and Law
Enforcement markets
• Diversified sales channels with
comprehensive distribution/
intermediary network
• Avon Protection leadership
team focused on supporting
key customer relationships and
sales strategy
• Effective and up to date
competitor monitoring
and analysis to maintain
competitive advantage
•
Integration and streamlined
European milkrite | InterPuls
operations
• Continued sustainable
growth in all lines of
business and order
growth in new products
• Focus on integrating the
new ballistic product lines
for helmets and body
armour following the
acquisition of 3M's ballistic
protection business
• Focus on continuing to
grow our market share with
our Rest of World and Law
Enforcement customers
OverviewOther informationFinancial Statements GovernanceStrategic Report 48
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Principal Risks and Risk Management continued
3. Talent management
Business risk
What happened in 2019
Mitigation
Focus for 2020
•
•
•
Poor employee
competence and failure
to train and develop
Inability to recruit
and retain talent
Dysfunctional organisational
structures
Impact on
•
•
•
Strategy delivery
Sales, costs and profitability
Employee morale
•
•
•
•
Refreshed and relaunched
employee satisfaction survey
Continuing commitment to
graduate and internal leadership
training programmes to develop
talent base
Focus on integrating the separate
leadership for Military and Law
Enforcement combined with
extensive succession planning
for key roles in the organisation
Continued alignment of annual
bonus scheme targets across all
employees
•
•
•
•
Robust succession planning
and effective performance
management process
Effective training and
development strategy
and activities
Appropriate organisational
structure with clear lines of
authority and communication
Maintaining positive Avon
culture – Great Place to Work
•
•
•
•
•
Continued focus on people
and culture including
launch of new pulse surveys
to gauge and respond to
employee satisfaction
Supporting the successful
transition of our new people
following the completion
of the acquisition of 3M's
ballistic protection business
Respectful workplace and
career progression initiatives
Focus on improving
skillsets within programme
management and other
operational functions
to support more
efficient delivery
Investment in HR
resource and structures
across the Group
4. Cyber security and Information technology
Business risk
What happened in 2019
Mitigation
Focus for 2020
•
•
•
Business interruption/cash
cost of cybercrime and fraud
IT system or communications
failure could lead to business
continuity event
Military security requirements
result in excess cost and
management time. Failure
to comply results in loss
of contract
•
•
•
Impact on
•
•
•
Ability to ship products
Financial loss
Reputational damage
Delivered improved IT system
resilience and efficiency by
completing our transition to
a third party cloud platform
Strengthened the IT leadership
team through a number of
senior appointments
Improved cyberdefences through
increased coverage from third
party provider and deployment
of new security tools including
fully encrypted remote access
using the industry leading ZScaler
service.
•
•
•
IT strategy anticipates
forthcoming requirements.
IT sufficiently resourced with
specialists to ensure compliance
Robust network/IT controls and
security protocols/policy
Cyber insurance and IT disaster
recovery plan and backup
•
•
•
Continued focus on
infrastructure stability and
IT operating efficiency
Focus on successful
migration to Windows 365
to support IT operations
and security
Supporting the transition
of 3M's ballistic protection
business from reliance on 3M
IT systems to a functioning
Avon business unit on
Avon systems following the
transitional support period
49
5. Customer dependency
Business risk
What happened in 2019
Mitigation
Focus for 2020
•
•
•
Over reliance on customers,
e.g. the U.S. DOD, and its
funding and contract process
Failure to diversify
customer base
Negative impact of Dairy
market cycle on customer
buying behaviour
Impact on
•
Sales and profitability
•
•
•
•
•
First orders received and
deliveries made for M69
and M53A1 underpin strong
relationship with the U.S. DOD
MCM100 technical capability
differentiation supported full
programme of dive trials and
supply of evaluation units
Strengthening relationship
with U.K. MOD following user
acceptance testing for U.K. GSR
Focused Law Enforcement
leadership to expand
customer base
Significant increase in sales
to Rest of World customers
and strong visible pipeline
of future opportunities
•
•
•
•
Strong customer relationship
management with an appropriate
team structure, communication
and customer service
Understanding our Military
customer requirements and
forthcoming procurement
requirements
Strategy provides for
diversification of customer base
Regular tracking of Dairy market
cycle indicators and mitigation
plan for market downturn
•
•
•
Continued focus on
customer relationships
and strong dealer/
distribution network
Cross selling portfolio to
Rest of World and Law
Enforcement customers
Leverage stabilising dairy
market and returning
customer confidence
to improve sales
6. Financial management
Business risk
What happened in 2019
Mitigation
Focus for 2020
Continued focus on strong
cash generation, foreign
exposure mitigation
and working capital
management
•
•
•
Robust and professional corporate
finance function supported by
network of professional advisors
•
Full compliance with bank facility
covenant requirements
Robust internal financial
control and divisional reporting
procedures supported by the
external and internal audit process
•
Effective currency hedging strategy
•
•
•
•
Insufficient management of
risks for tax, cash flows and
foreign currency exposure
Insufficient funding capacity
to meet strategic objectives
Insufficient overhead
control and working capital
management erode margins
or impair investment ability
Poor quality financial
reporting and business
information impacts
decision making
Impact on
•
•
Costs and profitability
Reputational damage
•
•
•
•
•
•
Net cash of £48.3m at the
year end provides capital
allocation flexibility
Strong underlying operating
cash conversion delivered
sustainable cash flows
Extension of undrawn $85m
revolving credit facility to
support acquisition of 3M’s
ballistic protection business
Consolidation of milkrite | InterPuls
EU operations and Chelmsford
facility relocation to support
operational efficiency
Deal contingent forward contract
entered to hedge sterling net
cash held on the balance sheet
in advance of acquisition of 3M’s
ballistic protection business
Successful resolution of a number
of outstanding IRS tax audits with
no adjustments
OverviewOther informationFinancial Statements GovernanceStrategic Report 50
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Principal Risks and Risk Management continued
7. Manufacturing risk
Business risk
What happened in 2019
Mitigation
Focus for 2020
•
•
•
•
•
Poorly functioning supply
chain impacts production
and cost of manufacture
Quality control process failure
leads to product recall
Health and safety incident
results in plant closure and
prosecution/fines
Poorly managed distribution
or logistics network impacts
delivery and reputation
Delays in new product
introductions
Impact on
•
Costs, sales and profitability
•
•
•
•
•
Consolidation of milkrite | InterPuls
EU operations supported
manufacturing efficiency
Relocation and consolidation
of Chelmsford supports
manufacturing efficiency
No product recalls or significant
warranty claims in the year
highlights quality product control
Very low rate of health and
safety incidents
Established supply chain and
inventory management quarterly
steering group to focus on
improving efficiency and
supply chain cost downs
8. Compliance and legal matters
•
•
•
•
•
Robust supplier audit and
quality management
Written supply agreements
in place including dual source
where necessary
Robust manufacturing/
operational disciplines and fully
functioning and effective systems
Strong site leadership
and engaged, motivated
manufacturing workforce
Insurance and effective business
continuity planning
•
•
•
Continued focus on
operational efficiency
and programme of
continuous improvement
Focus on successful
transition of the three
facilities from 3M’s ballistic
protection business
Focus on enhancements to
the Group operational and
programme management
leadership structure
Business risk
What happened in 2019
Mitigation
Focus for 2020
U.K. Export Control audit passed
No U.S. voluntary disclosures
or export control breaches
Code of Conduct reviewed
and communicated
Respectful Workplace
policy released
U.S. Government audit
at Cadillac passed
•
•
•
•
•
Effective export control policy
supported by training
Effective anti-bribery and
corruption policy supported
by training
Embedded and effective
Code of Conduct
Effective internal legal and
finance function
Effective Government contract
specialist knowledge reporting
at a senior level
•
•
•
Maintain high standards and
integration of compliance
teams within the businesses
Implementation of U.S.
security clearance to
support acquired 3M U.S.
DOD helmet and body
armour contracts
Onboarding of the 3M
ballistic protection business
to Avon’s legal and
compliance processes
•
•
•
•
•
•
•
•
•
Failure to comply with export
controls slows or removes
ability to ship abroad
Prosecution, fines and
negative publicity resulting
from bribery and corruption
Litigation drains cost and
management time negatively
impacting other areas
Failure to comply with
government contract
obligations results in loss
of contract
Impact on
•
•
•
Ability to ship products
Financial loss
Reputational damage
51
9. Political and economic stability
Business risk
What happened in 2019
Mitigation
Focus for 2020
•
•
•
Unpredictable timing/amount
of Federal funding for Fire and
Law Enforcement customers
U.S. DOD budgets/funding
withdrawn
Negative impact from Brexit
on: trade, regulation, people,
contracts and IP
Impact on
•
•
•
•
Sales and profitability
Ability to ship products
Financial loss
Reputational damage
•
•
•
•
Continual monitoring of potential
Brexit implications and wider
global trading conditions
Partial U.S. Government shutdown
impacted Law Enforcement
revenues and the timing and
receipt of orders
•
•
•
Wider proliferation of chemical
weapons use raising awareness
of commercial and military
customers readiness assessment
and product effectiveness
Close monitoring of the milk
to feed price ratio to forecast
changes in farmer confidence
Close monitoring of Federal
funding and budget position
Lobbyist/Government advisers
and key influencers aligned to
Avon’s interests
Brexit risk assessment and
identified mitigations ready for
implementation
•
•
Readiness and planning for
potential changes in global
trading conditions
We are less exposed to
the political instability
and impact on trading of
Brexit with our U.S.-based
businesses constituting
around 70% of the Group
and subsequent to the
consolidation of our EU
operations in Italy.
OverviewOther informationFinancial Statements GovernanceStrategic Report 52
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Sustainable
Commitments
We are committed to minimising the impact of our
operations on the environment and our employees.
Intensity ratio of
30tonnes
GHG per £million revenue
401,895
kW per year saved in Cadillac
A forward thinking approach to health and safety and our environmental
impact is of paramount importance. We endeavour to maintain a culture
of continuous improvement to build upon our excellent record.
Health & safety
Environment
We safeguard the health and safety of
everyone working on site. All employees
are encouraged to take an active role in
ensuring that our working environment is
a safe place to work and visit. Employees
report all observations, engage in safety
audits, assessments and attend regular
training sessions.
During the year, we held monthly global
Health and Safety meetings where
information, knowledge and ideas are shared
to implement best practice across our
sites and create a positive attitude towards
safety. In addition, our management teams
put considerable focus on potential hazard
reporting, to ensure the appropriate action
is taken before any incident or an accident
can occur.
We are driven by the beliefs of our
employees and our responsibility as an
operations based business, to minimise
our impact on the environment. Our
commitment stems from the clear
benefits of sustainable practices.
Our staff actively engage in waste material
separation with a focus on re-use, where
possible, and recycling of paper, metal,
plastic, cardboard and used products.
We monitor our electricity, gas and water
usage frequently to establish progress
against our annual targets. We aim to
make improvements to reduce energy
consumption and to reduce waste going
to landfill.
With evolving environmental legislation
globally, we ensure compliance through
regular updates to our processes demonstrated
by our continued membership of the
Institute of Environmental Management
and Assessment. Our U.K. operations also
conform to ISO14001:2015, which reinforces
how we manage our environmental
responsibilities.
There have been no internal or external
environmental incidents or concerns
throughout the 2019 financial year at any
of our locations.
Carbon emissions – disclosure
As required under the Companies Act 2006
Regulations 2013 we have disclosed the
details of greenhouse gas emissions for which
we are responsible, and included details of
other environmental matters for which key
performance indicators are selected.
53
Scope 1 and 2 GHG emissions
(Tonnes)
Emissions intensity
(Tonnes GHG £m revenue)
5,351
53
4,621
3,239
42
53
4,060
42
30
33
2,198
2,012
1,667
1,889
‘16
‘17
‘18
‘19
Scope 1
Scope 2
‘16
‘17
‘18
‘19
We have employees based in each of our
facilities who are responsible for collecting
and acting on the relevant data.
The collected data allows us to monitor
and examine carbon emission trends and
track our progress against our internal
sustainability goals.
Greenhouse Gas (GHG) Emissions
The chart above (left) illustrates the Group’s
greenhouse gas emissions in tonnes,
between 2015 and 2019.
The chart above (right) illustrates the Group’s
emissions intensity per £million of revenue
between 2016 and 2019.
A number of factors have contributed to
the Group’s energy performance during the
year including a reduction in electricity and
energy use due to management activities.
For example, a compressed air leak audit,
the subsequent replacement of compressor
units and respective management software
ensured the Cadillac facility saved 401,895kW
per year.
With revenue for the year at £179.3m and the
total emissions of carbon dioxide equivalent
to 5,949 tonnes, this gives an intensity ratio of
33 tonnes GHG per £million revenue.
Data collection methodology
We have followed the Defra ‘Guidance on
how to measure and report your greenhouse
gas emissions’ and the Defra/DECC
‘Conversion Factors for Company Reporting’.
Scope 1 emissions are from those direct
sources that are owned by the Group
(e.g. from direct combustion of natural
gases within our facilities and company-
owned transport).
Scope 2 emissions comprise those emissions
for which the Group is indirectly responsible
excluding transmissions and distribution
losses (e.g. from the electricity we purchase
to operate machinery and equipment).
Sustainable materials group
Our in-house lab provides innovative
research and development capabilities
creating new polymer formulas and
expanding the Group's understanding
of polymer technology. Artis continue to
accelerate the development and adoption
of sustainable materials though the
Sustainable Materials Group, where key
industry players meet as a community to
discuss developments and opportunities.
2020 focus
We will continue to drive towards a world-
class level of safety performance, focus
on management and the reduction of
safety risk; and drive strong environmental
performance through enhanced practices
and visible leadership.
This forms part of our continuing efforts
to build a culture of responsible behaviour
and ethical decision-making.
OverviewOther informationFinancial Statements GovernanceStrategic Report 54
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Responsible
Business
We continue to build a culture where
our people are empowered to make
the right decisions and know where
to go to seek help or guidance.
The Company’s Code of Conduct (‘the Code’) is the
framework that offers this guidance to employees.
The Code sets out the values and standards of behaviour expected
from all those working for or on behalf of Avon Rubber and
the 2019 version is available on the Group’s website. The Code
requires all representatives of the Group comply with the laws and
regulations in the countries in which we operate. We understand
that implementing this Code across all the markets we do business
in can be challenging given the potentially complex differences.
We therefore assess and manage any risks and the processes
behind these to ensure we maintain the highest ethical standards.
The Code also contains guidance on avoiding conflicts of interest,
confidentiality, adherence to export controls, our approach to gifts
and hospitality, bribery and corruption and managing relationships
with third parties.
We encourage everyone to report any behaviour, which may
be a breach of the Code, or is unethical or illegal through our
confidential 'Speak Up' system.
We implement and adapt effective systems to uphold our zero-
tolerance approach to bribery and corruption. To ensure we only
work with third parties whose standards are consistent with our
own, all agents and third parties who act on behalf of the Group
are obliged by written agreement to comply with the standards
set out in the Code. In addition, a programme of supplier audits
exists to ensure suppliers adhere to our standards.
We are 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.
We have a zero-tolerance approach to modern slavery and are
committed to acting with integrity in all business dealings and
relationships and to implementing and enforcing effective measures
to ensure modern slavery is not taking place in the business or its
supply chains. Our Modern Slavery Act statement is available on our
website for further details.
55
LINK TO STRATEGY
For more information, go to our website at:
www.avon-rubber.com/investors/
Our employees are the heartbeat
of our company and are at the
core of our collective success.
We are committed to ensuring that Avon is a supportive work
environment, where everyone has the opportunity to reach
their fullest potential and we are committed to providing a
workplace culture that is free of harassment, intimidation, bias,
and discrimination and providing a working environment where
each and every employee is treated with dignity and respect.
This year we have made significant developments towards a
diverse and inclusive culture through the launch of several major
policies, including our ‘Respectful Workplace’ policy.
To reinforce this we also relaunched our ‘Speak Up' channel for
employees to anonymously report any behaviour, which may
be a breach of the Code, or is unethical or illegal.
OverviewOther informationFinancial Statements GovernanceStrategic Report 56
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Our People
Our People drive our culture. Motivated
and empowered employees representing
our values, ensure we deliver market
leading customer service and products.
Our success depends
on our people.
The Board maintains succession planning as a key priority, and
it is noted as a principle risk. The Group continues to strengthen
its commitment to developing home-grown talent through our
range of apprenticeships, graduate programme and training and
development opportunities. Our aim is to grow a diverse culture
and support all employees to give their best and continue to
recognise, encourage and nurture talent across our business.
We are committed to providing a working environment where
everyone feels respected and valued. Inclusivity is key to our culture
and we pursue equality of opportunity in all employment practices,
policies and procedures regardless of race, nationality, gender, age,
marital status, sexual orientation, disability and religious or political
beliefs. This year we launched the ‘Respectful Workplace’ Policy
underpinning our belief.
We are committed to increasing the number of women in senior
executive positions by developing our recruitment processes and
retaining more women within the Company. A formal Board Diversity
Policy is in place, a copy of which can be found in the Corporate
Governance section of our website.
1
16
Gender – senior
management
Female
Male
312
499
Gender – all employees
Female
Male
We strive to remain as adaptable, motivated and
responsible to our employees as we are to our customers.
57
LINK TO STRATEGY
Building our talent pipeline
This year we started our third Professional Development
Programme (PDP). PDP is a year-long talent development
programme that Avon launched in 2013. The aim of the
programme is to identify, encourage and support the
next generation of internal talent to contribute to the
business beyond the scope of their current roles.
Approximately 12 employees are selected to participate
across the Group. The 12-month programme is kicked
off with a residential launch event held in the U.K. led by
our partners the Tom Peters Company. The launch event
introduces a process by which participants set personal
development targets. These are worked on for the year
of the programme with internal mentor support. Mentors
are executive team members who provide a source of
advice and support for the participants in addition to their
line manager.
For more information, go to our website at:
www.avon-rubber.com/investors/
OverviewOther informationFinancial Statements GovernanceStrategic Report 58
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Engaging our
Employees
Great Place to Work is a framework that
gives every employee an opportunity to
contribute towards a culture that truly
makes Avon Rubber a fantastic employer.
Recognition
We look to motivate our employees through appropriate recognition and reward programmes.
We believe everyone deserves to be recognised when they achieve something special, we always
strive to show our support and appreciation for employee achievements.
What we do
• Employees can nominate colleagues whom they believe embody our CREED values.
• Quarterly and annual winners selected from the monthly nominations.
•
Long service awards are a way for us to demonstrate our appreciation to
those that have reached significant milestones. 190 awards have been
given to employees this year.
190
Recognition awards
given globally
Communication
Employee engagement is critical to our success and effective communication throughout the business is
vital in achieving this. We listen to employees and strive for continuous improvement; through frequent
events, we encourage communication and innovation.
Our strategy, performance and business priorities are communicated via the annual CEO Roadshow, our
intranet sites, email, quarterly newsletters and regular employee meetings at all levels of the organisation.
Organisation
The annual employee opinion survey provides all employees the opportunity to
anonymously provide their feedback to executive and senior management regarding
the business. This year we introduced a technology driven survey, with enhanced
analytics to target high impact opportunities and drive meaningful change.
87%
Believe their managers
genuinely care about
their wellbeing
59
Wellbeing
This year’s focus has been on our internal
communication regarding employee wellbeing.
Our goal has been to raise awareness of the benefits
of physical and mental health in the workplace.
To the left is an example of our employees receiving
a presentation on heart health from a local doctor.
Community
We aim to work with and for the communities in which we operate, recognising our role as a major
employer. We strive to contribute to our local economic, social and environmental sustainability; support
our employees, their friends and families, alongside charitable organisations important to our communities.
We continued with our charitable giving programme which aims to support the charities and organisations
that our employees care about most.
2018 marked 100 years since the end of
World War 1. Employees at our Melksham
facility remembered the Avon Rubber
and Spencer Moulton employees who lost
their lives in service by planting a tree for
each life. A total of 121 trees were planted.
Total donated in FY19
£38k
Cadillac
Johnson Creek
Melksham
White Marsh
Albinea
Training and Development
We want to attract, retain and develop talented individuals to safeguard
our business. We strive to provide an environment that offers the right training
and development by providing a combination of formal training opportunities
and on the job experiences.
41%
Activated LinkedIn
learning accounts
What we have done
• Global e-learning platform for all employees.
• Global Leadership Programme (GLP) for individuals identified as having the potential to be future leaders.
• Our Global Professional Development Programme (PDP) provides a launch platform for career
development.
• Numerous bespoke training courses were run for employees across all sites including Negotiation,
and Capture management, which 80+ employees attended.
OverviewOther informationFinancial Statements GovernanceStrategic Report 60
Avon Rubber p.l.c. | Annual Report & Accounts 2019
“ We are targeting carefully selected,
value enhancing acquisitions within
Avon Protection and milkrite | InterPuls
to complement our organic growth.”
61
Governance
62 Board of Directors
64 Corporate Governance Report
68 Nomination Committee Report
69 Audit Committee Report
73 Remuneration Report
90 Directors’ Report
OverviewOther informationFinancial Statements GovernanceStrategic Report 62
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Board of Directors
Our business is led by our experienced Board of Directors who focus
on developing the Group’s strategy and supporting management to
execute against it.
David Evans
Chairman
Paul McDonald
Chief Executive Officer
Nick Keveth
Chief Financial Officer
First appointment: June 2007
First appointment: February 2017
First appointment: June 2017
Appointed Chairman: February 2012
Skills and experience:
Skills and experience:
Skills and experience:
David has been working in the defence sector
for over 30 years with extensive knowledge of
the U.S. market. David spent 17 years with GEC-
Marconi before joining Chemring Group PLC in
1987 where he was appointed Chief Executive
in 1999. He remained on the Chemring Board
as a Non-Executive Director following his
retirement in 2005 but stood down from
this role during 2012 to focus on his role
as Chairman of Avon Rubber p.l.c.
Prior to his appointment as Chief Executive
Officer in 2017, Paul was Managing Director
of milkrite | InterPuls and, since 2007, a key
member of the Group Executive management
team. Paul joined the Group in 2003 and
spent the early part of his career at Avon
in commercial and operational roles which
included responsibility for all U.K. operations
and the European Protection and Dairy
business units.
Nick was appointed as Chief Financial Officer
in June 2017. Prior to joining Avon, Nick was
Director of Finance, Planning & Reporting
at Imperial Brands. He was with Imperial for
12 years and held a variety of senior finance
roles during this period. Nick also served as a
Non-Executive Director of the Spanish listed
group Compania de Distribucion Integral
Logista Holdings, S.A., a leading distributor
of products and services to convenience
retailers in Southern Europe, from 2014 until
2017. Prior to joining Imperial Nick worked for
PricewaterhouseCoopers for 14 years in both
audit and advisory roles.
Committee membership:
Audit
Nomination (Chair)
Remuneration
1
4
2
3
Board gender diversity
Independence
(including Chairman)
Female
Male
Executive
Non-Executive
63
Chloe Ponsonby
Non-Executive Director
Pim Vervaat
Non-Executive Director
Miles Ingrey-Counter
Group Counsel and Company Secretary
First appointment: March 2016
First appointment: March 2015
First appointment: October 2007
Skills and experience:
Skills and experience:
Skills and experience:
Chloe has spent her 20 year career in financial
services, first in equity fund management at
Jupiter; and then in investment banking at
Altium, Oriel Securities (now owned by Stifel)
and currently at Panmure Gordon where
she is a Senior Managing Director. She is a
Chartered Financial Analyst and has a first
class Economics degree from the University
of Manchester.
Pim joined the Board in March 2015. Until
recently, Pim was the Chief Executive of RPC
Group Plc, the leading plastic products design
and engineering group and a FTSE 250 listed
company, from May 2013 to July 2019 (having
been the CFO since 2007). Prior to this, Pim
worked for Dutch metals producer, Hoogovens
Groep, before joining Dutch ship propulsion
producer Lips Group as Chief Financial Officer
in 1996. In 1999 he returned to Hoogovens
Groep (acquired by Corus) and in 2004
became divisional Finance Director of the
£3bn turnover Corus Distribution and Building
Systems Division.
Miles is a qualified solicitor, he joined the
Group in January 2004 and has been a
member of the Group Executive management
team since 2008. Miles also has responsibility
for all Group HR matters and is Chairman of the
Avon Rubber Retirement and Death Benefits
Plan. Prior to joining Avon, Miles was a solicitor
with Osborne Clarke LLP.
Committee embership:
Committee membership:
Audit
Nomination
Remuneration (Chair)
Audit (Chair)
Nomination
Remuneration
Secretary to:
Audit (Secretary)
Nomination (Secretary)
Remuneration (Secretary)
OverviewOther informationFinancial Statements GovernanceStrategic Report 64
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Corporate Governance Report
STATEMENT OF COMPLIANCE WITH THE U.K. CORPORATE GOVERNANCE CODE
The Board of Directors are committed to high
standards of corporate governance, and are
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 U.K. 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 throughout 2019,
Avon complied with the Code, save that
the Senior Independent Director does not
attend meetings with the major shareholders
to listen to their views (which is explained
further below).
This statement will address 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 73 to 89.
The Board
The Board currently comprises two Executive
Directors and three Non-Executive Directors
(including the Chairman). The biographical
details of individual Directors are set out
on pages 62 and 63. The Board considers
all of the current Non-Executive Directors
to be independent in judgement and
character, and considered David Evans
to be independent on his appointment
as Chairman.
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 Officer has been
agreed. The Chairman is responsible for
the leadership of the Board and ensuring
its effectiveness in all aspects of its role.
The Chief Executive Officer 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.
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 (Annual General
Meeting) following their appointment, and to
re-election thereafter at intervals of no more
than three years. In line with best practice
reflected in the Code, however, all current
Directors will be standing for reappointment at
the forthcoming Annual General Meeting to
be held on 30 January 2020.
The Non-Executive Directors are appointed
by the Board on terms which allow for
termination on three months’ notice. Copies
of Executive Directors’ service contracts and
terms and conditions of appointment for Non-
Executive Directors are available for inspection
at the Registered Office and will also be
available at the Annual General Meeting.
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 Officer 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 and every Director
is encouraged to participate and provide
opinions on 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, the Annual 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 strategic plan.
• The extension of the Group’s activities
into new business and their 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.
65
Each Director has full and timely access to all
relevant information and the Board meets
regularly with appropriate contact between
meetings. All Directors receive a tailored
induction to the Group 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
and governance requirements are complied
with. The removal of the Company Secretary
is a decision for the Board as a whole.
Committees of the Board
Of particular importance in a governance
context are the three committees of the
Board, namely the Remuneration Committee,
the Nomination Committee and the Audit
Committee. Each Committee operates under
clear terms of reference, copies of which
are available on our website. Detail of the
operation of each Committee is provided
within the relevant Committee report.
The members of the Committees comprise
the Chairman and all the Non-Executive
Directors. The Company Secretary advises
and acts as a secretary to the Committees.
Attendance at meetings
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. Pim Vervaat is
Chairman of the Audit Committee. The Board
is satisfied that Mr Vervaat has recent relevant
financial experience and his profile appears
on page 63.
David Evans is Chairman of the Nomination
Committee but, in accordance with the
Committee’s terms of reference, is not
permitted to chair meetings when the
Committee is dealing with matters relating
to the Board Chair’s position.
Chloe Ponsonby is Chair 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 Remuneration
Committee also has regard to the
remuneration of the wider workforce. More
details of the activities of the Remuneration
Committee are set out in the Remuneration
Report on pages 73 to 89.
Performance evaluation
The Board continually strives to improve its
effectiveness and conducts an annual review
of its performance and that of its Committees
and the individual Directors to enhance
overall Board effectiveness. The 2019 Board
evaluation process was conducted internally
using questionnaires and interviews, led by
the Chairman and facilitated by the Company
Secretary. The questionnaire completed
by all Board members and the Company
Secretary was structured to provide Directors
with the opportunity to express views on a
variety of topics including: Board remit and
responsibilities, skills and dynamics of the
Board, meetings and content, Group strategy,
internal control and risk management,
decision making and communication.
A detailed discussion of the findings from
the performance evaluation were reviewed
at the September Board meeting. Overall
the results of the evaluation concluded that
the Board, its Committees and individual
Directors performed effectively during 2019,
both individually and as a collective unit. The
following areas have been identified by the
Board as areas of focus for 2020 and beyond:
succession planning, successful induction of
new Non-Executive Directors and increasing
board engagement with the wider workforce.
Led by the Senior Independent Director, Pim
Vervaat, the Chairman’s assessment was also
carried out using a questionnaire completed
by all Directors. The results were discussed at
the September meeting and the conclusion
was that the Board was satisfied with the
Chairman’s commitment and performance.
All Committee and Board meetings held in the year were quorate. Directors’ attendance during the year ended 30 September 2019 was as follows:
Paul McDonald
Nick Keveth
David Evans
Pim Vervaat
Chloe Ponsonby
1 Attended by invitation
Board
8/8
8/8
8/8
8/8
8/8
Audit
Committee
Remuneration
Committee Nomination Committee
3/31
3/31
3/3
3/3
3/3
4/51
4/51
5/5
5/5
5/5
1/11
1/11
1/1
1/1
1/1
OverviewOther informationFinancial Statements GovernanceStrategic Report 66
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Corporate Governance Report continued
Accountability and audit
Risk management
The Board has an established framework
of internal controls covering both financial
and non-financial controls. In addition,
there is an ongoing process for identifying,
evaluating and managing significant business
risks faced by the Group. This process was in
place throughout the 2019 financial year and
accords with the FRC’s Guidance for Directors
on Internal Control.
The Code requires that Directors review
the effectiveness of the Group’s system
of internal controls on a continuing
basis. The scope of this review covers all
controls including financial, operational
and compliance controls, as well as risk
management. The Audit Committee has
responsibility to review, monitor and make
policy recommendations to the Board upon
all such matters.
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 69 to 72 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 46 to 51.
Risk is managed by the Group Executive
team during the year, led by the Company
Secretary and the Deputy Chief Financial
Officer. The Group Executive team sets its
key priorities for successfully managing the
Group’s businesses. This process inherently
addresses risk and the Company Secretary
leads an exercise that ensures the known
risks to the businesses, together with any
newly identified and emerging risks, are
assessed and analysed effectively and that
the priorities eliminate, minimise, control
or transfer risk (or the effect thereof) as
appropriate. There is also a review of the
continuing effectiveness of other aspects of
the control environment by the Group and
Divisional Executive teams to ensure these
controls are mitigating risk to the fullest
extent in practice.
The Board carried out quarterly reviews
of the key risks facing the Group and
risk management activities undertaken
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 macro risks. In the year
under review, the risk assessments carried
out both at business level and at Board level
continued to be reviewed and strengthened.
Internal control
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 the policies, procedures and
internal best practices as documented in the
internal control 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 of Conduct sets out the procedure
whereby individuals may raise concerns in
matters of financial reporting or any other
matter of concern with management or
directly with the Chairman of the Audit
Committee, or anonymously through our
‘Speak Up’ process, to ensure independent
investigation and appropriate follow up action.
The Code of Conduct 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
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.
67
Relations with shareholders
The Directors regard regular communications
with shareholders as extremely important.
All members of the Board receive copies of
analysts’ reports of which the Company is
made aware and receive an investor relations
report from the Chief Financial Officer at
every Board meeting.
The Board reports formally to its shareholders
in a number of ways, including regulatory news
announcements or press releases in response
to events or routine reporting obligations, a
detailed Annual Report and Accounts and,
at the half year, an interim report.
Regular dialogue takes place with institutional
shareholders, including presentations after the
Company’s preliminary announcements of the
half and full year 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
also make themselves available after the
Annual General Meeting to talk informally
to shareholders, should they wish to do so,
and respond throughout the year to any
correspondence from individual shareholders.
At the Annual General Meeting on
30 January 2020, 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
Officer on aspects of the Group’s business
and an opportunity for shareholders to ask
questions. The level of proxies received for
each Annual General Meeting resolution is
declared after the resolution has been dealt
with on a show of hands, providing no poll
has been called for.
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.
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 all Non-Executive Directors. 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 through the Company Secretary.
Disclosure and Transparency
Rules (‘DTR’)
Disclosures in respect of the DTR
requirements under DTR 7.2.6 are given in
the Directors’ Report on pages 90 to 93 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.
This conclusion is based on a review of the
resources available to the Group, taking
account of the Group’s financial projections
together with available cash and committed
borrowing facilities.
In reaching this conclusion, the Board has
considered the magnitude of potential
impacts resulting from uncertain future
events or changes in conditions, the
likelihood of their occurrence and the likely
effectiveness of mitigating actions that the
Directors would consider undertaking.
principal risks documented in the Strategic
Report. Based on this assessment, the
Directors have a reasonable expectation
that the Group will be able to continue in
operation and meet its liabilities as they fall
due over the period to September 2022.
In making this statement, the Directors have
considered the resilience of the Group, taking
account of its current position, the principal
risks facing the business in severe but
reasonable scenarios, and the effectiveness
of any mitigating actions.
This assessment has considered the
potential impacts of these risks on the
business model, future performance,
solvency and liquidity over the period. In
making their assessment, the Directors have
taken account of the Group’s strong net
cash position and the increase during the
year of the Group’s revolving credit facility
which covers the three year lookout period.
During the year the Group has complied with
all covenant requirements attached to its
financing facilities.
The Directors consider the three-year lookout
period to be the most appropriate as this
aligns with the Group’s own strategic planning
period. The Group has developed an annual
business planning process, which comprises
a Strategic Plan, a financial forecast for the
current year and a financial projection for
the forthcoming three years. This plan is
reviewed each year by the Board as part of
its strategy setting process. Once approved
by the Board, the plan provides a basis for
setting all detailed financial budgets and
strategic actions that are subsequently used
by the Board to monitor performance. The
forecast performance outlook is also used by
the Remuneration Committee to establish the
targets for both the annual and longer term
incentive schemes.
Viability statement
The Directors have assessed the viability of the
Group over a three-year period to September
2022, taking account of the Group’s current
position and the potential impact of the
David Evans
Chairman
13 November 2019
OverviewOther informationFinancial Statements GovernanceStrategic Report
68
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Nomination Committee Report
The Committee regularly reviews the Board’s structure,
size and composition and gives full consideration to
succession planning for Directors and other senior
executives, to ensure we are best resourced to deliver
the Group’s strategy.
LETTER FROM THE CHAIR OF THE NOMINATION COMMITTEE
The Nomination Committee comprises all
the Non-Executive Directors, under the
chairmanship of the Chairman of the Board.
Main responsibilities
The main responsibilities of the Committee
are as follows:
• To lead the process for Board
appointments and make
recommendations to the Board.
• To put in place plans for succession.
• To regularly review the Board’s structure,
size and composition, taking into account
the challenges and opportunities facing
the Group and the skills, knowledge and
experience needed by the Board and
make recommendations to the Board
with regard to any changes.
The Committee’s terms of reference are
available within the Corporate Governance
section of the Company’s website and are
reviewed annually by the Committee.
All Directors are appointed by the Board
following a rigorous selection process
and subsequent recommendation by the
Committee. Board appointments are made
on merit, against criteria identified by the
Committee having regard to the benefits
of diversity on the Board.
The Nomination Committee is also
responsible for the Board’s policy on
diversity. 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 Company’s website.
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 52 to 59.
Activities during 2019
During the year the Committee focused
attention on Board succession and
succession planning for the Executive
Directors and senior management which
took into account the immediate, emerging
and longer-term succession plans for these
roles, as well as the wider talent development
programmes throughout the Company.
Following a detailed discussion on Board
succession planning and taking into account
the Group’s aspirations for growth, the
Committee has recommended to the Board
that an additional two independent Non-
Executive Directors be added to the Board
during 2020. Korn Ferry have been engaged to
lead the search to identify suitable candidates.
Korn Ferry does not have any other
connection with the Company. Looking ahead
to 2020 and 2021, I will resign as Chairman and
step down from the Board at the 2021 Annual
General Meeting. The Committee led by Pim
Vervaat as Senior Independent Director will
begin the process in the 2020 financial year to
identify suitable candidates and recommend
an appointment for my replacement.
The Committee agreed that all Directors
should be put forward for re-appointment
by shareholders each year at the Annual
General Meeting. Taking into account the
performance and value that each Director
has brought to the Board, the Committee has
considered whether each Non-Executive and
Executive Director appointments should be
renewed for a further year and has confirmed
that this is indeed the case. Accordingly,
resolutions to re-appoint each Director are
being put to shareholders at the forthcoming
Annual General Meeting.
The evaluation of the effectiveness of the
Committee was conducted as part of the
Board performance evaluation. The outcome
of the 2019 review was positive and again
highlighted the need to retain focus on
succession planning for the Board.
David Evans
Chairman of the Nomination Committee
69
Audit Committee Report
The Committee monitors the integrity of the Group’s
financial statements and supports the Board with its
ongoing monitoring of risk management and internal
control systems.
LETTER FROM THE CHAIR OF THE AUDIT COMMITTEE
Reviewing the results of the evaluation of the
external audit process, we are satisfied with
both the auditor’s independence and audit
approach. Following the audit tender process
in 2018, the Board accepted the Audit
Committee’s recommendation to appoint
KPMG and a resolution for their appointment
was put to shareholders and passed at the
2019 Annual General Meeting.
The Audit Committee acts on behalf of the
full Board, and the matters reviewed and
managed by the Committee remain the
responsibility of the Directors as a whole.
Main responsibilities of the
Audit Committee
The Audit Committee has delegated authority
from the Board set out in its written terms of
reference. The terms of reference for the Audit
Committee are available for inspection at the
Group’s registered office, on our website, and
at the Annual General Meeting.
The key objectives of the Audit Committee are:
• To provide effective governance and
control over the integrity of the Group’s
financial reporting and review the
significant financial reporting judgements.
• To support the Board with its ongoing
monitoring of the effectiveness of the
Group’s system of internal controls and
risk management systems.
• To monitor the effectiveness of the
Group’s internal audit function and
review its material findings.
• To oversee the relationship with the
external auditor, including overseeing the
auditor transition process, and making
recommendations to the Board in relation
to the re-appointment of the external
auditor and monitoring the external
auditor’s objectivity and independence.
• Reviewing the adequacy of the Company’s
whistleblowing arrangements and the
provision of appropriate investigation of
any matters raised.
• 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.
Composition of the Audit Committee
The members of the Committee are set
out on page 62 and 63 of this Corporate
Governance Report.
The Committee members are all
independent Non-Executives and have
the appropriate range of financial and
commercial expertise necessary to fulfil the
Committee’s terms of reference. The Board
considers that as a recently serving Chief
Executive Officer, and before that a Finance
Director, of a FTSE 250 company, I have both
the current and relevant financial experience
required to Chair this Committee.
During the year, the Audit Committee
continued its key oversight role for the Board
of the Group’s financial management and
reporting to reassure shareholders that their
interests are properly protected.
The Audit Committee works to a set
programme of activities, with agenda items
established to coincide with the annual
financial reporting calendar. The Committee
reports regularly to the Board on its work.
During the 2019 financial year, the Committee
has continued to monitor the integrity of the
Group’s financial statements and supported
the Board with its ongoing monitoring of the
Group’s risk management and internal control
systems. The Committee also determined the
focus of the Group’s internal audit activity,
reviewed its findings and verified that
recommendations were being appropriately
implemented. In recognition of both the
importance of an effective whistleblowing
channel and the enhanced scope under the
revised U.K. Corporate Governance Code
‘the Code’, which applied to Avon from 1
October 2019, the Committee also reviewed
the Group’s whistleblowing policies and
procedures. The review established that there
are sufficient mechanisms in place through
which employees are able to confidentially
raise concerns, but that awareness of the
procedure and protections could be improved
through a refreshed communication exercise
to all employees as part of the existing
workplace training practices.
During 2019 the Audit Committee undertook
a full evaluation exercise of the PwC audit
approach, in their last year as auditors
following the 2018 audit tender, to ensure the
effectiveness of the external audit function.
OverviewOther informationFinancial Statements GovernanceStrategic Report 70
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Audit Committee Report continued
Meetings are attended by invitation by the,
Chief Executive Officer, Chief Financial Officer
and the Deputy Chief Financial Officer.
I also invite our external auditor, KPMG, to
each meeting. The Committee also regularly
meets separately with KPMG without
management being present.
Committee meetings
The Committee met three times during the
year and attendance at those meetings is
highlighted on page 65 of this Corporate
Governance Report.
Main activities of the
Committee during the year
Meetings of the Committee generally take
place just prior to a Board meeting. The
Committee has a rolling annual agenda
developed from its terms of reference, with
recurrent items considered at each meeting
in addition to any specific matters arising and
topical business or financial items on which
the Committee has chosen to focus.
The Committee reviewed the half year
and annual financial statements and the
significant financial reporting judgements.
As part of this review, the Committee
supported the Board by reviewing the
financial viability and the basis for preparing
the accounts on a going concern basis. The
Committee also reviewed and challenged
the external auditor’s report on these
financial statements.
As discussed above, the effectiveness of
the external audit function was considered
during 2019. During the evaluation process
the Committee considered: the independence
and objectivity of the external auditor; the
make-up and quality of the audit team; the
proposed audit approach and the scope of
the audit; the execution of the audit and the
quality of the audit report to the shareholders;
as well as ultimately the fee structure.
The Committee also reviewed and
proposed areas of focus for the internal
audit programme of review including the
approach to ensure that the internal audit
activity is aligned to the principal Group risks.
The main areas of focus considered by the
Committee during 2019 were as follows:
Significant judgements and estimates
considered by the Committee
• The presentation of the financial
statements and the quality and
acceptability of accounting policies and
practices, in particular, the presentation of
adjusted performance and the adjusting
items. The Committee reviewed a paper
prepared by management and reviewed
the disclosure of adjusted items within
the Group’s half year and full year results,
agreeing that the position taken in the
financial statements is appropriate.
• The clarity of the disclosures and
compliance with financial reporting
standards and relevant financial and
governance reporting requirements.
• Material areas in which significant
judgements have been applied, discussed
separately in more detail below.
• Oversight of the audit transition process.
• A review of the Auditor Independence
policy, following the comprehensive
update in 2018.
• At the request of the Board, the
Committee considered whether the
2019 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. Having taken account of the
other information provided to the Board
throughout the year, the Committee
was satisfied that, taken as a whole, the
Annual Report and Accounts was fair,
balanced and understandable.
The Committee was content, after due
challenge and debate, with the assumptions
made and the judgements applied in the
accounts and 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 Accounts and the half year and all
trading statements.
After discussions with management and the
external auditor, the Committee determined
that the key risk of material misstatement of the
Group’s 2019 financial statements depended
on the following key areas of estimation:
• Carrying value of intangible assets.
• The funding level of the defined benefit
pension scheme.
• Calculation of the Group tax charge.
• Estimation of variable consideration.
Carrying value of intangible assets
The Group’s principal assets are intangible
assets, which are either the result of
acquisitions, or have been capitalised
through the internal development of new
products. The valuation of intangible assets
involves significant judgement and changes
in the underlying assumptions could have a
significant impact on the carrying value of
these assets.
The classification of intangible assets
represents three asset classes: goodwill,
acquired intangibles and development
expenditure:
• The Group assesses whether goodwill
is impaired on an annual basis and this
requires an estimation of the value in
use of the segmental division to which
the intangible assets are allocated. This
involves estimation of future cash flows,
estimating a growth rate for extrapolation
purposes and choosing a suitable
discount rate.
• Acquisitions may result in the recognition
of acquired intangibles which include:
customer relationships, brands and
trademarks, patents and order books.
Valuation estimates are used to determine
the fair values of these intangible assets.
This includes estimation of future cash
flows, weighted average cost of capital
and useful lives.
71
• The Group capitalises the development of
new products and processes as intangible
assets or property, plant and equipment.
Initial capitalisation and any subsequent
impairment is based on the Group’s
judgement that technological and
economic feasibility is demonstrated. In
determining the amounts to be capitalised
the Group makes assumptions regarding
the expected future cash generation of
the project, discount rates to be applied
and the expected period of benefits.
An independent actuary regularly reviews
the costs of administering the pension
scheme, together with undertaking a
valuation of the pension scheme assets and
assessment of current and future pension
liabilities. The Committee reviews a report
from the independent actuary on the
appropriateness of the assumptions used
in assessing the assets and liabilities of the
scheme and agreed that this was being
managed appropriately with reasonable
judgements applied.
Following a review of a report summarising
the key issues in relation to the valuation of
the Group’s intangible assets, the Committee
concurred with management that the
carrying value of the intangible assets
was appropriate.
The auditor explained their audit procedures
to test the carrying value of intangible assets
and on the basis of the work undertaken
the auditor reported no inconsistencies or
misstatements that were material in the
context of the financial statements as a whole.
Further analysis and detail on the Group’s
intangible assets is set out in Note 3.1
of the financial statements on page 123.
The funding level of the defined benefit
pension scheme
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 U.K. employed before 31 January
2003; the plan was closed to future accrual
of benefit on 1 October 2009. The funding
level of the pension scheme involves
significant judgements concerning the future
performance and valuation of the pension
funds’ assets and liabilities and as such
changes in the core assumptions could have
a significant impact on those requirements.
The defined benefit plan exposes the Group
to actuarial judgements of the defined
benefit pension obligations that requires
estimation of future changes in inflation,
mortality rates, and the selection of a suitable
discount rate.
The auditor explained their audit procedures
to test the carrying value of net pension
liabilities and based on the work undertaken,
and assessment of the actuarial judgements
used, the auditor reported no inconsistencies
or misstatements that were material in the
context of the financial statements as a whole.
Further analysis and detail on the Group’s
defined benefit pensions scheme is set out
in Note 6.2 of the financial statements on
page 136.
Calculation of the Group tax charge
The Group operates in a number of countries
around the world where uncertainties exist
in relation to the interpretation of complex
tax legislation, changes in tax laws and
the amount and timing of future taxable
income. In some jurisdictions, agreeing
tax liabilities with local tax authorities can
take several years. This could necessitate
future adjustments to taxable income and
expense already recorded. At the year-end
date, tax liabilities and assets are based
on management’s judgements around
the application of the tax regulations and
management’s estimate of the future
amounts that will be settled.
The Group’s operating model involves the
cross-border supply of goods into end
markets. There is a risk that different tax
authorities could seek to assess higher
profits (or lower costs) to activities being
undertaken in their jurisdiction, potentially
leading to higher total tax payable by
the Group.
At 30 September 2019 there is a provision of
£2.9m in respect of uncertain tax positions.
Due to the uncertainties noted above,
there is a risk that the Group’s judgements
are challenged, resulting in a different tax
payable or recoverable from the amounts
provided. Management estimates that a
reasonable possible range of outcomes is
between an additional liability of up to £0.5m
and a reduction in liabilities of up to £2.9m.
Following a review of the Group’s tax
charge, which included a conversation and
an update on the current position and the
status of discussions with the relevant tax
authorities, the Committee agreed that the
position taken in the financial statements
is appropriate.
Further analysis and detail on the Group’s tax
charge is set out in Note 2.6 of the financial
statements on page 121.
Estimation of variable consideration
The estimation of variable consideration in
relation to certain U.S. contracts in the Avon
Protection business involves assumptions
and judgements.
Following a review of a report summarising
the contracts and the approach taken in
assessing the revenue being deferred as a
contract liability, the Committee concurred
with management that the value of the
outstanding contract liability was appropriate.
The auditor explained their audit procedures
in relation to revenue recognition and on
the basis of the work undertaken reported
no inconsistencies or misstatements that
were material in the context of the financial
statements as a whole.
Further details in relation to the Group’s
contract liabilities can be found in Note 4.4
to the financial statements on page 126.
OverviewOther informationFinancial Statements GovernanceStrategic Report 72
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Audit Committee Report continued
External auditors
The Audit Committee considers the re-
appointment of the external auditor each year.
As reported in last year’s annual report, PwC
had been the Company’s external auditors
for over 20 years and the Audit Committee
decided to undertake a tender of the external
auditor role in 2018 and the confirmation of
KPMG as the Company’s external auditors was
approved at the 2019 Annual General Meeting .
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.
Review of the effectiveness and the
independence of the external auditor
At its April meeting the Committee reviewed
an evaluation report of the previous year’s
audit process, which included obtaining
feedback from employees who had interaction
with PwC during the 2018 audit. The report
concluded that the audit was conducted to
a good standard with appropriate focus and
challenge on the key audit risks. The members
of the Committee have declared themselves
satisfied with the performance of PwC as the
Company’s auditor in the last financial year.
In the first year as the Company’s auditor,
KPMG confirmed to the Committee that it
maintained appropriate internal safeguards
to ensure its independence and objectivity.
As part of the Committee’s assessment of the
ongoing independence of the transitioning
auditor, the Committee receives details of
any relationships between the Group and
KPMG that may have a bearing on their
independence and receives confirmation
that they are independent of the Group.
Policy on auditor independence and
non-audit fees
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. The policy sets out that
non-audit work may only be undertaken by
the External Auditor in limited circumstances
where these services do not conflict with the
auditor’s independence. All permissible non-
audit services need the specific approval of
the Audit Committee.
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 KPMG
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 is
included in Note 2.5 on page 121 of the
financial statements. No non-audit services
were carried out by KPMG during the year.
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 review 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 2019 and 2020. The Committee believes it
is appropriate that the internal audit process
is primarily undertaken by members of the
finance team who conduct financial reviews of
the sites on a rotational basis. As appropriate,
the Committee recommends working with
independent experts to support and facilitate
the internal audit programme. During the
year, a review of the Group’s cyber security
arrangements was undertaken by a third
party independent consultant who confirmed
that the controls and policies in place were
appropriate and in line with the Group’s risk
management approach.
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 Accounts. It has
been reviewed by the Board and continues
to be monitored by the Committee, which
remains satisfied with the arrangements.
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 Code and the FRC guidance on Risk
Management, Internal Control and Related
Financial Business Reporting.
Risk management activities are dealt with
in more detail in the Corporate Governance
Report on pages 64 to 67.
Audit Committee effectiveness review
The evaluation of the effectiveness of the
Committee was conducted alongside the
Board effectiveness review, information
on which is provided in the Corporate
Governance report on page 65. The
effectiveness of the Committee continued
to be rated highly.
Pim Vervaat
Chairman of the Audit Committee
13 November 2019
73
Remuneration Report
The Committee seeks to support the delivery of the
Group’s strategy through establishing remuneration
arrangements which support sustainable value
creation for our shareholders and incentivise and
retain management.
LETTER FROM THE CHAIR OF THE REMUNERATION COMMITTEE
On behalf of the Board, I am pleased to
present the Directors’ Remuneration Report
for the year ended 30 September 2019.
The Remuneration Report is split into
three sections:
increases in orders received (1.4%), revenue
(4.2%) and adjusted operating profit (10.4%).
The Group’s balance sheet remained strong
and the business continued to be cash
generative, ending the year with net cash
of £48.3m.
• This Annual Statement summarising the
work of the Remuneration Committee
(the ‘Committee’) in 2019;
• A summary of the Directors’
Remuneration Policy (the ‘Policy’) which
was approved by shareholders with a 99%
vote of support at the 31 January 2019
Annual General Meeting. The Policy sets
out the Company’s policy on Directors’
remuneration until the 2022 Annual
General Meeting; and
• The Annual Report on Remuneration,
which provides details of the
remuneration earned by Directors in the
year ended 30 September 2019 under
the Remuneration Policy and how we
intend to implement the Policy in 2020.
The Annual Report on Remuneration
will be subject to an advisory vote at the
forthcoming Annual General Meeting.
Outcomes for 2019
The Executive Directors and senior
management team have continued to drive
the Group’s strategy and delivered another
strong performance in a transformative year
for the Group. As set out in the Strategic
Report, the key 2019 highlights include
In August 2019, the Group signed an
agreement to acquire 3M’s ballistic
protection business, which represents
an attractive opportunity closely aligned
with our clear commercial and financial
acquisition strategy.
After the first year under the new policy
my reflection is that the policy has, as
intended, supported delivery of the strategy
and focused the management team on
delivering superior financial and operational
performance. It is pleasing to see that this is
reflected in both the trading results for 2019
and the recent acquisition.
However, the Committee will continue to
keep the policy under review to ensure that it
remains optimal as the strategy and shape of
the business evolve.
Performance-related pay
Our annual bonus measures incentivise and
reward delivery of our business strategy
and superior financial and operational
performance. This year bonus outcomes for
the Executive Directors were determined by
reference to performance against the agreed
financial business targets of Group revenue
growth on previous year (20%), operating
profit growth on previous year (40%) and
Group cash conversion (40%). The Company’s
financial performance for the year, resulted
in bonus awards for the Executive Directors
at 54.8% of maximum for Paul McDonald
and 54.8% of maximum for Nick Keveth. Full
details can be found on page 84.
Vesting of the PSP awards made on
1 December 2015 took place back in
December 2018, based on the agreed
measures of relative Total Shareholder Return
(‘TSR’) and Earnings Per Share (‘EPS’) growth
over the three year performance period.
The Group’s three year TSR was 32.8% which
placed it just outside the upper quartile and
the EPS growth was CPI +11% compared to
the maximum target of CPI + 8%. The overall
vesting level achieved for these awards was
therefore 84%. We are currently preparing
to vest the PSP awards made in December
2016, which were based on the same
performance measures.
The Committee considers that within the
broader context of the overall performance
of the Company and the individual
performance of Executive Directors, the
pay-outs achieved under the bonus and
PSP are justified and has not applied any
discretionary adjustment to these outcomes,
nor in any other area of remuneration
throughout the year.
OverviewOther informationFinancial Statements GovernanceStrategic Report 74
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Remuneration Report continued
Implementation of the policy in 2020
The Committee approved an increase in the
Chief Executive Officer’s and Chief Financial
Officer’s salaries of 5.1% and 5.6% respectively
with effect from 1 October 2019. This was
above the cost of living pay increase within
the wider workforce of 3% and reflects their
strong performance and the continuing
evolution of the Group.
In 2020, as in 2019, the maximum annual
bonus opportunity will be 100% of salary,
with 25% of any bonus earned deferred into
shares for two years. The bonuses for 2020
will once again be based on Group revenue
growth on previous year (20%), operating
profit growth on previous year (40%) and
Group cash conversion (40%).
Targets will be set on a sliding scale with 20%
payable at threshold and 50% at target. The
2020 bonus does not include any personal
performance objectives. The targets and
outcomes will be disclosed retrospectively in
next year’s Annual Report on Remuneration.
The 2020 LTIP award will be made at 150%
of salary for both directors, an increase
on the 2019 award which was made at
125% of salary. Based on the current share
price, the proposed award represents a
c.20% reduction to the number of awards
granted in 2019. In addition, the Committee
considered that the LTIP increase should be
accompanied by an increased level of stretch
in the EPS target range.
Therefore the 2020 EPS targets have increased
from 5%p.a. to 10%p.a. to 5%p.a. to 12%p.a.,
with 0% vesting at threshold. While 10%p.a.
would have previously resulted in full
vesting under this measure, now that level
of performance will result in just over 70%
vesting. TSR will continue to apply for the
other 50% of the award.
The Financial Reporting Council published
a new U.K. Corporate Governance Code
(‘Code’) during 2018, which applies to Avon
with effect from the 2020 financial year. The
Committee welcomes the new Code and
I am pleased to note that in several areas,
practice at Avon is already aligned with the
updated provisions.
In addition, the Committee must be satisfied
with the level of ROCE performance during
the performance period taking account of
a range of factors. If the Committee is not
satisfied with the level of ROCE performance
it may reduce (potentially to zero) the outturn
against the EPS performance measure.
This decision has been made against the
backdrop of a transformative year with
significant share price growth and the need
to retain and incentivise a proven and high
performing management team. We will be
seeking to consult with investors in 2020 with
regard to the ongoing implementation of our
incentive arrangements.
We remain mindful of the developing
remuneration landscape and will continue
to monitor the executive pay environment,
governance developments and market
practice, particularly in light of the new Code.
I welcome all shareholder feedback on
this report. We acknowledge the support
we have received in the past from our
shareholders and hope that we will continue
to receive your support at the forthcoming
Annual General Meeting.
Should you have any queries in relation to
this report please do not hesitate to contact
me through the Company Secretary.
Agenda for 2020
During 2020, we will continue to keep the
remuneration arrangements across the
Group under review, including the impact
of the acquisition of 3M’s ballistic protection
business. The acquisition will have an
additional impact on the size and complexity
of the Group and the Committee intends to
review the effectiveness of the Policy and
its implementation in light of this and the
evolving strategy of the Group.
Chloe Ponsonby
Chair of the Remuneration Committee
13 November 2019
75
Remuneration at a Glance
The Company’s Remuneration Policy was last approved by shareholders at the Annual General Meeting on 31 January 2019. The key elements
of the Directors’ Remuneration Policy, as it applied in 2019 and how it is proposed to apply in 2020 are summarised below:
Remuneration 2019
Remuneration 2020
Salary
(annual base)
CEO: £390,000
CFO: £270,000
CEO: £410,000
CFO: £285,000
FIXED PAY
Pension
15% of salary for current Executive
Directors (new hires aligned with
workforce contribution)
15% of salary for current Executive
Directors (new hires aligned with
workforce contribution)
Benefits
Includes private health insurance
and life assurance
Includes private health insurance
and life assurance
ANNUAL BONUS
Maximum
opportunity
100% of salary
Opportunity
applied
100%
100% of salary
100%
Operation
• Performance measures: range of
financial and strategic business
targets and personal objectives
• Performance measures: range of
financial and strategic business
targets and personal objectives
• Paid annually in cash, except
25% of the overall amount
which is deferred into shares
• Paid annually in cash, except
25% of the overall amount
which is deferred into shares
• Malus and clawback provisions apply
• Malus and clawback provisions apply
Maximum
opportunity
Opportunity
applied
Operation
LONG-TERM
INCENTIVE
150%
125%
150%
150%
• Subject to three year performance
conditions (TSR and EPS with a
ROCE underpin)
• Subject to three year performance
conditions (TSR and EPS with a
ROCE underpin)
• Two year additional holding period
applies to vested awards
• Malus and clawback provisions apply
• Two year additional holding period
applies to vested awards
• Malus and clawback provisions apply
Executive remuneration
Actual vs maximum under policy
Paul McDonald
£771,000
LTIP
Annual Bonus
Fixed Pay, Pension
and Benefits
£970,000
Nick Keveth
£771,000
15%
28%
57%
14%
40%
45%
£461,000
£583,000
£461,000
46%
32%
68%
54%
2019 Actual
2019 Maximum
2019 Actual
2019 Maximum
OverviewOther informationFinancial Statements GovernanceStrategic Report 76
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Remuneration Report continued
REMUNERATION POLICY REPORT
The following is a summary of the Policy that covers remuneration for Directors of the Company for the three-year period from the
Company’s Annual General Meeting on 31 January 2019 until the 2022 Annual General Meeting. The full Policy, as approved by shareholders,
is available on the Company’s website and is contained in the 2018 Annual Report. Should there be any need to change the Company’s Policy
ahead of the 2022 Annual General Meeting, shareholders will be asked to approve a revised Policy.
Element of
remuneration
Purpose and
link to strategy
Operation
Maximum potential value
Performance targets
Basic 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.
Normally reviewed annually by
the Remuneration Committee.
No prescribed maximum or
maximum increase.
Not applicable.
The normal approach will be to
limit increases to the average
level across the wider workforce,
though increases above this
level may be awarded subject
to Committee discretion to take
account of certain circumstances,
as stated under ‘Operation’.
On recruitment or promotion, the
Committee will consider previous
remuneration and pay levels
for comparable companies
(for example, companies of a
similar size and complexity,
industry sector or location),
when setting salary levels. This
may lead to salary being set at
a lower or higher level than for
the previous incumbent.
As it is not possible to calculate
in advance the cost of all
benefits, a maximum is not
pre-determined.
The maximum level of
participation in all-employee
share plans is subject to the
limits imposed by the relevant
tax authority from time to time.
Not applicable.
Individual salary adjustments take
into account each Executive Director’s
performance against agreed challenging
objectives and the Group’s financial
circumstances, with significant adjustments
infrequent and normally reserved for
material changes in role, a significant
increase in the size/complexity of the
Group, or where an individual has
been appointed on a low salary with an
intention to bring them to market levels
over time and subject to performance.
Executive Directors are entitled to benefits
such as medicals every two years, private
health insurance and life assurance.
Any reasonable business-related expenses
(and any tax thereon) can be reimbursed if
determined to be a taxable benefit.
Executive Directors will be eligible to
participate in any all-employee share plan
operated by the Company, on the same
terms as other eligible employees.
For external and internal appointments
or relocations, the Company may pay
certain relocation and/or incidental
expenses as appropriate.
Executives will be eligible for any other
benefits which are introduced for the
wider workforce on broadly similar terms
and additional benefits might be provided
from time to time if the Committee
decides payment of such benefits is
appropriate and in line with emerging
market practice.
77
Element of
remuneration
Purpose and
link to strategy
Operation
Maximum potential value
Performance targets
Pension
To reward sustained
contribution
by providing
retirement benefits.
The Company funds contributions to a
Director’s pension as appropriate, through
contribution to the Company’s money
purchase scheme or through the provision
of salary supplements.
Company contribution up
to 15% of salary. Future
appointments will be in line
with the general workforce
contribution level at the time.
Not applicable.
Annual bonus
Long-Term
Incentive Plan
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.
Designed to
align Executive
Directors’ interests
with both the
strategic objectives
of delivering
sustainable
earnings growth
and the interests
of shareholders.
Paid annually in cash, except 25% which
is deferred into shares for two years.
Capped at 100% of salary.
Not pensionable.
Recovery and withholding provisions apply
in cases of gross misconduct, corporate
failure, error in calculation of award and if
the financial results which led to the bonus
being paid are restated due to an error
within the subsequent two years.
Dividends will be paid on deferred shares
which vest.
Annual grants of conditional share or
nil-cost option awards which vest after a
three year performance period, subject to
achievement of performance targets and
continued service.
An additional two year holding period
applies after the end of the three year
vesting period.
Recovery and withholding provisions apply
in cases of gross misconduct, corporate
failure, error in calculation of award and if
the financial results which led to the bonus
being paid are restated due to an error
within the subsequent two years.
Dividend equivalents may be paid on
shares which vest.
Executive Directors may receive
an award of up to 150% of basic
salary per annum although the
current intention is to grant
125%. Any such increase on an
ongoing basis will be subject to
prior consultation with major
shareholders.
100% of awards vest for stretch
performance, up to 20% of
an award vests for threshold
performance and no awards
vest below this.
The Committee will
review performance
measures and targets
each year. Any payment
is discretionary and
will be subject to
the achievement of
stretching performance
targets. Financial
measures will normally
determine at least
75% of the bonus
opportunity.
Current performance
measures are relative
TSR and EPS growth,
each with a 50%
weighting. The
Committee may
reweight the measures
for each performance
period.
The Committee retains
discretion to set
alternative performance
measures for future
awards but will consult
with major shareholders
before making any
changes to the currently
applied measures.
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 underlying
business performance
of the Company or the
performance of the
participant does not
justify vesting.
OverviewOther informationFinancial Statements GovernanceStrategic Report 78
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Remuneration Report continued
Element of
remuneration
Purpose and
link to strategy
Operation
Maximum potential value
Performance targets
Not applicable.
Not applicable.
Executive Directors are required
to build up and maintain a
shareholding worth 200%
of salary (100% for other
senior management).
No maximum fee or maximum
fee increase. Fees are set
taking into account internal
benchmarks such as the
salary increase for the general
workforce and external
benchmarks of fees paid by
companies of a similar size and
complexity.
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.
Chairman and
Non-Executive
Directors’ fees
and benefits
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.
Base fee for Chairman and Non-Executive
Directors. Normally reviewed annually.
Additional fees are paid to Non- Executive
Directors for additional responsibilities or
services undertaken, such as chairing a
Board Committee and/or fulfilling a Senior
Independent role.
The Company repays any reasonable
expenses that a Non-Executive Director
incurs in carrying out their duties as a
Director, including travel, hospitality-
related and other modest benefits and
any tax liabilities thereon, if appropriate.
If there is a temporary yet material increase
in the time commitments for Non-
Executive Directors, the Board may
pay extra fees on a pro-rata basis to
recognise the additional workload.
There are no elements of remuneration other than basic salary/fees, benefits and pension that are not subject to performance requirements.
79
Selection of performance
measures and targets
Annual bonus
The Executives’ annual bonus arrangements
are focused on the achievement of the
Company’s short and medium-term financial
objectives, selected to closely align the
performance of the Executive Directors
with the strategy of the Company’s business
and shareholder value creation. If personal
performance targets are set, these will consist
of non-financial personal targets which also
support the delivery of the longer-term
strategic milestones and non-financial KPIs
relevant to each Director’s responsibilities.
Before the start of each year, the
Remuneration Committee confirms
performance targets for the year. ‘Target’
performance is typically set in line with the
budget for the year, following thorough
debate and approval by the Board. Threshold
to stretch targets are then set based on
a sliding scale. Payout at stretch requires
substantial outperformance, whilst only
modest payouts are available for delivering
threshold performance levels. Details of the
measures used for the annual bonus are
given in the Annual Report on Remuneration.
Long-Term Incentive Plan
The aim of the Plan is to motivate 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 for the first year of the
new Policy will be based on TSR and EPS.
The current performance conditions remain
appropriate for a growing business and the
expectations of shareholders.
The Committee will review the choice
of performance measures and the
appropriateness of the performance targets
prior to each LTIP grant. Non-financial
performance conditions are not considered
appropriate at the current stage in the
development of the Group, although this
will be kept under review.
The TSR measure takes the total return
received by the Company’s shareholders in
terms of share price growth and dividends
over a three year period and compares it with
the total returns received by shareholders
in companies within a predetermined
and appropriate comparator group. The
Remuneration Committee’s intention is
to reward only TSR performance which
outperforms the comparator group.
The EPS measure is based on growth
in adjusted earnings per share over the
performance period. The target range is a
sliding scale set at the time of award taking
account of internal and external forecasts,
to encourage continuous improvement
and incentivise the delivery of stretch
performance. For the 2020 awards, the
Committee will also assess the Group’s
ROCE when approving the vesting outcome
under the EPS element of awards.
Legacy arrangements
For the avoidance of doubt, in approving
this Remuneration Policy, authority is given
to the Company to honour any previous
commitments entered into with current or
former Directors (such as the payment of a
pension or the unwinding of legacy share
schemes) that remain outstanding.
Flexibility, discretion and judgement
The Committee will operate the Group’s
incentive plans according to their respective
rules and consistent with normal market
practice, the Listing Rules and HMRC rules
where relevant, including flexibility in a
number of regards. These include making
awards and setting performance criteria each
year, dealing with leavers, granting and/or
settling an award in cash and adjustments to
awards and performance criteria following
acquisitions, disposals, changes in share
capital and to take account of the impact
of other merger and acquisition activity.
The Committee also retains discretion within
the Policy to adjust the targets, set different
measures and/or alter weightings between
measures, pay dividend equivalents on vested
shares up to the date those shares can first
reasonably be exercised and, in exceptional
circumstances, under the rules of the LTIP
to adjust targets to ensure that the awards
fulfil their original purposes. All assessments
of performance are ultimately subject to the
Committee’s judgement and discretion is
retained to adjust payments in appropriate
circumstances as outlined in this Policy.
Any discretion exercised (and the rationale)
will be disclosed.
Approach to recruitment remuneration
New Executive Directors will be offered a
basic salary in line with the Policy. Where
the Committee has set the salary of a new
appointment at a discount to the market
level initially until proven, they may receive an
uplift or a series of planned increases to bring
the salary to the appropriate market position.
For external and internal appointments, the
Committee may agree that the Company
will meet certain relocation and/or incidental
expenses as appropriate.
Annual bonus awards, LTIP awards and
pension contributions would not be in
excess of the current levels stated in the
Policy. Depending on the timing of the
appointment, the Committee may deem
it appropriate to set different annual
bonus performance conditions to the
current Executive Directors for the first
performance year of appointment. An LTIP
award can be made shortly following an
appointment (assuming the Company is not
in a close period). In the case of an internal
appointment, any variable pay element
awarded in respect of the prior role would
be allowed to pay out according to its terms,
adjusted as relevant to take into account
the appointment.
OverviewOther informationFinancial Statements GovernanceStrategic Report 80
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Remuneration Report continued
The Group may pay outplacement and
professional legal fees incurred by Executives
in finalising their termination arrangements,
where considered appropriate, and may
pay any statutory entitlements or settle
compromise claims in connection with
a termination of employment, where
considered in the best interests of the
Company. Outstanding savings/shares
under all-employee share plans would be
transferred in accordance with the terms
of the plans.
A pro-rated bonus may be paid subject to
performance, for the period of active service
only. Outstanding share awards will vest
in accordance with the provisions of the
various scheme rules. Under the Deferred
Bonus Plan, the default treatment is that
any outstanding awards will continue on
the normal timetable, save for forfeiture for
serious misconduct. Clawback and malus
provisions will also apply. On a change of
control, awards will generally vest on the date
of a change of control, unless the Committee
permits (or requires) awards to roll over into
equivalent shares in the acquirer.
Under the LTIP, the default treatment is
also that any outstanding awards will lapse,
however the Committee has discretion to
allow good leaver status on a case-by-case
basis for which the default treatment is
that awards will vest subject to the original
performance condition and time proration.
For added flexibility, the rules allow for the
Committee to decide not to pro-rate in
exceptional circumstances if it decides it
is appropriate to do so, as well as a clean
break when an Executive leaves. This permits
vesting to be triggered at the point of
leaving by reference to performance at that
date, rather than waiting until the end of the
performance period if the Committee so
decides. On a change of control, any vesting
of awards will normally be pro-rated by
reference to time and performance.
In addition, the Committee may offer
additional cash and/or share-based buyout
awards when it considers these to be in
the best interests of the Company (and
therefore shareholders) to take account of
remuneration given up at the individual’s
former employer. This includes the use
of awards made under 9.4.2 of the Listing
Rules. Such awards would be capped
at a reasonable estimate of the value
foregone and would reflect the delivery
mechanism, time horizons and whether
performance requirements are attached
to that remuneration. Shareholders will be
informed of any such payments at the time
of appointment.
For the appointment of a new Chairman or
Non-Executive Director, the fee arrangement
would be set in accordance with the
approved Remuneration Policy.
Service contracts, letters of appointment
and policy on payments for loss of office
Executive Directors
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.
The Company may terminate the contract
with immediate effect with or without cause
by making a payment in lieu of notice by
monthly instalments of salary and benefits,
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.
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.
Chairman and Non-Executive Directors
Non-Executive Directors are not employed
under service contracts and do not
receive compensation for loss of office. All
Non-Executive Directors are appointed
on a rolling annual basis, which may be
terminated on giving three months’ notice
at any time.
Chairman and Non-Executive Director
appointments are subject to Board approval
and election by shareholders at each Annual
General Meeting.
All service contracts and letters of
appointment are available for inspection
at the Company’s registered office.
Other appointments
The Company recognises that its Executive
Directors may be invited to become Non-
Executive Directors of other companies.
Such Non-Executive duties can broaden a
Director’s experience and knowledge which
can benefit Avon Rubber. Subject to approval
by the Board, Executive Directors are allowed
to accept Non-Executive appointments,
provided that these appointments are not
likely to lead to conflicts of interest, and the
Committee will consider its approach to the
treatment of any fees received by Executive
Directors in respect of Non-Executive roles
as they arise.
81
Illustration of the application of the Policy
The charts below illustrate how the Policy would function for minimum, on target and maximum performance for each Executive Director.
Chief Executive Officer – Paul McDonald
Chief Financial Officer – Nick Keveth
1,800,000
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
£460,489
400,000
100%
£972,989
32%
21%
47%
£1,792,989
51%
£1,485,489
41%
1,800,000
1,600,000
1,400,000
1,200,000
1,000,000
28%
23%
800,000
600,000
31%
26%
400,000
£327,525
200,000
0
0% of variable
pay vests
50% of variable
pay vests
(target)
100% of variable
pay vests
100% of variable
pay vests with
50% share price
growth
200,000
0
100%
£1,253,775
51%
£1,040,025
41%
£683,775
31%
21%
48%
27%
31%
23%
26%
0% of variable
pay vests
50% of variable
pay vests
(target)
100% of variable
pay vests
100% of variable
pay vests with
50% share price
growth
Salary, benefits and pension
Bonus
Performance Shares
Assumptions for charts above:
1)
2)
3)
Salary levels are based on those applying from 1 October 2019. The pension cost is 15% of annual basic salary. Other benefits relate to
private health insurance and executive medical.
The on-target level of bonus is 50% of the maximum opportunity, i.e. 50% of salary. The on-target level of vesting under the LTIP is taken
to be 50% of the face value of the award at grant, i.e. 62.5% of salary.
The maximum level of bonus is 100% of the maximum opportunity, i.e. 100% of salary. The maximum level of vesting under the LTIP is
taken to be 100% of the face value of the award at grant, i.e. 150% of salary.
4)
Share price appreciation of 50% has been assumed for the LTIP awards under the final scenario (but excluded for the first three).
5) Amounts relating to all-employee share schemes have, for simplicity, been excluded from the charts.
OverviewOther informationFinancial Statements GovernanceStrategic Report 82
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Remuneration Report continued
ANNUAL REPORT
ON REMUNERATION
Role and composition of the
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. When setting the
remuneration policy for Directors, the
Committee reviews and has regard to the
remuneration trends across the Group.
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 Officer, Chief
Financial Officer, 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), having regard to
remuneration trends across the Group
• Reviewing the pay arrangements put
in place for the broader workforce
• 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
• Determining the targets for the
performance related bonus schemes
for the Executive Directors and the
Group Executive management team
• 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
• Agreeing termination arrangements for
senior Executives
• Providing a remuneration structure
that supports the achievement of the
Company’s performance objectives and,
in turn, increases shareholder value
The Committee comprises Chloe Ponsonby,
David Evans and Pim Vervaat. By invitation of
the Committee, meetings are also attended
by the CEO, CFO and the Company Secretary
(who acts as secretary to the Committee),
who are consulted on matters discussed
by the Committee, unless those matters
relate to their own remuneration. Advice or
information is also sought directly from other
employees where the Committee feels that
such additional contributions will assist the
decision-making process.
The Committee uses external independent
professional advisers when needed. During
2019, the Committee was assisted by Aon.
Aon provided implementation advice
with respect to the new LTIP and annual
performance monitoring data for review by
the Committee in relation to the PSP. During
the year to 30 September 2019 the Company
incurred costs of £0.1m (2018: £0.2m) in
respect of fees for Aon’s services, charged
on a time/cost basis. Aon are members
of the Remuneration Consultants Group
and, as such, voluntarily operate under the
Code of Conduct in relation to executive
remuneration consulting in the U.K. The
Committee is satisfied that the advice they
received is objective and independent.
The Committee addressed the following
main issues during the last year:
• Reviewed and approved all remuneration
packages paid to current Directors
• Approved the annual bonus payments to
the Executive Directors in November 2018
• Approved the annual bonus plan for
the Executive Directors for the 2019
financial year
• Reviewed and confirmed the vesting
of the 2016 PSP awards granted in
December 2015
• Reviewed and approved the 2019 LTIP
awards granted in March 2019 following
shareholder approval of the revised
Policy and monitored the performance
of the outstanding awards against their
performance targets
Since the end of the 2019 financial year, the
Committee has:
• Approved annual bonus payments to
the Executive Directors and the Group
Executive management team, following
completion of the external audit in
November 2019
• Made preparations for the 2020 LTIP
awards to be granted in December 2019
and for the vesting of the 2017 PSP awards
granted in December 2016.
The information that follows has been
audited (where indicated) by the Company’s
auditors KPMG LLP.
83
Directors’ remuneration for the year ended 30 September 2019 was as follows:
Single total figure of remuneration for Directors for the year ended 30 September 2019 (audited):
Fixed Pay
Pay for performance
Basic salary
and fees
£’000
Pension/other
supplements
£’000
Other
Benefits
£’000
Year
Sub-total
£’000
Annual Bonus
£’000
PSP1
£’000
Sub-total
£’000
Total
Remuneration
£’000
Executive Directors
Paul McDonald
Nick Keveth
2019
2018
2019
2018
Non-Executive Directors
David Evans
Pim Vervaat
Chloe Ponsonby
Total
2019
2018
2019
2018
2019
2018
2019
2018
390
314
270
233
140
125
56
51
51
51
907
774
49
47
41
35
–
–
–
–
–
–
90
82
2
1
2
1
4
4
–
–
–
–
8
6
440
362
313
269
144
129
56
51
51
51
214
255
148
194
–
–
–
–
–
–
117
187
–
–
–
–
–
–
–
–
331
442
148
194
–
–
–
–
–
–
771
804
461
463
144
129
56
51
51
51
1,004
862
362
449
117
187
479
636
1,483
1,498
1
The three year performance period for EPS in respect of these awards finished on 30 September 2018 but vesting was not determined until the end of November 2018, with TSR
performance measured following the release of the Group results
Basic salary
When reviewing salary levels, the Committee takes into account a number of internal and external factors, primarily the salary review
principles applied to the rest of the organisation, but also Company performance during the year and external market data. Having moved
away from fixing salaries for a set period the Committee confirmed an increase to the salaries for Paul McDonald and Nick Keveth of 5.1%
and 5.6% respectively with effect from 1 October 2019. This was above the cost of living pay increase within the wider workforce of 3% and
reflects their strong performance and the continuing evolution of the Group.
Paul McDonald
Nick Keveth
Non-Executive Director Fees
2019
£390,000
£270,000
2020
£410,000
£285,000
% Increase
+5.1%
+5.6%
The Chairman and Non-Executive Directors received the following fees during 2019. No increases are proposed for 2020, save that the Board
has agreed that a supplementary fee shall be paid to the Non-Executive Director who assumes responsibility for workforce engagement,
currently Chloe Ponsonby.
Chairman
Non-Executive Director
Committee Chairman
Senior Independent Director
Employee Engagement Director
2019
£140,000
£40,500
£10,000
£5,000
nil
2020
£140,000
£40,500
£10,000
£5,000
£5,000
% Increase
–
–
–
–
–
OverviewOther informationFinancial Statements GovernanceStrategic Report
84
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Remuneration Report continued
Benefits and pension (audited)
These will be paid and provided in accordance with the approved Policy. Benefits include the cost of private health insurance, critical
illness insurance and executive medical. No Director waived emoluments in respect of the year ended 30 September 2019 (2018: £nil).
For 2020 benefits will be in line with those received in 2019. All employees including the Executive Directors are entitled to life insurance
which pays out a lump sum of six times salary on death. As confirmed under the Policy, the Executive Directors are currently entitled to
receive a contribution towards pension of 15% of basic salary, paid either as a non-pensionable salary supplement or delivered though the
Group’s money purchase scheme. Under the Company’s money purchase scheme, members receive a pension based upon the size of their
retirement account on retirement from age 65. The Company does not contribute to any pension arrangements for Non-Executive Directors.
Paul McDonald is a member of the money purchase scheme. Part of his company pension contribution is paid into the pension scheme with
the remainder paid as a salary supplement.
Nick Keveth has reached the lifetime allowance and has not joined the Plan. His pension contribution is paid entirely as a salary supplement.
The employer pension contribution is shown in the table below.
Executive Director
Paul McDonald
Nick Keveth
Annual bonus
Salary
Supplement
£’000
Contribution
into the plan
£’000
49
41
10
–
The Remuneration Committee determined at its meeting on 7 November 2019 that certain 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:
Threshold (0%
payable)
Target
(50% payable)
Stretch
(100% payable)
Actual/
Reported
Applied
Bonus
payable
Bonus
payable
Max
Max
Paul McDonald
Nick Keveth
CEO
CFO
Financial Targets
Revenue growth
on previous year
£175.5m
£178.0m
£180.6m
£179.3m
74%
15%
20%
15%
20%
Bonus will be earned for growth on the previous year between 2% and 5% on a straight line basis. Measured (for foreign exchange translation)
at prior year exchange rates (i.e. constant currency measure).
Profit growth on
previous year
(year on year
PBITE growth)
£29.0m
£30.1m
£31.2m
£31.3m
100%
40%
40%
40%
40%
Bonus will be earned for growth on the previous year between 2% and 10% on a straight line basis. Measured (for foreign exchange translation)
at prior year exchange rates (i.e. constant currency measure).
Group cash
generation (ratio
of operating cash
flow to operating
profit)
85%
95%
105%
63.5%
0%
0%
40%
0%
40%
As reported in the Annual Report and Accounts each year. Pays on a straight line basis where the ratio exceeds 85% up to a maximum of 105%.
Excludes exceptional items and other adjustments from both measures.
Total bonus 2019 as a percentage of basic salary
54.8%
100%
54.8%
100%
In accordance with the Policy, 75% of the Director’s bonus will be paid in cash and the remaining 25% will be deferred into shares to be held
for two years.
85
For the year ending 30 September 2020, the maximum opportunity under the annual bonus plan will be 100% of base salary for both
Executive Directors. 25% of the total bonus payment will be deferred into shares for two years.
Bonuses will be based on Group revenue growth on previous year (20%), operating profit growth on previous year (40%) and Group cash
conversion (40%), with 20% of the maximum bonus payable at threshold levels of performance and 50% for on-target performance.
The Committee has chosen not to disclose, in advance, the detailed financial performance targets for the forthcoming year as these include
matters which the Committee considers commercially sensitive. Retrospective disclosure of the performance against them will be made in
next year’s Annual Report on Remuneration to the extent the targets are not commercially sensitive at that time.
Performance Share Plan (audited)
The Committee determined in November 2018 that 84% of the 2016 award granted on 1 December 2015 vested on the basis of TSR and EPS
performance over the three years from 1 October 2015 to 30 September 2018. The Company’s TSR of 32.8% compared to the upper quartile
of the comparator group at 47.7%. The Company’s EPS growth was 44.1% compared to the threshold and maximum targets of 16% and
34% (CPI +3% to CPI +8%) respectively. The Committee considers that the financial performance of the Company and Paul McDonald’s
performance fully justifies this level of vesting.
As a consequence, and as announced to shareholders in December 2018, 9,178 shares were awarded to Paul McDonald, which at the market
share price on the day of vesting of £12.725 were worth £117k. The amount of this figure attributable to share price appreciation is £19k. The
Committee did not consider it necessary to apply any discretion to adjust the outcome for these awards.
The Directors’ contingent interests in ordinary shares under the Plan at 30 September 2019 were as follows:
Paul McDonald
Nick Keveth
Other senior employees3
30 September
2018
Granted in
the year1
Exercised
in the year
Lapsed in
the year
30 September
20192
52,232
20,325
354,605
38,599
26,722
111,455
(9,178)
–
(83,812)
(1,734)
–
(18,238)
79,919
47,047
364,010
1
The award price at the date of grant (20 March 2019) was 1263 pence which was the average price of the Company’s shares over the five days prior to the date of the grant.
This price was used to make face value awards of nil cost options at 125% of salary
2 The weighted average remaining life of the awards outstanding at the year-end is 1.2 years (2018: 1.6 years)
3 This figure includes 93,703(2018: 107,747) in respect of key management as defined in note 6.1 of the financial statements
Outstanding awards granted annually under the Plan were as follows:
Paul McDonald1
Nick Keveth2
Other senior employees
2017
14,809
–
136,353
151,162
2018
26,511
20,325
134,575
181,411
2019
38,599
26,722
93,082
158,403
Total3
79,919
47,047
364,010
490,976
1
Paul McDonald was appointed as a Director on 15 February 2017
2 Nick Keveth was appointed as a Director on 1 June 2017
3
In relation to the awards outstanding at 30 September 2019, deferred loan payments for the awards granted in 2016 will become due to the Company as follows: Paul McDonald
£1,836, Nick Keveth nil
The award price for the 2019 awards was 1263, 2018 awards was 1132 pence and for the 2017 awards it was 1053 pence.
OverviewOther informationFinancial Statements GovernanceStrategic Report 86
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Remuneration Report continued
PSP performance conditions
30 September
2018
30 September
2019
30 September
2020
30 September
2021
PSP Performance Period years ending
(Cycle H)3
(Cycle I)4
(Cycle J)5
(Cycle K) 5
TSR element1
EPS element2
Total exercisable rate (% grant)
50%
50%
100%
50%
50%
100%
50%
50%
100%
50%
50%
100%
1
2
3
4
Based on Avon Rubber p.l.c.’s TSR ranked relative to companies in the FTSE SmallCap Index at the start of the period. For awards after 1 October 2015 the FTSE All-Share index
(excluding investment trusts) is used. Over the three year period the Company’s TSR performance is compared with a scale which provides for 25% vesting if TSR is equal to
median of the comparator group and maximum vesting if TSR is equal to, or exceeds, the upper quartile, with vesting on a pro-rata basis for performance between these two
figures (and nil vesting below median). For awards made after 1 October 2018 the threshold level of vesting under the TSR element was reduced to 20% from 25%
For the EPS measure, adjusted 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. For all awards from 1 October 2015, the Committee amended the calculation of the EPS
performance condition to CPI instead of RPI. For awards after 1 October 2018, the EPS targets provides for nil vesting at 5% and maximum vesting at 10%, with vesting on a
pro-rata basis between these two figures
These awards vested at 84%in December 2018 on the basis of a Company TSR of 32.8% compared to the upper quartile of the comparator group at 47.7%
The three year performance period for EPS in respect of these awards is complete but vesting is not determined until the end of November 2019, with TSR performance measured
following the release of the Group results
5
The three year performance periods in respect of these awards is not yet complete
2020 Long-Term Incentive Plan Awards
The Remuneration Committee has decided that the 2020 LTIP awards will take the form of nil-cost options with a market value at grant of 150%
of salary for the Executive Directors. Vesting will be subject to the following performance conditions over three years to 30 September 2022:
• 50% will be based on relative TSR performance with 20% vesting at median increasing to 100% for upper quartile performance.
The comparator group will be the FTSE All-Share index (excluding investment trusts)
• 50% will be based on EPS growth. EPS growth will be compared on a scale which provides for nil vesting at 5% and maximum vesting
at 12%, with vesting on a pro-rata basis between these two figures. In addition, the Committee must be satisfied with the level of ROCE
performance during the period taking account of a range of factors. If the Committee is not satisfied with the level of ROCE performance
it may reduce (potentially to zero) the outturn against the performance measure
The performance conditions have been reviewed to ensure they remain stretching. In doing so the Committee has reviewed, amongst other
things, the impact on EPS of the expected normalisation, during the performance period, of the Group’s effective rate of corporate tax.
Any shares which vest from this award will be subject to a compulsory two year post-vesting holding period.
Directors’ shareholdings and share interests and position under shareholding guidelines (audited)
Beneficial interests of Directors, their families and trusts in ordinary shares of the Company were:
At the
beginning
of the year
At the end
of the year
28,346
11,581
25,000
3,000
3,400
32,8271
13,0232
25,000
7,500
4,550
Actual
value3
£’000
546
216
416
125
76
Target
value4
£’000
780
540
n/a
n/a
n/a
Achievement5
140%
80%
n/a
n/a
n/a
Shares
held voluntarily in
excess of guideline
Number of shares
–
–
n/a
n/a
n/a
Paul McDonald
Nick Keveth
David Evans
Pim Vervaat
Chloe Ponsonby
1
2
Includes 3,231 shares held under the annual bonus deferral scheme
Includes 1,673 shares held under the annual bonus deferral scheme and 340 shares purchased through the SIP
3 Using the closing share price on 30 September 2019 of £16.62
4
200% of current salary for Executive Directors. Salaries used are those effective 1 October 2019
5 Actual value as a percentage of current salary
Interests in jointly owned shares held by the Executive Directors under the PSP are excluded from the above.
The only change in the interests set out above between 30 September 2019 and 13 November 2019 were the additional nine shares bought
by Nick Keveth under the Share Incentive Plan, which increased his total shareholding to 13,032.
87
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. In respect of the 5% and 10% limits recommended by the Investment Association, the relevant percentages
were 7.73% and 7.73% respectively based on the issued share capital at 30 September 2019 and no change to this is proposed.
In 2011 shareholders approved a 15% dilution limit for all employee schemes which is in excess of the 10% recommended by the Investment
Association, and a 10% dilution limit for discretionary (executive) schemes which is in excess of the 5% recommended by the Investment
Association. At the time the Company committed to consult with certain institutional shareholders before exceeding the 10% limit but has
never had cause to do this and has no plans to exceed 10% in future. In practice there is therefore a 10% dilution limit on all schemes which
the Company will continue to operate within.
It remains the Company’s practice to use Employee Share Ownership Trusts (‘ESOTs’) in order to meet its liability for shares awarded under the
LTIP. Two trusts have been established in connection with the jointly owned equity awards. At 30 September 2019 there were 506,274 shares
held in the ESOTs which will either be used to satisfy awards granted under the PSP to date, or in connection with future awards. A hedging
committee ensures that the ESOTs hold sufficient shares to satisfy existing and future awards made under the PSP and LTIP by buying shares
in the market or causing the Company to issue new shares. Shares held in the ESOTs do not receive dividends.
As at 30 September 2019, the market price of Avon Rubber p.l.c. shares was £16.62 (2018: £12.90). During the year the highest and lowest
market prices were £18.16 and £11.80 respectively.
Share incentive Plan
The Company currently operates the Avon Rubber p.l.c. Share Incentive Plan (the ‘SIP’), approved by shareholders at the Annual General
Meeting in February 2012. All U.K. 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. Paul McDonald is not a member of the SIP.
Nick Keveth is a member and as at 30 September 2019 had purchased 340 shares through this scheme. The maximum contribution each
month under the SIP is currently £150, a sum which is set by the Government. Nick Keveth has participated in the SIP at the maximum level
since July 2017.
Payments to past Directors and payments for loss of office (audited)
There were no payments for loss of office during the year.
Service contracts and letters of appointment
The table below summarises key details in respect of each Executive Director’s contract.
Paul McDonald
Nick Keveth
Contract date
14 February 2017
9 May 2017
Company notice period
Executive notice period
12 months
12 months
12 months
12 months
The date of each Non-Executive appointment is set out below, together with the date of their last re-election by shareholders.
David Evans
Chloe Ponsonby
Pim Vervaat
Date of initial appointment
Date of last re-election
1 June 2007
1 March 2016
1 March 2015
1 February 2019
1 February 2019
1 February 2019
All service contracts and letters of appointment are available for inspection at the Company’s registered office.
Other appointments
Neither Paul McDonald nor Nick Keveth are currently appointed as a Non-Executive Director of any company outside the Group.
OverviewOther informationFinancial Statements GovernanceStrategic Report 88
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Remuneration Report continued
Chief Executive Officer’s remuneration
The total remuneration figures, including annual bonus and vested PSP awards (shown as a percentage of the maximum that could have
been achieved) for the Chief Executive Officer for each of the last ten financial years are shown in the table below.
Mr Slabbert retired on 30 September 2015. Mr Rennie stood down from the Board on 15 February 2017 and was replaced by Paul McDonald
on 15 February 2017.
Year
2019
2018
2017
2017
2016
2015
2014
2013
2012
2011
2010
CEO
Paul McDonald
Paul McDonald
Paul McDonald
Rob Rennie
Rob Rennie
Peter Slabbert
Peter Slabbert
Peter Slabbert
Peter Slabbert
Peter Slabbert
Peter Slabbert
CEO single figure of
total remuneration
£’000
Annual bonus pay
out against maximum
opportunity
Long-term incentive
vesting rates
771
804
6841
213
484
1,435
1,538
1,374
1,864
404
395
55%
80%
81%
57%
52%
91%
91%
86%
40%
74%
90%
84%
99%
100%
–
–
96%
100%
100%
100%
nil
nil
1
Includes remuneration received in the period prior to his appointment as Director during the year
Percentage change in remuneration of the CEO compared with other employees
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:
Salary
Benefits
Annual Bonus
2017
0%
0%
+4%
CEO
2018
+18.2%
0%
+41%
2019
+3%
0%
-16.2%
All employees
2018
+2.5%
0%
+77.2%
2017
+2%
0%
+109%
2019
+3%
0%
-22.5%
We note that requirements for CEO pay ratio disclosures from 2020 have been published. We will be seeking to comply with these but have
made the decision not to publish a ratio this year whilst we prepare for the new requirements.
Relative importance of spend on pay
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:
Global
remuneration
spend
£’000
2019
2018
2017
2016
45,544
44,616
43,673
38,211
Other expenditure as a percentage of global remuneration spend
Dividends to
shareholders
Profit retained
Research and development
expenditure
Expenditure on property,
plant and machinery
£’000
5,377
4,136
3,176
2,430
%
11.8%
9.3%
7.3%
6.4%
£’000
8,960
17,297
18,311
15,849
%
19.7%
38.8%
41.9%
41.5%
£’000
8,167
9,692
8,394
8,341
%
17.9
21.7%
19.2%
21.8%
£’000
3,882
3,494
2,644
3,689
%
8.5%
7.8%
6.1%
9.7%
89
Statement of shareholder voting on the remuneration report
The shareholder vote on the Remuneration Report for the year ended 30 September 2018 at the Annual General Meeting which took place
on 31 January 2019 was as follows:
Resolution
Approval of the Remuneration Report
Approval of Remuneration Policy
Votes for
(including
discretionary)
19,401,609
20,492,516
Votes against
(excluding
withheld)
1,176,000
203,267
% For
94.28
99.01
Total (excluding
withheld and
third party
discretionary)
% Against
5.71
0.98
20,577,609
20,695,783
Withheld
119,028
854
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 ten years relative to the FTSE SmallCap Index (excluding investment trusts) and the FTSE All Share Index (excluding
investment trusts). These indices were chosen by the Remuneration Committee as a competitive indicator of general UK market performance
for companies of a similar size.
Total shareholder return performance graph
2,500
2,000
1,500
1,000
500
0
September
2009
September
2010
September
2011
September
2012
September
2013
September
2014
September
2015
September
2016
September
2017
September
2018
September
2019
Avon Rubber
FTSE Small Cap excluding investment trusts
FTSE All Share excluding investment trusts
Source: Thomson Reuters Datastream
The Remuneration Report has been approved by the Board of Directors and signed on its behalf by:
Chloe Ponsonby
Chair of the Remuneration Committee
13 November 2019
OverviewOther informationFinancial Statements GovernanceStrategic Report 90
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Directors’ Report
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 2019. The Company is a public limited company incorporated and domiciled in
England and Wales with company registration number 32965. The Company’s subsidiary undertakings, including those located outside the
U.K., are listed in note 7.4 to the financial statements.
Strategic Report
The Strategic Report, which contains a review of the Group’s business (including by reference to key performance indicators), a description
of the principal risks and uncertainties facing the Group, and commentary on likely future developments is set out on pages 14 to 59 and is
incorporated into this Directors’ Report by reference.
Financial results and dividend
The Group statutory profit for the year after taxation amounts to £14.3m (2018: £21.4m ). Full details are set out in the Consolidated Statement
of Comprehensive Income on page 104.
An interim dividend of 6.94p per share was paid in respect of the year ended 30 September 2019 (2018: 5.34p).
The Directors recommend a final dividend of 13.89p per share (2018: 10.68p) resulting in a total dividend distribution per share for the year to
30 September 2019 of 20.83p (2018: 16.02p).
Share capital
As at 13 November 2019, 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 5.5 of the financial statements.
The rights and obligations attaching to the Company’s shares are set out in the Company’s Articles of Association (‘the Articles’), copies of
which can be obtained from Companies House or by writing to the Company Secretary. Shareholders are entitled to receive the Company’s
reports and accounts, to attend and speak at general meetings, to exercise voting rights in person or by appointing a proxy and to receive
a dividend where declared 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 of the Companies Act 2006, or where the holder is precluded
from transferring or voting by the Financial Services Authority’s Listing Rules or the City Code on Takeovers and Mergers.
The 506,274 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.
During the year the trust acquired 100,000 shares (2018: 100,000) at a cost of £1.3m (2018: £1.1m).
92,990 (2018: 154,641) shares were used to satisfy awards following the vesting of shares relating to the 2010 Performance Share Plan.
The Company is also not aware of any agreements between its shareholders which may restrict the transfer of their shares or the exercise of their
voting rights. The only exception to this being the Trustees of the two Employee Share Ownership Trusts have waived their rights to dividends.
At the Company’s last Annual General Meeting held on 31 January 2019, shareholders authorised the Company to make market purchases of
up to 3,102,329 of the Company’s issued ordinary shares. No shares were purchased under this authority during the year. A resolution will be
put to shareholders at the forthcoming Annual General Meeting to renew this authority.
The Directors require authority to allot unissued share capital of the Company and to disapply shareholders’ statutory pre-emption rights.
Such authorities were granted at the 2019 Annual General Meeting and resolutions to renew these authorities will be proposed at the 2020
Annual General Meeting, see explanatory notes on pages 156 and 157. No shares were allotted under this authority during the year.
91
9.64%
6.01%
5.87%
5.40%
5.15%
5.03%
4.54%
4.21%
4.05%
Substantial shareholdings
As at 30 October 2019, the following shareholders held 3% or more of the Company’s issued share capital.
Capital Research and Management Company
Schroder Investment Management
Fidelity Management & Research (FMR)
Kempen Capital Management
Threadneedle Asset Management
BlackRock Investment Management
Janus Henderson Investors
Polar Capital Partners
JPMorgan Asset Management (U.K.)
Significant agreements – change of control
The only significant agreements to which the Company is a party which take effect, alter or terminate upon a change of control of the
Company following a takeover bid are:
• The Company’s revolving credit facility agreement
• The Performance Share Plan/Long-Term Incentive Plan (‘the Plans’)
The unsecured revolving credit facility of $85m provided by Barclays Bank PLC and Comerica Bank Inc. contains a provision which, in the
event of a change of control of the Company, gives the lending banks the right to cancel all commitments to the Company and to declare all
outstanding credit and accrued interest immediately due and payable.
A change of control will be deemed to have occurred if any 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 Plans, 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.
It is also possible that the trustee of the pension plan would seek to review the current funding arrangements and deficit recovery plan as
part of or following a change of control, particularly if that resulted in a weakening of the employer covenant.
The Company does not have agreements with any Director or employee that would provide compensation for loss of office or employment
resulting from a change of control, except in relation to the Performance Share Plan as described above.
Directors
There were no changes to the Board of Directors during 2019. The Directors of the Company who were in office during the year and up to
13 November 2019 are set out on pages 62 and 63 along with their photographs and biographies.
According to the Articles of Association, 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. In line with best practice reflected in the U.K.
Corporate Governance Code, however, all current Directors will be standing for reappointment at the forthcoming Annual General Meeting
to be held on 30 January 2020. The remuneration of the Directors including their respective shareholdings in the Company is set out in the
Remuneration Report on pages 73 to 89.
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.
OverviewOther informationFinancial Statements GovernanceStrategic Report 92
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Directors’ Report continued
Directors’ and Officers’ indemnity insurance
In accordance with the Company’s Articles and subject to the provisions of the Companies Act 2006 (‘the Act’), the Company maintains, at its
expense, Director’s and Officer’s insurance to provide cover in respect of legal action against its Directors. This was in force throughout the
financial year and remains in force as at the date of this report.
The Company’s Articles 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.
Conflicts of interest
During the year no Director held any beneficial interest in any contract significant to the Company’s business, other than a contract of
employment. The Company has procedures set out in the Articles for managing conflicts of interest. Should a Director become aware that
they, or their connected parties, have an interest in an existing or proposed transaction with the Group, they are required to notify the Board
as soon as reasonably practicable.
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 fields of respiratory protection, dairy milking technology and polymer engineering. The Group maintains its links to key universities in
the U.S. and U.K. 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 £8.2m (2018: £9.7m) further details of which are contained in the Strategic
Report on page 43.
Corporate governance
The Company’s statement on corporate governance can be found in the Corporate Governance Report on pages 64 to 67. The Corporate
Governance Report forms part of this Directors’ Report and is incorporated into it by cross-reference.
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
52 to 59.
Greenhouse gas emissions
The disclosures concerning greenhouse gas emissions required by law are included in the Environment and Corporate Social Responsibility
Report on page 53.
Political and charitable contributions
No political contributions were made during the year or the prior year. Contributions for charitable purposes amounted to £38,421
(2018: £39,098) consisting exclusively of numerous small donations to various community charities in Wiltshire, Albinea, Maryland,
Michigan and Wisconsin.
Financial instruments
An explanation of the Group policies on the use of financial instruments and financial risk management objectives are contained in note 5.4
of the financial statements.
Independent auditors
Each of the Directors who held office at the date of approval of this Directors’ Report confirm that, 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.
Auditor
KPMG LLP has expressed its willingness to continue in office as independent auditor and a resolution to re-appoint them and authorising the
Board to agree their remuneration will be proposed at the Annual General Meeting.
93
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 30
January 2020 at 10.30am. Registration will be from 10.00am. The Notice of the Annual General Meeting and an explanation of the resolutions
to be put to the meeting are set out in the Notice of Meeting and can be found on pages 154 to 159.
Statement of Directors’ responsibilities in respect of the annual report and the financial statements
The Directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law they have
elected to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European
Union (IFRSs as adopted by the EU) and applicable law and have elected to prepare the Parent Company financial statements in accordance with
U.K. accounting standards and applicable law (U.K. Generally Accepted Accounting Practice), including FRS 101 Reduced Disclosure Framework.
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 Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent
Company financial statements, the Directors are required to:
•
select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable, relevant, reliable and prudent;
•
•
for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
for the Parent Company financial statements, state whether applicable U.K. accounting standards have been followed, subject to any
material departures disclosed and explained in the financial statements;
• assess the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and
• use the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company or to cease operations,
or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company’s transactions
and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its financial
statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for
taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’
Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website.
Legislation in the U.K. governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Directors’ confirmations
Each of the Directors, whose names and functions are listed on pages 62 and 63, confirms that to the best of their knowledge:
•
•
•
the Financial Statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
the Strategic Report/Directors’ Report include a fair review of the development and performance of the business and the position of
the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and
uncertainties that they face; and
the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable, and provide the information necessary for
shareholders to assess the Company’s performance, business model and strategy.
The Directors’ Report and responsibility statement was approved by the Board of Directors on 13 November 2019 and is signed on its behalf by:
Paul McDonald
Chief Executive Officer
13 November 2019
OverviewOther informationFinancial Statements GovernanceStrategic Report 94
Avon Rubber p.l.c. | Annual Report & Accounts 2019
“ We are recognised as the leader within
our chosen market segments. There are
further opportunities to maximise growth
from our product and service portfolio.”
95
Financial Statements
Independent Auditors’ Report
96
104 Consolidated Statement of Comprehensive Income
105 Consolidated Balance Sheet
106 Consolidated Cash Flow Statement
107 Consolidated Statement of Changes in Equity
108 Accounting Policies and Critical Accounting Judgements
114 Notes to the Group Financial Statements
143 Parent Company Balance Sheet
144 Parent Company Statement of Changes in Equity
145 Parent Company Accounting Policies
147 Notes to the Parent Company Financial Statements
151 Five Year Record
152 Glossary of Financial Terms
153 Abbreviations
OverviewOther informationFinancial Statements GovernanceStrategic Report 96
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Independent Auditors’ Report
to the Members of Avon Rubber p.l.c.
1. Our opinion is unmodified
We have audited the financial statements of Avon Rubber plc (‘the Company’) for the year ended 30 September 2019 which comprise the
Consolidated and Parent Company Balance Sheets; the Consolidated Statement of Comprehensive Income, the Consolidated Cash Flow
Statement, and the Consolidated and Parent Company Statements of Changes in Equity, and the related notes, including the accounting
policies in note 1.
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 30 September 2019
and of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted
by the European Union;
the Parent Company financial statements have been properly prepared in accordance with U.K. accounting standards, including FRS 101
Reduced Disclosure Framework; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (U.K.) (‘ISAs (U.K.)’) and applicable law. Our responsibilities are
described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion
is consistent with our report to the audit committee.
We were first appointed as auditor by the shareholders on 1 February 2019. The period of total uninterrupted engagement is for the financial
year ended 30 September 2019. We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance
with, U.K. ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited
by that standard were provided.
Overview
Materiality: Group financial statements as a whole
£1.1m
Coverage
Key audit matters
Group Risks
Parent Company
5% of normalised Group profit before tax
89% of Group profit before tax
Development costs
Uncertain tax positions
Pension obligation
Contract liabilities
Recoverability of Parent Company’s
investment in subsidiaries
97
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements
and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which
had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement
team. We summarise below the key audit matters, in decreasing order of audit significance, in arriving at our audit opinion above, together
with our key audit procedures to address those matters and, as required for public interest entities, our results from those procedures. These
matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the
financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide
a separate opinion on these matters.
Development
costs
(£16.3m; 2018:
£18.7m)
Refer to page 69
(Audit Committee
Report), page 108
(accounting policy)
and page 113, 123
and 124 (financial
disclosures).
Uncertain
Tax positions
(£2.9m; 2018:
£5.8m)
Refer to page 69
(Audit Committee
Report), page 108
(accounting policy)
and page 113, 121
and 122 (financial
disclosures).
The risk
Our response
Subjective estimate:
Our procedures included:
• The estimated recoverable amount of these assets
is supported by forecasting and discounting
future cash flows (based on assumptions such
as discount rates and growth rates), which
are inherently highly judgemental. These
uncertainties, combined with the quantum of the
intangibles balance, means that the recoverable
amount of development costs is subject to
significant estimation uncertainty.
• The critical issue is to establish whether there
is sufficient demand for the products which
generate these cash flows and the application of
accounting standards to determine the criteria
which is inherently subjective as this involves an
assessment of the probability of future outcomes.
• The effect of these matters is that, as part of
our risk assessment, we determined that the
estimated recoverable amount of these assets has
a high degree of estimation uncertainty, with a
potential range of reasonable outcomes greater
than our materiality for the financial statements
as a whole. The financial statements (page 113)
disclose the sensitivity estimated by the Group.
• Historical comparison and our sector knowledge: Challenging
the detailed forecasts which support the estimated recoverable
amount by reference to historical accuracy of previous forecasts,
discussions with operational management on the timing of when
new products are expected to receive regulatory clearance as
compared to what was assumed in the forecasts and the size of the
potential market.
• Benchmarking assumptions: Comparing the Group’s
assumptions to externally derived data in relation to key inputs such
as projected economic growth beyond the detailed forecast period
and discount rates.
• Sensitivity analysis: Performing sensitivity analysis to determine
if reasonably possible reductions in cashflows would result in an
impairment.
• Assess transparency: Assessing whether the Group’s disclosures
about the sensitivity of the outcome of the impairment assessment
to changes in key assumptions reflect the risks inherent in the
estimation of the recoverable amount of the development costs.
Our results
• We found the carrying amount of developments costs to be acceptable.
Dispute outcome:
Our procedures included:
• Accruals for tax contingencies require the
• Our tax expertise: Use of our own international and local tax
Directors to make judgements and estimates in
relation to tax issues and exposures given that the
Group operates in a number of tax jurisdictions,
the complexities of transfer pricing and other
international tax legislation and the time taken for
tax matters to be agreed with the tax authorities.
• The effect of these matters is that, as part of
our risk assessment, we determined that the
estimation of tax liabilities has a high degree of
estimation uncertainty, with a potential range of
reasonable outcomes greater than our materiality
for the financial statements as a whole. The
financial statements disclose the range estimated
by the Group.
specialists to assess the Group’s tax positions, its correspondence
with the relevant tax authorities, and to analyse and challenge
the assumptions used to determine tax provisions based on our
knowledge and experiences of the application of the international
and local legislation by the relevant authorities and courts.
• Assessing transparency: Assessing the adequacy of the
Group’s disclosures in respect of tax and uncertain tax positions.
Our results
• We found the carrying amount of the uncertain tax provision to
be acceptable.
OverviewOther informationFinancial Statements GovernanceStrategic Report 98
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Independent Auditors’ Report continued
to the Members of Avon Rubber p.l.c.
2. Key audit matters: our assessment of risks of material misstatement continued
The risk
Our response
Pension
obligation
(£392.1m;
2018: £346.9m)
Refer to page 69
(Audit Committee
Report), page 110
(accounting policy)
and pages 113 and
136 to 138 (financial
disclosures).
Contract
Liabilities
Refer to page 109
(accounting policy)
and page 113
and 126 (financial
disclosures).
Recoverability of
Parent Company’s
investments in
subsidiaries
(£87.8m; 2018:
£70.8m)
Refer to page
146 (accounting
policy) and page
148 (financial
disclosures).
Subjective Estimate:
Our procedures included:
• Small changes in the assumptions and estimates
used to value the Group’s pension obligation
(before deducting scheme assets) would
have a significant effect on the Group’s net
pension deficit.
• Benchmark assumptions: Challenging, with the support of our
own actuarial specialists, the key assumptions applied, being the
discount rate, inflation rate and mortality/life expectancy against
externally derived data including the model used to estimate the
additional liability arising from the GMP equalisation.
• The effect of these matters is that, as part
of our risk assessment, we determined that
pension liability has a high degree of estimation
uncertainty, with a potential range of reasonable
outcomes greater than our materiality for the
financial statements as a whole, and possibly
many times that amount. The financial statements
(note 6.2) disclose the sensitivity estimated by
the Group.
• Assess transparency: Considering the adequacy of the Group’s
disclosures in respect of the sensitivity of the deficit to these
assumptions.
Our results
• We found the carrying amount of the pension obligation
(before deducting scheme assets) to be acceptable.
2019/2020 sales:
Our procedures included:
• Pressures on achieving internal and external
expectations of results and the fact that
certain members of the Management team
are remunerated based on the Group’s results
increase the risk of incorrect revenue recognition.
• The estimation of variable consideration on
certain U.S. contracts in the Avon Protection
business involves certain assumptions and
judgement. The Directors have made an estimate
of amounts which could be due back to the
customer reflecting the risks inherent within the
performance of the contract over a number of
years, which is recognised as a contract liability.
• Data and analytics routines: Using data and analytics techniques
to search for fraudulent manual journal entries posted to revenue.
• Our sector knowledge: Evaluating the Directors’ assessment
of the risk of claw back based on our independent reading of
the relevant contractual terms, our sector knowledge and the
revenue recognised.
• Test of details: Agreeing specific billings around the year-end
period to dispatch note or terms of the specific sale agreement
to assess whether they have been recorded in the correct period.
Our results
• We found the amount of revenue recognised to be acceptable.
Low risk, high value
Our procedures included:
The carrying amount of the Parent Company’s
investments in subsidiaries represents 98% of the
company’s total assets. Their recoverability is not
at a high risk of significant misstatement or subject
to significant judgement. However, due to their
materiality in the context of the Parent Company
financial statements, this is considered to be the
area that had the greatest effect on our overall
Parent Company audit.
• Tests of detail: Comparing the carrying amount of 100% of
investments with the relevant subsidiaries’ balance sheet to
identify whether their net assets, being an approximation of their
minimum recoverable amount, were in excess of their carrying
amount and assessing whether those subsidiaries have historically
been profit-making.
• Assessing subsidiary audits: Assessing the work performed
by the subsidiary audit teams on all of those subsidiaries and
considering the results of that work, on those subsidiaries’ profits
and net assets.
Our results
• We found the carrying amount of the investments in subsidiaries
to be acceptable.
99
3. Our application of materiality and an overview of the scope of our audit
Materiality for the Group financial statements as a whole was set at £1.1m, determined with reference to a benchmark of Group profit
before tax, normalised to exclude this year’s pension past service cost as disclosed in note 6.2, of which it represents 5.0%.
Materiality for the Parent Company financial statements as a whole was set at £1.0m determined with reference to a benchmark of Company
total assets, of which it represents 0.7%.
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £56,000, in addition to other
identified misstatements that warranted reporting on qualitative grounds.
Of the Group’s ten reporting components, we subjected four to full scope audits for Group purposes. The components within the scope of
our work accounted for the percentages illustrated opposite.
The remaining 12% of total Group revenue, 11% of Group profit before tax and 10% of total Group assets is represented by six reporting
components, none of which individually represented more than 10% of any of total Group revenue, Group profit before tax or total Group
assets. For these residual components, we performed analysis at an aggregated Group level to re-examine our assessment that there were
no significant risks of material misstatement within these.
The Group team set the component materialities, which ranged from £0.4m to £1m, having regard to the mix of size and risk profile of the
Group across the components. The work on all of the components including the audit of the Parent Company, was performed by the Group
team. The Group team performed procedures on the items excluded from adjusted Group profit before tax..
The Group team visited five component locations in the U.K., Italy and U.S. to assess the audit risk and strategy.
Normalised Group profit
before tax £22.6m
Group materiality £1.1m
Normalised Group
profit before tax
£22.6m
Normalised PBT
Group materiality
£1.1m
Whole financial
statements materiality
£1m
Range of materiality at four
components (£0.4m – £1.0m)
£0.05m
Misstatements reported
to the audit committee
Group revenue
Group profit before tax
Group total assets
88%
89%
90%
Full scope for Group audit purposes
Specified audit procedures
Residual components
OverviewOther informationFinancial Statements GovernanceStrategic Report 100
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Independent Auditors’ Report continued
to the Members of Avon Rubber p.l.c.
4. We have nothing to report on going concern
The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Company or the
Group or to cease their operations, and as they have concluded that the Company’s and the Group’s financial position means that this
is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to
continue as a going concern for at least a year from the date of approval of the financial statements (‘the going concern period’).
Our responsibility is to conclude on the appropriateness of the Directors’ conclusions and, had there been a material uncertainty related to
going concern, to make reference to that in this audit report. However, as we cannot predict all future events or conditions and as subsequent
events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of
reference to a material uncertainty in this auditor’s report is not a guarantee that the Group and the Company will continue in operation.
In our evaluation of the Directors’ conclusions, we considered the inherent risks to the Group’s and Company’s business model, including the
impact of Brexit, and analysed how those risks might affect the Group’s and Company’s financial resources or ability to continue operations
over the going concern period. We evaluated those risks and concluded that they were not significant enough to require us to perform
additional audit procedures.
Based on this work, we are required to report to you if:
• we have anything material to add or draw attention to in relation to the Directors’ statement in Note 1 to the financial statements
on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group
and Company’s use of that basis for a period of at least 12 months from the date of approval of the financial statements; or
•
if the same statement is materially inconsistent with our audit knowledge.
We have nothing to report in these respects, and we did not identify going concern as a key audit matter.
5. We have nothing to report on the other information in the Annual Report
The Directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion
on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly
stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the
information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work
we have not identified material misstatements in the other information.
Strategic Report and Directors’ Report
Based solely on our work on the other information:
• we have not identified material misstatements in the Strategic Report and the Directors’ Report;
•
•
in our opinion the information given in those reports for the financial year is consistent with the financial statements; and
in our opinion those reports have been prepared in accordance with the Companies Act 2006.
Directors’ Remuneration Report
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006.
101
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial statements audit, we have nothing material to add or draw attention to in relation to:
•
•
•
the Directors’ confirmation within the viability statement (page 67) that they have carried out a robust assessment of the principal risks
facing the Group, including those that would threaten its business model, future performance, solvency and liquidity;
the Principal Risks disclosures describing these risks and explaining how they are being managed and mitigated; and
the Directors’ explanation in the viability statement of how they have assessed the prospects of the Group, over what period they have
done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation
that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including
any related disclosures drawing attention to any necessary qualifications or assumptions.
Under the Listing Rules we are required to review the viability statement. We have nothing to report in this respect.
Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements audit. As we
cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that
were reasonable at the time they were made, the absence of anything to report on these statements is not a guarantee as to the Group’s
and Company’s longer-term viability.
Corporate governance disclosures
We are required to report to you if:
• we have identified material inconsistencies between the knowledge we acquired during our financial statements audit and the Directors’
statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and
provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy; or
•
the section of the Annual Report describing the work of the Audit Committee does not appropriately address matters communicated
by us to the Audit Committee.
We are required to report to you if the Corporate Governance Statement does not properly disclose a departure from the eleven provisions
of the U.K. Corporate Governance Code specified by the Listing Rules for our review.
We have nothing to report in these respects.
6. We have nothing to report on the other matters on which we are required to report by exception
Under the Companies Act 2006, we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from
branches not visited by us; or
•
the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
We have nothing to report in these respects.
OverviewOther informationFinancial Statements GovernanceStrategic Report 102
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Independent Auditors’ Report continued
to the Members of Avon Rubber p.l.c.
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 64, the Directors are responsible for: the preparation of the financial statements
including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and Parent Company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of
accounting unless they either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative
but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or other irregularities (see below), or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high
level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (U.K.) will always detect a material misstatement
when it exists. Misstatements can arise from fraud, other irregularities or error and are considered material if, individually or in aggregate, they
could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
Irregularities – ability to detect
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from
our general commercial and sector experience and through discussion with the Directors and other management (as required by auditing
standards), and from inspection of the Group’s regulatory and legal correspondence and discussed with the Directors and other management
the policies and procedures regarding compliance with laws and regulations. We communicated identified laws and regulations throughout
our team and remained alert to any indications of non-compliance throughout the audit.
The potential effect of these laws and regulations on the financial statements varies considerably.
Firstly, the Group is subject to laws and regulations that directly affect the financial statements including financial reporting legislation
(including related companies legislation), distributable profits legislation, and taxation legislation and we assessed the extent of compliance
with these laws and regulations as part of our procedures on the related financial statement items.
Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a material effect
on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation. We identified the following
areas as those most likely to have such an effect: anti-bribery and corruption, recognising the Governmental nature of many of the Group’s
customers. Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry
of the Directors and other management and inspection of regulatory and legal correspondence, if any. These limited procedures did not
identify actual or suspected non-compliance.
103
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements
in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For
example, the further removed non-compliance with laws and regulations (irregularities) is from the events and transactions reflected in
the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as
with any audit, there remained a higher risk of non-detection of irregularities, as these may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls. We are not responsible for preventing non-compliance and cannot be expected to
detect non-compliance with all laws and regulations.
8. The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an
auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
Andrew Campbell-Orde (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
66 Queen Square
Bristol
BS1 4BE
13 November 2019
OverviewOther informationFinancial Statements GovernanceStrategic Report 104
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Consolidated Statement of Comprehensive Income
For the year ended 30 September 2019
2019
2018
Note
Adjusted
£m
Adjustments1
£m
Total
£m
Adjusted
£m
Adjustments1
£m
Continuing operations
Revenue
Cost of sales
Gross profit
Selling and distribution costs
General and administrative expenses
Operating profit
2.1
2.1
179.3
(106.8)
72.5
(20.4)
(20.8)
31.3
Operating profit is analysed as:
Before depreciation, amortisation and impairment
Impairment
Depreciation and amortisation
3.1, 3.2
3.1, 3.2
Operating profit
Finance income
Finance costs
Other finance expense
Profit before taxation
Taxation
Profit for the year from continuing operations
Discontinued operations – gain for the year
Profit for the year
Other comprehensive income/(expense)
Items that are not subsequently reclassified
to the income statement
Actuarial (loss)/gain recognised on retirement
benefit scheme
Deferred tax relating to retirement benefit scheme
Items that may be subsequently reclassified
to the income statement
Net exchange differences offset in reserves
Tax relating to exchange differences offset in reserves
Cash flow hedges
Deferred tax relating to cash flow hedges
Other comprehensive income/(expense)
for the year, net of taxation
Total comprehensive income for the year
Earnings per share
Basic
Diluted
5.2
5.2
5.2
2.5
2.6
2.2
6.2
2.6
5.4
2.6
2.3
Earnings per share from continuing operations
2.3
Basic
Diluted
1
See note 2.2 for further details of adjustments
39.5
–
(8.2)
31.3
0.4
(0.2)
(0.1)
31.4
(3.4)
28.0
–
28.0
–
–
2.3
(0.5)
(0.9)
0.2
1.1
29.1
91.7p
90.9p
91.7p
90.9p
–
–
–
–
(16.9)
(16.9)
(8.5)
(4.9)
(3.5)
(16.9)
–
–
(0.8)
(17.7)
4.0
(13.7)
–
(13.7)
(9.2)
1.5
–
–
–
–
(7.7)
(21.4)
179.3
(106.8)
72.5
(20.4)
(37.7)
14.4
31.0
(4.9)
(11.7)
14.4
0.4
(0.2)
(0.9)
13.7
0.6
14.3
–
14.3
(9.2)
1.5
2.3
(0.5)
(0.9)
0.2
(6.6)
7.7
(44.8p)
(44.4p)
46.9p
46.5p
(44.8p)
(44.4p)
46.9p
46.5p
165.5
(99.9)
65.6
(20.3)
(18.0)
27.3
35.3
–
(8.0)
27.3
0.2
(0.2)
(0.1)
27.2
(3.7)
23.5
–
23.5
–
–
1.3
(0.3)
(0.6)
–
0.4
23.9
77.1p
76.6p
77.1p
76.6p
–
–
–
–
(4.5)
(4.5)
(1.4)
–
(3.1)
(4.5)
–
–
(1.1)
(5.6)
1.9
(3.7)
1.6
(2.1)
13.7
(2.3)
–
–
–
–
11.4
9.3
(7.0p)
(7.0p)
(12.2p)
(12.2p)
Total
£m
165.5
(99.9)
65.6
(20.3)
(22.5)
22.8
33.9
–
(11.1)
22.8
0.2
(0.2)
(1.2)
21.6
(1.8)
19.8
1.6
21.4
13.7
(2.3)
1.3
(0.3)
(0.6)
–
11.8
33.2
70.1p
69.6p
64.9p
64.4p
Consolidated Balance Sheet
At 30 September 2019
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Liabilities
Current liabilities
Borrowings
Trade and other payables
Derivative financial instruments
Provisions for liabilities and charges
Current tax liabilities
Net current assets
Non-current liabilities
Deferred tax liabilities
Retirement benefit obligations
Provisions for liabilities and charges
Net assets
Shareholders’ equity
Ordinary shares
Share premium account
Other reserves
Retained earnings
Total equity
105
2018
£m
41.5
22.6
8.2
72.3
23.0
24.2
46.6
93.8
0.1
34.5
0.4
0.3
6.1
41.4
52.4
6.9
30.5
2.5
39.9
84.8
31.0
34.7
8.0
11.1
84.8
Note
3.1
3.2
2.6
4.1
4.2
4.3
5.1
4.4
5.4
7.1
2.6
6.2
7.1
5.5
5.5
2019
£m
35.3
21.4
12.5
69.2
20.7
35.4
48.4
104.5
0.1
31.1
1.3
–
4.1
36.6
67.9
5.4
43.0
2.3
50.7
86.4
31.0
34.7
9.8
10.9
86.4
These financial statements on pages 104 to 142 were approved by the Board of Directors on 13 November 2019 and signed on its behalf by:
Paul McDonald
Chief Executive Officer
Nick Keveth
Chief Financial Officer
OverviewOther informationFinancial Statements GovernanceStrategic Report
106
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Consolidated Cash Flow Statement
For the year ended 30 September 2019
Cash flows from operating activities
Cash flows from continuing operating activities
before the impact of exceptional items
Cash impact of exceptional items
Cash flows from continuing operations
Cash flows (used in) discontinued operations
Cash flows from operations
Interest income received
Finance costs paid
Retirement benefit deficit recovery contributions
Tax paid
Net cash flows from operating activities
Cash flows used in investing activities
Proceeds from disposal of discontinued operations
Purchase of property, plant and equipment
Capitalised development costs and purchased software
Acquisition
Net cash used in investing activities
Cash flows used in financing activities
Net movements in loans
Dividends paid to shareholders
Purchase of own shares
Net cash used in financing activities
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
Note
2019
£m
4.3
4.3
6.2
7.2
3.2
3.1
7.2
5.3
5.6
5.5
4.3
25.1
(1.9)
23.2
–
23.2
0.4
(0.2)
(1.5)
(6.1)
15.8
–
(3.9)
(4.0)
–
(7.9)
–
(5.4)
(1.3)
(6.7)
1.2
46.6
0.6
48.4
2018
£m
£m
38.2
(0.1)
38.1
(0.2)
37.9
0.2
(0.2)
(1.5)
(5.0)
31.4
6.5
(3.3)
(5.6)
(1.4)
(3.8)
(1.7)
(4.1)
(1.1)
(6.9)
20.7
26.5
(0.6)
46.6
Consolidated Statement of Changes in Equity
For the year ended 30 September 2019
107
Other
reserves
£m
Retained
earnings
£m
Total
equity
£m
At 30 September 2017
Profit for the year
Net exchange differences offset in reserves
Tax relating to exchange differences offset in reserves
Cash flow hedges
Actuarial gain recognised on retirement benefit scheme
Deferred tax relating to retirement benefit scheme
Total comprehensive income for the year
Dividends paid
Own shares acquired
Fair value of share-based payments
Deferred tax relating to employee share schemes
At 30 September 2018
Profit for the year
Net exchange differences offset in reserves
Tax relating to exchange differences offset in reserves
Cash flow hedges
Deferred tax relating to cash flow hedges
Actuarial loss recognised on retirement benefit scheme
Deferred tax relating to retirement benefit scheme
Total comprehensive income for the year
Dividends paid
Own shares acquired
Fair value of share-based payments
Deferred tax relating to employee share schemes
Note
Share
capital
£m
31.0
Share
premium
£m
34.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31.0
34.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.6
5.4
6.2
2.6
5.6
5.5
6.3
2.6
2.6
5.4
2.6
6.2
2.6
5.6
5.5
6.3
2.6
7.0
–
1.3
(0.3)
–
–
–
1.0
–
–
–
–
8.0
–
2.3
(0.5)
–
–
–
–
1.8
–
–
–
–
(17.1)
21.4
–
–
(0.6)
13.7
(2.3)
32.2
(4.1)
(1.1)
1.2
–
11.1
14.3
–
–
(0.9)
0.2
(9.2)
1.5
5.9
(5.4)
(1.3)
0.4
0.2
10.9
55.6
21.4
1.3
(0.3)
(0.6)
13.7
(2.3)
33.2
(4.1)
(1.1)
1.2
–
84.8
14.3
2.3
(0.5)
(0.9)
0.2
(9.2)
1.5
7.7
(5.4)
(1.3)
0.4
0.2
86.4
At 30 September 2019
31.0
34.7
9.8
Other reserves consist of the capital redemption reserve of £0.5m (2018: £0.5m) and the translation reserve of £9.3m (2018: £7.5m).
All movements in other reserves relate to the translation reserve.
OverviewOther informationFinancial Statements GovernanceStrategic Report 108
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Accounting Policies and Critical Accounting Judgements
For the year ended 30 September 2019
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
Avon Rubber p.l.c. is a public limited company incorporated and
domiciled in England and Wales and its ordinary shares are traded
on the London Stock Exchange.
These financial statements have been prepared in accordance with
EU Endorsed International Financial Reporting Standards (IFRSs) and
IFRS Interpretations Committee 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 derivative instruments which
are held at fair value through profit or loss.
These financial statements are presented in GBP with figures rounded
to the nearest £0.1m.
Recent accounting developments
IFRS 9 Financial Instruments and IFRS 15 Revenue from contracts with
customers both become applicable for the Group from 1 October 2018.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 provides a comprehensive framework for recognising revenue
from contracts with customers. IFRS 15 was adopted using the
retrospective method. The application of IFRS 15 had no impact on
revenue recognition within the consolidated financial statements. As
such, no adjustments to equity have been made on adoption of IFRS 15.
The Group’s accounting policy in relation to revenue recognition has
been updated to reflect the new standard as outlined in the Revenue
section below.
IFRS 9 Financial Instruments
IFRS 9 sets out new rules for valuing financial instruments and
a new approach to hedge accounting aligned to an entity’s risk
management activities.
The application of IFRS 9 did not impact the classification,
measurement or recognition of financial assets and financial
liabilities within the consolidated financial statements.
The Group’s hedging policy and documentation of hedging
relationships has been updated to reflect the new standard. As a
result the Group’s forward exchange contracts continue to qualify
as cash flow hedges upon adoption of IFRS 9 and therefore continue
to be accounted for as such.
The Group’s accounting policy in relation to Financial Instruments
has been updated to reflect the new standard as outlined in the
Financial Instruments section below.
Further details on the Group’s transition to IFRS 9 can be found in
Note 5.4.
At the balance sheet date there are a number of new standards, and
amendments to existing standards in issue, but not yet effective. The
Directors plan to adopt these standards in line with their effective dates.
IFRS 16 Leases – applicable from year ending
30 September 2020
IFRS 16 introduces the principle that all leased assets should be
reported on the balance sheet of the lessee, recognising an asset for
the right to use the leased item and a liability for the present value
of its future lease payments.
The change in treatment will impact the balance sheet, the income
statement and related performance measures and will be applicable
from 1 October 2019.
As reported previously a number of leases currently in operation
within the Group will fall under the scope of IFRS 16 with leasehold
property being the most material.
The Group intends to apply the lease standard retrospectively
allowing comparability with prior period reported numbers in the
2020 Annual Report. This transition choice results in a one off impact
on opening reserves on adoption to reflect the retrospective impact
of the existing leases.
See Note 7.6 for further details.
IFRIC 23 Accounting for uncertain tax positions –
applicable from year ending 30 September 2020
IFRC 23 is a new interpretation applying to both current and
deferred taxes.
Under the new regulation accounting for uncertain tax positions
is only permitted where the likelihood of a tax treatment being
challenged is greater than 50%, with new guidance around how
a value should be assigned to the uncertainty.
This interpretation is not expected to have a significant impact on
the level of provisions held in relation to uncertain tax positions.
Basis of consolidation
The consolidated financial statements incorporate the financial
results and position of the Group and its subsidiaries.
Subsidiaries are those entities over which the Group has power, exposure
or rights to variable returns from its involvement with the entity and the
ability to use its power to affect the amount of the Group’s returns.
Subsidiaries are fully consolidated from the date on which control
is transferred to the Group until 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.
109
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. Inter-group transactions, balances and unrealised gains on
transactions between Group companies are eliminated; unrealised
losses are also eliminated unless costs cannot be recovered. Where
necessary, accounting policies of subsidiaries have been changed
to ensure consistency with the policies adopted by the Group.
Foreign currencies
The Group’s presentation currency is sterling. The results and financial
position of all subsidiaries and associates that have a functional
currency different from sterling are translated into sterling as follows:
• assets and liabilities are translated at the closing rate at the
balance sheet date; and
•
income and expenses are translated at the rate of exchange
at the date of the transaction.
All resulting exchange differences are recognised as a separate
component of equity.
On consolidation, exchange differences arising from the translation of the
net investment in foreign entities, and of borrowings and other currency
instruments designated as hedges of such investments, are taken to
shareholders’ equity. When a foreign operation is sold, the cumulative
amount of such exchange difference is recognised in the consolidated
statement of comprehensive income as part of the gain or loss on sale.
Foreign currency transactions are initially recorded at the exchange
rate ruling at the date of the transaction. Foreign exchange gains
and losses resulting from settlement of such transactions and from
the translation 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 recognition
Revenue is measured at the fair value of the consideration which
is expected to be received in exchange for goods and services
provided, net of trade discounts and sales-related taxes.
Revenue is recognised when all of the following conditions are satisfied:
• A contract exists with a customer.
• The performance obligations within the contract have
been identified.
• The transaction price has been determined.
• The transaction price has been allocated to the performance
obligations within the contract.
• Revenue is recognised as or when a performance obligation
is satisfied.
Sale of goods
Revenue from the sale of goods is recognised when control of the
goods has transferred to the customer, usually being when the
goods have been shipped to the customer in accordance with the
contracted shipping terms.
The Group holds contracts which are accounted for in line with the
sale of goods policy, but where the consideration for fulfilment of
the performance obligation is variable as it is dependent on the level
of allowable costs for the contract. The Directors make estimates as
to the probable level of variable consideration earned, recognising
revenue only to the extent that it is highly probable that a significant
reversal in the amount of cumulative revenue recognised will not
occur. Any amounts received in excess of this amount are deferred
and treated as a contract liability until closure of the contract.
Provision of services
Revenue from a contract to provide services, including customer funded
research and development and training, is recognised over time as those
services are provided. Under IFRS 15 the Group recognises the amount
of revenue from the services provided under a contract with reference
to the costs incurred as a proportion of total expected costs.
Rental income
Revenue from rental income is recognised over the duration of the
rental agreement.
Farm Services line of business revenue is allocated between sale
of goods, provision of services (both accounted for under IFRS 15 as
above), and rental income in respect of the provision of equipment
on farms which is recognised in accordance with IAS 17 Leases (IFRS
16 Leases with effect from 1 October 2019). This does not impact the
timing of revenue recognition or the valuation of rental lease income.
Segment reporting
Segments are identified based on how management monitors
the business.
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. The
segments reported for the years ended 30 September 2019 and
30 September 2018 are Avon Protection and milkrite | InterPuls.
The Group Executive team assesses the performance of the operating
segments based on the measures of revenue, EBIT and EBITDA.
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.
OverviewOther informationFinancial Statements GovernanceStrategic Report 110
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Accounting Policies and Critical Accounting Judgements
continued
For the year ended 30 September 2019
Employee benefits
Intangible assets
Pension obligations and post-retirement benefits
Goodwill
The Group has both defined benefit and defined contribution plans.
The defined benefit plan’s asset or liability as recognised in the
balance sheet is the present value of the defined benefit obligation
at the balance sheet date less the fair value of plan assets.
The defined benefit obligation is calculated annually by independent
actuaries using the projected unit credit method. The present value
of the defined benefit obligation is determined by discounting the
estimated cash outflows using interest rates of high quality corporate
bonds that are denominated in the currency in which the benefits
will be paid, and that have terms to maturity approximating to the
terms of the related pension liability. Actuarial gains and losses arising
from experience adjustments and changes in actuarial assumptions
are recognised in full in the period in which they occur, as part of
other comprehensive income. Costs associated with investment
management are deducted from the return on plan assets. 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 based 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.
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.
It 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 U.K. 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 (between five and
15 years). 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 in which
the product is available for sale. Development costs capitalised are
tested for impairment 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.
U.K. development costs have not been treated as a realised loss by
the Directors as they relate to specific R&D projects from which the
Group is expected to obtain significant economic benefit in the future.
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.
Computer software
Computer software is included in intangible assets at cost and
amortised over its estimated life of three to seven years.
111
Other intangible assets
Other intangible assets that are acquired by the Group as part
of business combinations are stated at cost less accumulated
amortisation and impairment losses. The useful lives take
account of the differing natures of each of the assets acquired.
The lives used are:
• Brands and trademarks – four– ten years
• Customer relationships – seven–ten years
• Order backlog – three months to one year
Amortisation is charged on a straight-line basis over the estimated
useful lives of the assets through general and administrative expenses.
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 down the depreciable amount of relevant assets
by equal annual instalments over their estimated useful lives.
In general, the lives used are:
• Freehold – 40 years
• Short leasehold property – over the period of the lease
• Plant and machinery
– Computer hardware and motor vehicles – three years
– Presses – 15 years
– Other plant and machinery – five–ten years
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.
Where fixed assets are financed by leasing agreements, which
give rights approximating to ownership, the assets are treated as
if they had been purchased and the capital element of the leasing
commitments are shown as obligations under finance leases. Assets
acquired under finance leases are initially recognised at the present
value of the minimum lease payments. The rentals payable are
apportioned between interest, which is charged to the consolidated
statement of comprehensive income, and the liability, which reduces
the outstanding obligation so as to give a constant rate of charge on
the outstanding lease obligations.
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.
Financial instruments
Recognition and initial measurement
Trade receivables are initially recognised when they are originated
and measured at the transaction price.
Trade payables are obligations to pay for goods or services that have
been acquired in the ordinary course of business from suppliers and
are initially recognised at fair value.
All other financial assets and financial liabilities are initially recognised
when the Company becomes a party to the contractual provisions of
the instrument and measured at fair value.
Classification and subsequent measurement
Trade and other receivables and Trade and other payables are
classified as measured at amortised cost.
The Group recognises loss allowances for expected credit losses
(ECLs) on financial assets measured at amortised cost and contract
assets (as defined in IFRS 15).
Loss allowances for trade receivables and contract assets are
always measured at an amount equal to lifetime ECL, see Note 5.4
for more details.
Accounts payable are classified as current liabilities if payment is
due within one year or less (or in the normal operating cycle of the
business if longer). If not, they are presented as non-current liabilities.
Cash and cash equivalents include cash at bank and in hand and
highly liquid interest-bearing securities with maturities of three
months or less. Bank overdrafts are shown within borrowings in
current liabilities on the balance sheet.
Derivative financial instruments and hedging
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.
Any ineffective portion of the hedge is recognised immediately
in the income statement. See Note 5.4 for more details.
OverviewOther informationFinancial Statements GovernanceStrategic Report 112
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Accounting Policies and Critical Accounting Judgements
continued
For the year ended 30 September 2019
Financial instruments continued
Impairment
At each reporting date, the Company assesses whether financial assets
carried at amortised cost are credit-impaired. A financial asset is ‘credit-
impaired’ when one or more events that have a detrimental impact
on the estimated future cash flows of the financial asset have occurred.
The gross carrying amount of a financial asset is written off (either
partially or in full) to the extent that there is no realistic prospect of
recovery. See Note 5.4 for details.
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.
Taxable profit differs from accounting profit because it excludes
certain items of income and expense that are recognised in the
financial statements but are treated differently for tax purposes.
Current tax is the amount of tax expected to be payable or receivable
on the taxable profit or loss for the current period. This amount is
then amended for any adjustments in respect of prior periods.
Current tax is calculated using tax rates that have been written
into law (‘enacted’) or irrevocably announced/committed by the
respective Government (‘substantively enacted’) at the period-end
date. Current tax receivable (assets) and payable (liabilities) are offset
only when there is a legal right to settle them net and the entity
intends to do so. This is generally true when the taxes are levied
by the same tax authority.
Because of the differences between accounting and taxable profits
and losses reported in each period, temporary differences arise on
the amount certain assets and liabilities are carried at for accounting
purposes and their respective tax values. Deferred tax is the amount
of tax payable or recoverable on these temporary differences.
Deferred tax liabilities arise where the carrying amount of an
asset is higher than the tax value (more tax deduction has been
taken). This can happen where the Group invests in capital assets,
as governments often encourage investment by allowing tax
depreciation to be recognised faster than accounting depreciation.
This reduces the tax value of the asset relative to its accounting
carrying amount. Deferred tax liabilities are generally provided
on all taxable temporary differences. The periods over which such
temporary differences reverse will vary depending on the life of
the related asset or liability.
Deferred tax assets arise where the carrying amount of an asset is
lower than the tax value (less tax benefit has been taken). This can
happen where the Group has trading losses, which cannot be offset in
the current period but can be carried forward. Deferred tax assets are
recognised only where the Group considers it probable that it will be
able to use such losses by offsetting them against future taxable profits.
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.
Taxable temporary differences can also arise on investments in foreign
subsidiaries and associates, and interests in joint ventures. Where
the Group is able to control the reversal of these differences and it is
probable that these will not reverse in the foreseeable future, then no
deferred tax is provided. Deferred tax is calculated using the enacted
or substantively enacted rates that are expected to apply when the
asset is realised or the liability is settled. Similarly to current taxes,
deferred tax assets and liabilities are offset only when there is a legal
right to settle them net and the entity intends to do so. This normally
requires both assets and liabilities to have arisen in the same country.
Income tax expense reported in the financial statements comprises
current tax as well as the effects of changes in deferred tax assets
and liabilities. Tax expense/credits are generally recognised in
the same place as the items to which they relate. For example,
the tax associated with a gain on disposal is recognised in the
income statement, in line with the gain on disposal. Equally, the
tax associated with pension obligation actuarial gains and losses
is recognised in other comprehensive income, in line with the
actuarial gains and losses.
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.
113
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.
Significant accounting judgements and estimates
The preparation of financial statements requires the use of estimates
and assumptions that affect the reported amounts of assets and
liabilities, income and expenses. It also requires management to exercise
its judgement in the process of applying the Group’s accounting policies.
The key areas where assumptions and estimates are significant to the
financial statements are disclosed below.
Judgements
Capitalisation of development costs
The Group capitalises the development of new products and
processes as intangible assets or property, plant and equipment.
Initial capitalisation and any subsequent impairment is based on
the Group’s judgement that technological and economic feasibility
is demonstrated. In determining the amounts to be capitalised
the Group makes assumptions regarding the expected future cash
generation of the project, discount rates to be applied and the
expected period of benefits. Economic feasibility is considered by
the Group the more important judgement as to whether a project
is progressed. If either technological or economic feasibility is not
demonstrated then the capitalised costs will be written off to the
income statement. See note 3.1.
Estimates
Carrying amount of development costs
The Group’s principal assets are intangible assets, which are either
the result of acquisitions, or have been capitalised through the
internal development of new products. The estimate of the carrying
value of intangible assets involves significant judgements and
changes in the underlying assumptions could have a significant
impact on the carrying value of these assets.
In determining whether development costs are impaired the Group
makes assumptions regarding the expected future cash generation
of the project, discount rates to be applied and the expected period
of benefits.
unsuccessful or delayed such that the projected economic benefit
will not be achieved in the assets‘ lifetime they may be impaired.
Where reliant on key customers if those customers choose not to
renew contracts, and there is no alternative use for the developed
technology, then the associated assets would be impaired.
Acquisitions may result in the recognition of customer relationships,
brands and trademarks, patents and order backlogs. Valuation
estimates are used to determine the fair values of these intangible
assets. This includes estimation of future cash flows, weighted
average cost of capital and useful lives.
Estimating the defined benefits pension scheme obligations
Measurement of defined benefit pension obligations requires
estimation of future changes in inflation and mortality rates,
and the selection of a suitable discount rate (see note 6.2).
Taxation
The Group operates in a number of countries around the world.
Uncertainties exist in relation to the interpretation of complex tax
legislation, changes in tax laws and the amount and timing of future
taxable income. In some jurisdictions agreeing tax liabilities with local
tax authorities can take several years. This could necessitate future
adjustments to taxable income and expense already recorded. At the
year end date, tax liabilities and assets are based on management’s
judgements around the application of the tax regulations and
management’s estimate of the future amounts that will be settled.
At 30 September 2019 there is a provision of £2.9m in respect of
uncertain tax positions. Due to the uncertainties noted above, there
is a risk that the Group’s judgements are challenged, resulting in
a different tax payable or recoverable from the amounts provided.
Management estimates that the reasonably possible range of
outcomes is between an additional liability of up to £0.5m and
a reduction in liabilities of up to £2.9m.
Estimation of variable consideration
The estimation of variable consideration in relation to certain U.S.
contracts in the Avon Protection business involves assumptions
and judgements.
The Directors make estimates as to the probable level of variable
consideration earned, recognising revenue only to the extent that
it is highly probable that a significant reversal in the amount of
cumulative revenue recognised will not occur. Any amounts received
in excess of this amount are deferred and treated as a contract
liability until closure of the contract, see Note 4.4.
At 30 September 2019 deferred income held in respect of the above
contracts was £1.7m (2018: £1.5m). Management estimates that the
uncertainty will be addressed within the next five years.
At the year end 26% of the development costs on the balance sheet
relate to either technology that remains under development and
subject to final feasibility tests or where the future cashflows are
reliant on key customers. Consequently if final feasibility tests are
Due to the uncertainties noted above, there is a risk that the Directors
estimate is wrong resulting in an adjustment to revenue recognised
and to the deferred income. Management estimates that the
reasonably possible range of outcomes is additional revenue of £1.7m.
OverviewOther informationFinancial Statements GovernanceStrategic Report 114
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Notes to the Group Financial Statements
For the year ended 30 September 2019
Section 2 – Results for the year
This section presents the results for the year using both IFRS and ‘adjusted’ measures and includes a reconciliation between the primary
statements and the ‘adjusted’ performance measures. The ‘adjusted’ measures reflect how the Directors monitor the business and are
intended to aid the comparison of business trends and performance.
Within this section you will find disclosures explaining the Group’s results for the year, segmental information, earnings per share and taxation,
as well as details of the ‘adjustments’ and discontinued operations.
Performance measures1
Earnings basic
Basic earnings per share (pence)
Diluted earnings per share (pence)
Operating profit
EBITDA2
Adjusted performance measures1
Adjusted earnings
Adjusted earnings per share (pence)
Adjusted Operating profit
Adjusted EBITDA2
Note
2.3
2.3
2.1
Note
2.2
2.3
2.1
2019
£m
14.3
46.9
46.5
14.4
31.0
2019
£m
28.0
91.7
31.3
39.5
2018
£m
19.8
64.9
64.4
22.8
33.9
2018
£m
23.5
77.1
27.3
35.3
1 All performance measures are stated based on continuing operations
2
Reconciled on Consolidated Statement of Comprehensive Income
2.1 Operating segments
The Group Executive team is responsible for allocating resources and assessing performance of the operating segments. Operating segments are
therefore reported in a manner consistent with the internal reporting provided to the Group Executive team.
The Group has two clearly defined business segments, Avon Protection and milkrite | InterPuls, and operates primarily out of Europe and the U.S.
115
Business segments
Year ended 30 September 2019
Revenue
Operating profit before depreciation, amortisation and adjustments
Depreciation of property, plant and equipment
Amortisation of development costs and software
Operating profit before adjustments
Amortisation of acquired intangibles
Exceptional impairment
Exceptional items
Defined benefit pension scheme costs
Operating profit
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
Avon
Protection
£m
128.4
31.4
(1.9)
(3.3)
26.2
(0.9)
(3.8)
(4.5)
–
17.0
79.2
26.6
3.3
2.2
milkrite |
InterPuls
£m
Unallocated
£m
50.9
10.5
(2.4)
(0.6)
7.5
(2.6)
(1.1)
–
–
3.8
46.7
10.2
0.5
1.7
(2.4)
–
–
(2.4)
–
–
–
(4.0)
(6.4)
47.8
50.5
–
–
Total
£m
179.3
39.5
(4.3)
(3.9)
31.3
(3.5)
(4.9)
(4.5)
(4.0)
14.4
0.4
(0.2)
(0.9)
13.7
0.6
14.3
173.7
87.3
3.8
3.9
The Avon Protection segment includes £54.8m (2018: £52.7m) of revenues from the U.S. DOD, the only customer which individually
contributes more than 10% to Group revenues.
OverviewOther informationFinancial Statements GovernanceStrategic Report 116
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Notes to the Group Financial Statements continued
For the year ended 30 September 2019
Section 2 – Results for the year continued
Year ended 30 September 2018
Revenue
Operating profit before depreciation, amortisation and adjustments
Depreciation of property, plant and equipment
Amortisation of development costs and software
Operating profit before adjustments
Amortisation of acquired intangibles
Exceptional items
Defined benefit pension scheme costs
Operating profit
Finance income
Finance costs
Other finance expense
Profit before taxation
Taxation
Profit for the year from continuing operations
Discontinued operations – profit for the year
Profit for the year
Segment assets
Segment liabilities
Other segment items
Capital expenditure
– Intangible assets
– Property, plant and equipment
Revenue analysed by geographic origin
Year ended 30 September 2019
Revenue
Year ended 30 September 2018
Revenue
Avon
Protection
£m
milkrite |
InterPuls
£m
Unallocated
£m
115.7
26.6
(2.5)
(2.6)
21.5
(1.1)
(0.9)
–
19.5
57.4
18.0
5.1
1.7
Europe
£m
38.3
Europe
£m
41.2
49.8
10.9
(2.4)
(0.5)
8.0
(2.0)
–
–
6.0
49.5
13.8
0.5
1.8
U.S.
£m
136.6
U.S.
£m
120.4
–
(2.2)
–
–
(2.2)
–
–
(0.5)
(2.7)
59.2
49.5
–
–
RoW
£m
4.4
RoW
£m
3.9
Total
£m
165.5
35.3
(4.9)
(3.1)
27.3
(3.1)
(0.9)
(0.5)
22.8
0.2
(0.2)
(1.2)
21.6
(1.8)
19.8
1.6
21.4
166.1
81.3
5.6
3.5
Total
£m
179.3
Total
£m
165.5
117
Revenue by line of business and nature of performance obligation
Avon Protection
Sale of goods1
Provision of services2
milkrite | InterPuls
Sale of goods1
Provision of services2
Rental Income3
Year ended 30 September 2019
Year ended 30 September 2018
Military
£m
Law
Enforcement
£m
84.2
3.0
87.2
27.0
0.3
27.3
Fire
£m
13.9
–
13.9
Total
£m
125.1
3.3
128.4
Military
£m
Law
Enforcement
£m
62.3
3.8
66.1
35.3
0.1
35.4
Fire
£m
14.1
0.1
14.2
Year ended 30 September 2019
Year ended 30 September 2018
Interface
£m
PCI
£m
Farm Services
£m
Total
£m
Interface
£m
PCI
£m
Farm Services
£m
36.9
–
–
36.9
8.7
–
–
8.7
1.7
1.0
2.6
5.3
47.3
1.0
2.6
50.9
35.6
–
–
35.6
9.0
–
–
9.0
1.7
1.3
2.2
5.2
Total
£m
111.7
4.0
115.7
Total
46.3
1.3
2.2
49.8
1
2
3
Products transferred to the customer and therefore revenue recognised at a point in time
Products and services transferred over time and therefore revenue recognised over that period of time
Rental income represents revenue from parts of the Farm Services line of business recognised in accordance with IAS 17 Leases (IFRS 16 Leases with effect from 1 October 2019)
2.2 Adjustments and discontinued operations
This document contains certain financial measures that are not defined or recognised under IFRS including adjusted operating profit,
adjusted profit for the year and adjusted earnings per share. The Directors believe that adjusted measures provide a more useful comparison
of business trends and performance. These adjusted measures exclude the effect of exceptional items, defined benefit scheme pension
costs, the amortisation of acquired intangible assets and discontinued operations. The Group uses these measures for planning budgeting
and reporting purposes and for its internal assessment of the operational performance of individual businesses within the Group. Given
the term adjusted is not defined under IFRS , the adjusted measures may not be comparable with other similarly titled measures used by
other companies.
The following table shows the adjustments made to arrive at adjusted operating profit and adjusted profit for the year.
Operating profit
Amortisation of acquired intangible assets (note 3.1)
Defined benefit pension scheme administration costs
Exceptional items:
Restructuring costs
Defined benefit scheme past service costs
Acquisition costs
Exit costs re: Fire SCBA market
Property impairment (note 3.2)
Adjusted operating profit
2019
£m
14.4
3.5
0.5
–
3.5
2.9
5.4
1.1
31.3
2018
£m
22.8
3.1
0.5
0.9
–
–
–
–
27.3
OverviewOther informationFinancial Statements GovernanceStrategic Report 118
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Notes to the Group Financial Statements continued
For the year ended 30 September 2019
Section 2 – Results for the year continued
2.2 Adjustments and discontinued operations continued
Adjustments
Profit for the year
Amortisation of acquired intangible assets (note 3.1)
Defined benefit pension scheme administration costs
Defined benefit pension net interest cost
Exceptional items:
Restructuring costs
Defined benefit scheme past service costs
Acquisition costs
Exit costs re: Fire SCBA market
Property impairment (note 3.2)
Tax on exceptional items
(Profit)/loss from discontinued operations
Adjusted profit for the year
2019
£m
14.3
3.5
0.5
0.8
–
3.5
2.9
5.4
1.1
(4.0)
–
28.0
2018
£m
21.4
3.1
0.5
1.1
0.9
–
–
–
–
(1.9)
(1.6)
23.5
On October 26, 2018 the High Court handed down a judgement involving the Lloyds Banking Group’s defined benefit schemes. The judgement
concluded that pension scheme benefits should be amended to equalise guaranteed minimum pension benefits for men and women
(‘GMP equalisation’). Our actuarial advisors have calculated the additional liability for this amendment at £2.9m and this has been included as
an adjustment during the period along with a further £0.6m adjustment in relation to other past service costs of the defined benefit scheme.
The signing of an agreement to acquire 3M’s ballistic protection business and the rights to the Ceradyne brand was announced on 6 August
2019 and is expected to close during FY20, see Note 7.2 for further details. £2.8m of acquisition related costs have been expensed during
the period in relation to this agreement including legal, due diligence and tax advisory fees. A further £0.1m of costs have been expensed
in relation to other acquisition opportunities that are no longer being pursued.
At the year end the decision was taken to move away from our participation in the Fire self contained breathing apparatus market, resulting in
one off exit costs of £5.4m being recognised in the year. The exit costs include development cost impairment £3.8m, inventory write downs
£1.4m and receivables write offs £0.2m.
The restructuring and alignment of the milkrite | InterPuls European distribution business during 2019 created a vacant property at our Italian
operation. Changes in the local economy, as highlighted by a subsequent valuation of the site, mean that it was appropriate to write the
carrying value of this property down by £1.1m.
The restructuring costs in 2018 represent the relocation of the West Palm Beach, Florida facility to our Cadillac, Michigan facility.
Defined benefit pension scheme costs relate to administrative expenses of the scheme which is closed to future accrual.
The impact on the cash flow statement of the exceptional items was £1.9m (2018: £0.1m).
Discontinued operations
In March 2018, the Group disposed of Avon Engineered Fabrications, Inc. its U.S. based hovercraft skirt and bulk liquid storage tank business.
This non–core business was included in Avon Protection. The business has been classified as discontinued and prior periods have been
restated to reflect this. The results of discontinued operations are as follows:
Revenue
Total cost of sales, selling and distribution costs and general administrative expenses
Profit before taxation
Taxation
Profit for the period
Gain on disposal (note 7.2)
Tax on gain on disposal
Profit from discontinued operations
Basic earnings per share
Diluted earnings per share
2018
£m
4.9
(4.2)
0.7
(0.2)
0.5
1.4
(0.3)
1.6
5.2p
5.2p
Further details in relation to the discontinued operations can be found in note 7.2.
Cash flows from discontinued operations included in the cash flow statement are as follows:
Net cash flows (used in) operating activities
Net cash flows from investing activities
Net cash flows from discontinued operations
2.3 Earnings per share
119
2018
£m
(0.2)
6.5
6.3
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. Adjusted earnings per share removes the effect of the amortisation of acquired
intangible assets, exceptional items, acquisition costs and defined benefit pension scheme costs, reflecting the basis on which the business
is managed and measured on a day to day basis.
Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below.
Weighted average number of shares
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)
Earnings
Basic
Basic – continuing operations
Adjusted
Adjusted – continuing operations
Earnings per share (pence)
Basic
Basic – continuing operations
Diluted
Diluted – continuing operations
Adjusted
Adjusted – continuing operations
Adjusted Diluted
Adjusted Diluted – continuing operations
2019
30,516
260
30,776
2019
14.3
14.3
28.0
28.0
2019
46.9
46.9
46.5
46.5
91.7
91.7
90.9
90.9
2018
30,511
218
30,729
2018
21.4
19.8
23.5
23.5
2018
70.1
64.9
69.6
64.4
77.1
77.1
76.6
76.6
OverviewOther informationFinancial Statements GovernanceStrategic Report 120
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Notes to the Group Financial Statements continued
For the year ended 30 September 2019
Section 2 – Results for the year continued
2.4 Expenses by nature
Changes in inventories of finished goods and work in progress
Raw materials and consumables used
Employee benefit expense (note 6.1)
Depreciation and amortisation charges (notes 3.1 and 3.2)
Property impairment (note 3.2)
Development costs impairment (note 3.1)
Transportation expenses
Operating lease payments
Travelling costs
Legal and professional fees
Acquisition costs
Defined benefit scheme past service costs
Impairment of inventory and receivables re: exit Fire SCBA market
Other expenses
Total cost of sales, selling and distribution costs and general and administrative expenses
2019
£m
(0.9)
64.3
45.5
11.7
1.1
3.8
2.7
1.7
3.6
3.1
2.9
3.5
1.6
20.3
164.9
2018
£m
(0.1)
64.5
44.6
11.1
–
–
2.5
1.7
3.4
2.1
–
–
–
12.9
142.7
Other expenses include £2.0m (2018: £1.2m) of staff costs and overheads in relation to expensed research and development expenditure.
2.5 Profit before taxation
Profit before taxation is shown after charging/(crediting):
(Gain)/Loss on foreign exchange
Loss on disposal of property, plant and equipment
Depreciation of property, plant and equipment
Property impairment
Repairs and maintenance of property, plant and equipment
Amortisation of development expenditure and software
Amortisation of acquired intangibles
Impairment development costs
Research and development
Impairment/(Write back) 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
Total fees
2.6 Taxation
U.K. current tax
U.K. adjustment in respect of previous periods
Overseas current tax
Overseas adjustment in respect of previous periods
Total current tax charge
Deferred tax – current year
Deferred tax – adjustment in respect of previous periods
Total deferred tax credit
Total tax (credit)/charge
121
2019
£m
2018
£m
0.6
–
4.3
1.1
1.1
3.9
3.5
3.8
0.1
1.1
0.1
1.7
0.1
0.1
0.2
2019
£m
0.4
0.1
6.4
(3.4)
3.5
(4.0)
(0.1)
(4.1)
(0.6)
(0.5)
0.1
4.9
–
0.9
3.1
3.1
–
0.2
(0.1)
0.2
1.7
0.1
0.1
0.2
2018
£m
1.1
–
4.1
(1.2)
4.0
(1.5)
(0.7)
(2.2)
1.8
The overseas adjustment in respect of the prior period of £3.4m includes a £3.1m credit in connection with the resolution of a number of
prior year uncertain tax positions.
OverviewOther informationFinancial Statements GovernanceStrategic Report 122
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Notes to the Group Financial Statements continued
For the year ended 30 September 2019
Section 2 – Results for the year continued
2.6 Taxation continued
The tax on the Group’s profit before taxation differs from the theoretical amount that would arise using the standard U.K. tax rate applicable
to profits of the consolidated entities as follows:
Profit before taxation
Profit before taxation at the average standard rate of 19.0% (2018: 19.0%)
Tax allowances (U.K. and U.S.)
Non deductible expenses
Unrecognised tax losses
Changes in overseas tax rates
Differences in overseas tax rates
Adjustment in respect of previous periods
Tax (credit)/charge
2019
£m
13.7
2.6
(0.4)
0.2
0.2
–
0.2
(3.4)
(0.6)
The income tax charged directly to Other Comprehensive Income during the year was £0.3m (2018: £0.3m).
The deferred tax credited directly to Other Comprehensive Income during the year was £1.5m (2018: £2.3m charge).
The deferred tax credited directly to equity during the year was £0.2m (2018: nil).
Deferred tax liabilities
At 1 October 2017
Charged against profit for the year
At 30 September 2018
Charged/(credited) to profit for the year
Charged to Other Comprehensive Income
At 30 September 2019
Accelerated
capital allowances
£m
Other temporary
differences
£m
1.9
(0.6)
1.3
0.1
–
1.4
4.9
0.7
5.6
(1.8)
0.2
4.0
2018
£m
21.6
4.1
(0.5)
–
–
(0.9)
1.0
(1.9)
1.8
Total
£m
6.8
0.1
6.9
(1.7)
0.2
5.4
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.
Deferred tax assets
Retirement
benefit obligation
£m
Share options
£m
Accelerated
capital allowances
£m
Other temporary
differences
£m
At 30 September 2017
Credited to profit for the year
(Charged) to Other Comprehensive Income
At 30 September 2018
Credited/(charged) against profit for the year
Credited to Other Comprehensive Income
Credited to equity
At 30 September 2019
The standard rate of corporation tax in the U.K. is 19%.
7.5
–
(2.3)
5.2
0.6
1.5
–
7.3
0.4
0.2
–
0.6
0.1
–
0.2
0.9
0.3
–
–
0.3
(0.2)
–
–
0.1
–
2.1
–
2.1
1.9
0.2
–
4.2
Total
£m
8.2
2.3
(2.3)
8.2
2.4
1.7
0.2
12.5
A number of changes to the U.K. corporation tax system were announced in the March 2016 Budget Statement which reduce the main rate of
corporation tax to 17% by 1 April 2020. These changes were substantively enacted at the balance sheet date. The Group has no unrecognised
deferred tax assets (2018: nil).
123
Section 3 – Non-current assets
The Group holds both Intangible and Tangible assets for long-term within the business. The following notes provide information
regarding the carrying value of these assets, their expected useful economic lives and movements in these balances during the year.
3.1 Intangible assets
At 1 October 2017
Cost
Accumulated amortisation and impairment
Net book amount
Year ended 30 September 2018
Opening net book amount
Exchange differences
Additions
Acquisitions (note 7.2)
Discontinued
Amortisation
Closing net book amount
At 30 September 2018
Cost
Accumulated amortisation and impairment
Net book amount
Year ended 30 September 2019
Opening net book amount
Exchange differences
Additions
Impairment
Amortisation
Closing net book amount
At 30 September 2019
Cost
Accumulated amortisation and impairment
Net book amount
Goodwill
£m
Acquired
intangibles
£m
Development
expenditure
£m
Computer
software
£m
3.2
–
3.2
3.2
0.1
–
–
–
–
3.3
3.3
–
3.3
3.3
–
–
–
–
3.3
3.3
–
3.3
27.5
(7.3)
20.2
20.2
0.1
–
1.2
–
(3.1)
18.4
29.1
(10.7)
18.4
18.4
–
–
–
(3.5)
14.9
23.9
(9.0)
14.9
30.9
(15.5)
15.4
15.4
0.3
5.5
–
–
(2.5)
18.7
34.5
(15.8)
18.7
18.7
1.0
3.7
(3.8)
(3.3)
16.3
38.2
(21.9)
16.3
4.8
(3.2)
1.6
1.6
0.1
0.1
–
(0.1)
(0.6)
1.1
4.9
(3.8)
1.1
1.1
0.2
0.1
–
(0.6)
0.8
5.3
(4.5)
0.8
Total
£m
66.4
(26.0)
40.4
40.4
0.6
5.6
1.2
(0.1)
(6.2)
41.5
71.8
(30.3)
41.5
41.5
1.2
3.8
(3.8)
(7.4)
35.3
70.7
(35.4)
35.3
The remaining useful economic life of the development expenditure is between five and 12 years. During the year certain development costs
were impaired following the decision to exit the Fire SCBA market, see Note 2.2.
Acquired intangibles include brands, customer relationships and other intangibles:
At 1 October
2017
Net book
amount
£m
2.4
12.5
5.3
20.2
Exchange
differences
£m
Acquisitions
£m
Amortisation
£m
–
0.1
–
0.1
–
1.2
–
1.2
(0.3)
(1.9)
(0.9)
(3.1)
At 30
September
2018
Net book
amount
£m
2.1
11.9
4.4
18.4
Amortisation
£m
(0.4)
(2.3)
(0.8)
(3.5)
At 30
September
2019
Net book
amount
£m
1.7
9.6
3.6
14.9
Brand
Customer relationships
Other intangibles
OverviewOther informationFinancial Statements GovernanceStrategic Report 124
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Notes to the Group Financial Statements continued
For the year ended 30 September 2019
Section 3 – Non-current assets continued
3.1 Intangible assets continued
Goodwill acquired in a business combination is allocated to the groups of cash generating units (CGUs) that are expected to benefit from that
business combination. Goodwill of £1.9m (2018: £1.8m) is allocated to the Protection division and £1.4m (2018: £1.5m) is allocated to the Dairy division.
The Group tests goodwill and intangibles annually for impairment, or more frequently if there are indications that goodwill might be
impaired. Goodwill values are compared against the value in use of the relevant CGU groups. The value in use calculations were based on
projected cash flows for 2020 to 2022 derived from the latest three year plan approved by the Board. Cash flows for 2023 onwards for both
divisions were projected to grow by 2.0% per annum. Cash flows were discounted to give a present value using a pre–tax discount rate
of 8.6% (2018: 9.3%).
Sensitivity analysis suggests that a decrease in forecast revenue of more than 60% (2018: 70%) in relation to Avon Protection and 53%
(2018: 50%) in relation to milkrite | InterPuls could be sustained before an impairment was required.
Management considers that there are no reasonably likely changes to the above key assumptions which would lead to an impairment
being recognised.
3.2 Property, Plant and Equipment
At 1 October 2017
Cost
Accumulated depreciation and impairment
Net book amount
Year ended 30 September 2018
Opening net book amount
Exchange differences
Additions
Acquisitions (note 7.2)
Discontinued
Disposals
Depreciation charge
Closing net book amount
At 30 September 2018
Cost
Accumulated depreciation and impairment
Net book amount
Year ended 30 September 2019
Opening net book amount
Exchange differences
Additions
Impairment
Disposals
Depreciation charge
Closing net book amount
At 30 September 2019
Cost
Accumulated depreciation and impairment
Net book amount
1
Plant and machinery includes £1.1m in relation to a production line under construction at the year end
Freeholds
£m
Plant and
machinery
£m
14.6
(3.1)
11.5
11.5
(0.1)
0.1
–
(2.1)
–
–
9.4
12.4
(3.0)
9.4
9.4
(0.1)
–
(1.1)
–
–
8.2
12.6
(4.4)
8.2
66.2
(51.4)
14.8
14.8
(0.1)
3.4
0.4
(0.3)
(0.1)
(4.9)
13.2
66.7
(53.5)
13.2
13.2
0.5
3.9
–
(0.1)
(4.3)
13.21
71.3
(58.1)
13.21
Total
£m
80.8
(54.5)
26.3
26.3
(0.2)
3.5
0.4
(2.4)
(0.1)
(4.9)
22.6
79.1
(56.5)
22.6
22.6
0.4
3.9
(1.1)
(0.1)
(4.3)
21.4
83.9
(62.5)
21.4
125
Section 4 – Working capital
This section presents disclosures around the Groups working capital balances; Inventories, Trade receivables, Payables and Cash. You will also
find information regarding cash generated from operating activity. The Group has a strong cash position but careful management of working
capital remains a key focus of the business.
4.1 Inventories
Raw materials
Work in progress
Finished goods
2019
£m
13.0
0.5
7.2
20.7
2018
£m
15.3
0.4
7.3
23.0
Provisions for inventory write downs were £4.9m (2018: £3.6m).
The cost of inventories recognised as an expense and included in cost of sales amounted to £64.3m (2018: £64.5m). The amount of inventory
carried as fair value less costs to sell is nil (2018: nil).
4.2 Trade and other receivables
Trade receivables
Less: provision for impairment of receivables
Trade receivables – net
Prepayments
Other receivables
Other receivables comprise sundry items which are not individually significant for disclosure.
Movements on the Group provision for impairment of receivables are as follows:
At 1 October
Provision for impairment of receivables
At 30 September
2019
£m
32.5
(0.6)
31.9
1.7
1.8
35.4
2019
£m
0.5
0.1
0.6
The creation and release of provisions for impaired receivables have been included in general and administrative expenses in the
consolidated statement of comprehensive income.
4.3 Cash and cash equivalents
Cash at bank and in hand
2019
£m
48.4
Cash at bank and in hand balances are denominated in a number of different currencies and earn interest based on national rates.
2018
£m
21.2
(0.5)
20.7
1.1
2.4
24.2
2018
£m
0.3
0.2
0.5
2018
£m
46.6
OverviewOther informationFinancial Statements GovernanceStrategic Report 126
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Notes to the Group Financial Statements continued
For the year ended 30 September 2019
Section 4 – Working capital continued
4.3 Cash and cash equivalents continued
The Group generates cash from its operating activities as follows:
Continuing operations
Profit for the year
Adjustments for:
Taxation
Depreciation
Property impairment
Amortisation of intangible assets
Impairment of development costs
Defined benefit pension scheme cost
Finance income
Finance costs
Other finance expense
Loss on disposal of property, plant and equipment
Fair value of share-based payments
Impairment of inventory and receivables re: exit Fire SCBA market
(Increase)/decrease in inventories
(Increase)/decrease in receivables
(Decrease)/increase in payables and provisions
Cash flows from continuing operations
Analysed as:
Cash flows from continuing operations prior to the effect of exceptional operating items
Cash effect of exceptional operating items
Discontinued operations
Profit for the year
Gain on disposal and net effect of operating activities
Cash flows (used in) discontinued operations
Cash flows from operations
4.4 Trade and other payables
Trade payables
Contract liabilities
Other taxation and social security
Other payables
Accruals
2019
£m
14.3
(0.6)
4.3
1.1
7.4
3.8
4.0
(0.4)
0.2
0.9
–
0.4
1.6
0.7
(9.9)
(4.6)
23.2
25.1
(1.9)
–
–
–
23.2
2019
£m
10.8
3.7
0.5
0.6
15.5
31.1
2018
£m
19.8
1.8
4.9
–
6.2
–
0.5
(0.2)
0.2
1.2
0.1
1.2
–
(2.1)
(1.8)
6.3
38.1
38.2
(0.1)
1.6
(1.8)
(0.2)
37.9
2018
£m
13.2
3.0
0.3
1.2
16.8
34.5
Contract liabilities represents amount invoiced under contracts with customers but not recognised as revenue at the balance sheet date
and cash received in advance. £1.2m of the balance in contract liabilities at the start of the year is recognised in revenue in the current year.
Other payables comprise sundry items which are not individually significant for disclosure.
127
Section 5 – Funding
The Group has maintained a strong balance sheet in order to fund its growth strategy and make further acquisitions. Additional funding
is available via undrawn committed facilities.
Forward exchange contracts are used to hedge material foreign risk arising on sales and purchases denominated in a currency other
than sterling.
The following section provides disclosures about the Group’s funding position, including borrowings, hedging instruments, its exposure
to market risks and its capital management policies.
5.1 Borrowings
Current
Bank loans
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.
2019
£m
0.1
2019
£m
69.0
69.0
0.1
0.3
69.4
2018
£m
0.1
2018
£m
30.7
30.7
0.1
0.3
31.1
During the year the Group extended its $40m revolving credit facility with Barclays Bank and Comerica Bank to $85m with an expiry date of 28 June
2022 and an option to extend for a further year. This facility is priced on the dollar LIBOR plus margin of 1–1.75% depending on leverage and includes
financial covenants which are measured on a quarterly basis. The Group was in compliance with its financial covenants during 2019 and 2018.
During 2018 InterPuls S.p.A. renewed its loan facility which now expires on 31 October 2019. This facility is priced on Euribor plus margin of 1.15%.
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
Finance lease liabilities
5.2 Net finance costs
Interest payable on bank loans and overdrafts
Interest income
Sterling
%
–
–
2019
Dollar
%
–
–
Euro
%
0.8
–
Sterling
%
–
–
2018
Dollar
%
–
–
2019
£m
(0.2)
0.4
0.2
Euro
%
0.8
–
2018
£m
(0.2)
0.2
–
OverviewOther informationFinancial Statements GovernanceStrategic Report 128
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Notes to the Group Financial Statements continued
For the year ended 30 September 2019
Section 5 – Funding continued
5.2 Net finance costs continued
Other finance expense
Net interest cost: U.K. defined benefit pension scheme (note 6.2)
Amortisation of finance fees
2019
£m
(0.8)
(0.1)
(0.9)
2018
£m
(1.1)
(0.1)
(1.2)
5.3 Analysis of net cash/debt
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
Debt due in less than one year
Cash at bank and in hand
Debt due in less than one year
5.4 Financial instruments
Financial instruments by category
At 1 October
2018
£m
46.6
(0.1)
46.5
At 1 October
2017
£m
26.5
(1.8)
24.7
Cash flow
£m
1.2
–
1.2
Cash flow
£m
20.7
1.7
22.4
Exchange
movements
£m
At 30 September
2019
£m
0.6
–
0.6
48.4
(0.1)
48.3
Exchange
movements
£m
At 30 September
2018
£m
(0.6)
–
(0.6)
46.6
(0.1)
46.5
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 finance 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 finance 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 U.S. 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 U.S. Government noted above.
Where possible, letters of credit or payments in advance are received for significant export sales.
The Group recognises loss allowances for expected credit losses (ECLs) on financial assets measured at amortised cost and contract assets
(as defined in IFRS 15).
129
Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime ECL.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL,
the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes
both quantitative and qualitative information and analysis, based on the company’s historical experience and informed credit assessment
and including forward-looking information.
Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.
Measurement of ECLs
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the
difference between the cash flows due to the entity in accordance with the contract and the cash flows that the company expects to receive).
ECLs are discounted at the effective interest rate of the financial asset.
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
The maximum exposure to credit risk for financial assets at the reporting date by currency was:
Carrying amount of financial assets
Sterling
U.S. dollar
Euro
Other currencies
2019
£m
31.9
1.8
48.4
82.1
2019
£m
43.4
32.0
5.3
1.4
82.1
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
2019
£m
27.6
2.8
1.1
0.3
0.7
32.5
Provision
2019
£m
–
–
(0.1)
(0.2)
(0.3)
(0.6)
Net
2019
£m
27.6
2.8
1.0
0.1
0.4
31.9
Gross
2018
£m
18.1
2.3
0.2
0.3
0.3
21.2
Provision
2018
£m
–
–
–
(0.3)
(0.2)
(0.5)
The total past due receivables, net of provisions is £4.3m (2018: £2.6m).
The individually impaired receivables mainly relate to a number of independent customers. Provisions for impairment are based on
expected credit losses and are estimated based on knowledge of customers and historic experience of losses. A portion of these
receivables is expected to be recovered.
2018
£m
20.7
2.4
46.6
69.7
2018
£m
38.2
26.3
3.0
2.2
69.7
Net
2018
£m
18.1
2.3
0.2
–
0.1
20.7
OverviewOther informationFinancial Statements GovernanceStrategic Report 130
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Notes to the Group Financial Statements continued
For the year ended 30 September 2019
Section 5 – Funding continued
5.4 Financial instruments continued
(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 net cash of £48.3m (2018: £46.5m)
and undrawn facilities of £69.0m (2018: £30.7m).
The following shows the contractual maturities of financial liabilities, including interest payments, where applicable, and excluding the
impact of netting agreements and on an undiscounted basis:
Analysis of contractual cash flow maturities
30 September 2019
Bank loans and overdrafts
Trade and other payables
Forward exchange contracts used for hedging1
– Outflow
– Inflow
Analysis of contractual cash flow maturities
30 September 2018
Bank loans and overdrafts
Trade and other payables
Forward exchange contracts used for hedging1
– Outflow
– Inflow
Carrying
amount
£m
Contractual
cash flows
£m
Less than
12 months
£m
0.1
30.6
1.3
32.0
0.1
30.6
42.9
(41.6)
32.0
0.1
30.6
42.9
(41.6)
32.0
Carrying
amount
£m
Contractual
cash flows
£m
Less than
12 months
£m
0.1
34.2
0.4
34.7
0.1
34.2
11.1
(10.7)
34.7
0.1
34.2
11.1
(10.7)
34.7
1
Presented as Derivative Financial Instruments within Current Liabilities
(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 U.S. dollar and related currencies and the euro. The Group looks to hedge material forecast U.S. dollar
or euro foreign currency transactional exposures using forward exchange contracts in line with the Group hedging policy.
The Group has designated 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.
131
At 30 September 2019 and 2018 the Group held the following instruments to hedge exposures to changes in foreign currency rates:
Forward exchange contracts
Net exposure (£m)
Average GBP:USD forward contract rate
Average GBP:EUR forward contract rate
Maturity
1–6 months
2019
£m
6–12 months
2019
£m
1–6 months
2018
£m
6–12 months
2018
£m
0.3
1.323
1.157
0.1
1.337
1.145
0.3
1.335
1.118
0.1
1.363
1.104
In these hedge relationships the main sources of ineffectiveness are changes in the timing of the hedged transactions, variances between
forecast and actual hedged transactions and the effect of the counterparties’ and the Group’s own credit risk on the fair value of the forward
exchange contracts, which is not reflected in the change in the fair value of the hedged cashflows attributable to the change in exchange rates.
All hedging relationships designated under IAS 39 at 30 September 2018 met the criteria for hedge accounting under IFRS 9 at 1 October 2018
and are therefore regarded as continuous hedging relationships.
There is an economic relationship between the value of the currency denominated assets and liabilities and the fair value of the forward
exchange contracts, i.e. the fair value of the forward contracts, move in the opposite direction to the value of the hedged items because
of the same risk which is the hedged risk.
All forward exchange contracts in place at 30 September 2019 mature within one year.
Deal contingent forward
An agreement to acquire 3M’s ballistic protection business and the rights to the Ceradyne brand was announced on 6 August 2019.
The acquisition will be funded in USD from a combination of available cash and borrowings and is expected to complete during the first half of FY20.
On signing the agreement the Group entered into a deal contingent forward to hedge the foreign exchange risk on the USD equivalent of the
cash funded element of the purchase price.
The contract, which will only crystallise if the deal completes within a specified time frame, has been designated as a cash flow hedge in line
with the Group’s hedging policy.
There is an economic relationship between the value of the USD purchase price and the fair value of the DCF.
The ultimate effectiveness of the hedge will be determined by the completion of the acquisition within the expected time frame.
As at the balance sheet date the expected purchase is deemed to be highly probable and therefore fair value movements to date have been
treated as an effective cash flow hedge and recognised through the consolidated statement of comprehensive income. The fair value of the
DCF at 30 September 2019 was £0.9m liability (2018: £nil) and the average GBP:USD rate applicable under the contract 1.210.
OverviewOther informationFinancial Statements GovernanceStrategic Report 132
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Notes to the Group Financial Statements continued
For the year ended 30 September 2019
Section 5 – Funding continued
5.4 Financial instruments continued
The amounts at the reporting date relating to items designated as hedged items were as follows:
Change in
value used for
calculating hedge
ineffectiveness
2019
£m
Cash flow hedge
reserve
2019
£m
Change in
value used for
calculating hedge
ineffectiveness
2018
£m
Cash flow hedge
reserve
2018
£m
Working capital cashflows
Purchase of assets under APA
0.4
0.9
0.4
0.9
0.4
–
0.4
–
There are no balances remaining in the cash flow hedge reserve from hedging relationships for which hedge accounting is no longer applicable.
The following table provides a reconciliation by risk category of components of equity and analysis of OCI items, net of tax, resulting from
cashflow hedge accounting.
Hedging reserve
Balance at 1 October
Cash flow hedges:
Changes in fair value relating to foreign currency risk
Amount reclassified to profit or loss relating to foreign currency risk
Tax on movements on reserves during the year
Balance at 30 September
2019
£m
(0.4)
(1.3)
0.4
0.2
(1.1)
2018
£m
0.2
(0.4)
(0.2)
–
(0.4)
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.
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
U.S. dollar against sterling would have had a £1.2m (2018: £0.8m) impact on the Group’s current year profit before interest and tax, a £0.9m
(2018: £0.7m) impact on the Group’s profit after tax and a £1.6m (2018: £1.5m) impact on shareholders’ funds. The method of estimation,
which has been applied consistently, involves assessing the translation impact of the U.S. dollar.
A general change of 5 cents in the value of the euro against sterling would have had an £0.1m (2018: £0.1m) impact on the Group’s
current year profit before interest and tax, a £0.1m (2018: £0.1m) impact on the Group’s profit after tax and a £1.0m (2018: £1.0m) impact on
shareholders’ funds. The method of estimation which has been applied consistently, involves assessing the translation impact of the euro.
The following significant exchange rates applied during the year:
U.S. dollar
Euro
(b) Interest rate risk
Average rate
2019
Closing rate
2019
Average rate
2018
Closing rate
2018
1.276
1.131
1.232
1.126
1.346
1.132
1.305
1.127
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 £48.3m (2018: £46.5m) a 1% increase in interest rates would have no
impact on interest costs (2018: nil).
133
The floating rate financial liabilities 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.
(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 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
(v) Fair values
2019
£m
(0.1)
48.4
48.3
515.6
n/a
2018
£m
(0.1)
46.6
46.5
400.2
n/a
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
Bank loans, overdrafts and finance leases
Trade and other payables
Basis for determining fair value
Carrying amount
2019
£m
Fair value
2019
£m
Carrying amount
2018
£m
Fair value
2018
£m
31.9
1.8
48.4
(1.3)
(0.1)
(30.6)
50.1
31.9
1.8
48.4
(1.3)
(0.1)
(30.6)
50.1
20.7
2.4
46.6
(0.4)
(0.1)
(34.2)
35.0
20.7
2.4
46.6
(0.4)
(0.1)
(34.2)
35.0
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.
OverviewOther informationFinancial Statements GovernanceStrategic Report 134
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Notes to the Group Financial Statements continued
For the year ended 30 September 2019
Section 5 – Funding continued
5.5 Equity
Share capital
Called up allotted and fully
paid ordinary shares of £1 each
At the beginning of the year
At the end of the year
No. of
shares
2019
Ordinary
shares
2019
£m
Share
premium
2019
£m
No. of
shares
2018
Ordinary
shares
2018
£m
Share
premium
2018
£m
31,023,292
31,023,292
31.0
31.0
34.7
34.7
31,023,292
31,023,292
31.0
31.0
34.7
34.7
Details of outstanding share options and movements in share options during the year are given in the Remuneration Report on pages 73 to 89.
Ordinary shareholders are entitled to receive dividends and to vote at meetings of the Company.
Own shares held
Balance at 1 October
Acquired in the period
Disposed of on exercise of options
At 30 September
2019
No. of shares
m
2018
No. of shares
m
0.5
0.1
(0.1)
0.5
0.6
0.1
(0.2)
0.5
At 30 September 2019 506,274 (2018: 499,264) 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 2019 was £8.4m
(2018: £6.4m). These shares are held at cost as treasury shares and deducted from shareholders’ equity.
During 2019 the trust acquired 100,000 (2018: 100,000) shares at a cost of £1.3m (2018: £1.1m).
92,990 (2018: 154,641) shares were used to satisfy awards following the vesting of shares relating to the 2010 Performance Share Plan.
3,364 (2018: 3,031) ordinary shares of £1 each were awarded in relation to the annual incentive plan.
5.6 Dividends
On 1 February 2019, the shareholders approved a final dividend of 10.68p per qualifying ordinary share in respect of the year ended
30 September 2018. This was paid on 15 March 2019 utilising £3.3m of shareholders’ funds (2018: £2.5m).
The Board of Directors declared an interim dividend of 6.94p (2018: 5.34p) per qualifying ordinary share in respect of the year ended
30 September 2019. This was paid on 6 September 2019 utilising £2.1m (2018: £1.6m) of shareholders’ funds.
After the balance sheet date the Board of Directors proposed a final dividend of 13.89p per qualifying ordinary share in respect of the year
ended 30 September 2019, which will absorb an estimated £4.2m of shareholder’s funds. Subject to shareholder approval the dividend
will be paid on 13 March 2020 to shareholders on the register at the close of business on 14 February 2020. In accordance with accounting
standards the dividend has not been provided for and there are no corporation tax consequences.
135
Section 6 – Key management & employee benefits
Recruiting and retaining the right people is key to the success of the business. The remuneration policies in place are aimed at ensuring
this is possible and to celebrate and reward the contribution that the Group’s employees make to the performance of the Group.
The following pages include disclosures on wages and salaries and share option schemes which allow employees of the Group to take
an equity interest in the Group.
This section also includes full disclosures in relation to both the U.K. defined benefit scheme which was closed to future accrual of benefit
in 2009, and the contributions made to current defined contribution schemes.
6.1 Employees
The total remuneration and associated costs during the year were:
Wages and salaries
Social security costs
Other pension costs
U.S. healthcare costs
Share-based payments (note 6.3)
2019
£m
37.2
3.8
1.1
3.0
0.4
45.5
2018
£m
36.5
3.6
1.0
2.3
1.2
44.6
Detailed disclosures of Directors’ remuneration and share options, including disclosure of the highest paid Director, are given on pages 73 to 89.
The average monthly number of employees (including Executive Directors) during the year was:
By business segment
Avon Protection
milkrite | InterPuls
Other
At the end of the financial year the total number of employees in the Group was 822 (2018: 784).
Key management compensation
Salaries and other employee benefits
Post employment benefits
Share-based payments
2019
Number
2018
Number
554
271
29
854
2019
£m
2.4
0.1
0.3
2.8
493
272
16
781
2018
£m
1.9
0.1
0.5
2.5
The key management compensation above includes the Directors plus seven (2018: six) others who were members of the Group Executive
during the year.
OverviewOther informationFinancial Statements GovernanceStrategic Report 136
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Notes to the Group Financial Statements continued
For the year ended 30 September 2019
Section 6 – Key management & employee benefits continued
6.2 Pensions and other retirement benefits
Retirement benefit assets and liabilities can be analysed as follows:
Net pension liability
Defined benefit pension scheme
2019
£m
43.0
2018
£m
30.5
Full disclosures are provided in respect of the U.K. 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 U.K. employed prior to 31 January 2003. The plan was closed to future accrual of benefit on 1 October 2009 and
has a weighted average maturity of approximately 14 years. 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. Three of the Directors are appointed by the Company and two are elected by the members.
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 2016 when the market value of the plan’s assets was £298.6m. The fair value of those assets represented 90% of the value of the
benefits which had accrued to members, after allowing for future increase in pensions.
During the year an assessment of the impact of GMP equalisation was undertaken and an additional past service cost of £2.9m was
recognised in the income statement. The key assumptions in the GMP equalisation calculation are the inflation assumption applied and
the benefit structure (split between males and females). Any impact on future funding arrangements will be considered in line with the
2019 triennial valuation.
During the year the Group made payments to the fund of £1.5m (2018: £1.5m) in respect of scheme expenses and deficit recovery plan
payments. A revised deficit recovery plan is in the process of being agreed in line with the updated 31 March 2019 triennial valuation. This
plan will define the payments the Group will make in 2020 in respect of deficity recovery plan and scheme expenses and is expected to be
finalised during the first half of FY20.
The defined benefit plan exposes the Group to actuarial risks such as longevity risk, inflation risk and investment risk.
The Directors have confirmed no additional liability is required to be recognised as a consequence of minimum funding requirements.
The trustees have no rights to wind up the scheme or improve benefits without Company consent.
An updated actuarial valuation for IAS 19 (revised) purposes was carried out by an independent actuary at 30 September 2019 using the
projected unit method.
137
Movement in net defined benefit liability
At 1 October
Included in profit or loss
Administrative expenses
Past service cost
Net interest cost
Included in other comprehensive income
Remeasurement (loss)/gain:
– Actuarial (loss)/gain arising from:
– Demographic assumptions
– Financial assumptions
– Experience adjustment
– Return on plan assets excluding interest income
Other
Contributions by the employer
Net benefits paid out
At 30 September
Plan assets
Equities and other securities
Liability Driven Investment
Corporate bonds
Cash
Total fair value of assets
Defined benefit obligation
Defined benefit asset
Net defined benefit liability
2019
£m
(346.9)
(0.5)
(3.5)
(9.4)
(13.4)
7.0
(52.7)
(3.2)
–
(48.9)
–
17.1
2018
£m
(368.4)
(0.5)
–
(9.2)
(9.7)
2.2
9.1
0.8
–
12.1
–
19.1
(392.1)
(346.9)
2019
£m
316.4
–
–
8.6
8.6
–
–
–
39.7
39.7
1.5
(17.1)
349.1
2018
£m
324.3
–
8.1
8.1
–
–
–
1.6
1.6
1.5
(19.1)
316.4
2019
£m
(30.5)
(0.5)
(3.5)
(0.8)
(4.8)
7.0
(52.7)
(3.2)
39.7
(9.2)
1.5
–
(43.0)
2019
£m
182.2
132.8
–
34.1
349.1
2018
£m
(44.1)
(0.5)
–
(1.1)
(1.6)
2.2
9.1
0.8
1.6
13.7
1.5
–
(30.5)
2018
£m
184.7
88.0
28.8
14.9
316.4
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 plan’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. The target weightings
under the current asset allocation strategy are 50% to growth assets, 20% to mid-risk assets and 30% to LDI.
OverviewOther informationFinancial Statements GovernanceStrategic Report 138
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Notes to the Group Financial Statements continued
For the year ended 30 September 2019
Section 6 – Key management & employee benefits continued
6.2 Pensions and other retirement benefits continued
Actuarial assumptions
The main financial assumptions used by the independent qualified actuaries to calculate the liabilities under IAS 19 (revised) are set out below:
Inflation (RPI)
Inflation (CPI)
Pension increases post August 2005
Pension increases pre August 2005
Discount rate for scheme liabilities
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
2019
% p.a.
3.20
2.20
2.20
3.10
1.75
2019
21.6
23.5
The average life expectancy in years of a pensioner retiring at age 65, 20 years after the balance sheet date is as follows:
2018
% p.a.
3.20
2.20
2.20
3.10
2.80
2018
22.1
24.0
2018
23.8
25.8
2019
23.3
25.4
Defined benefit obligation
Increase/(decrease)
£m
7.8
(13.7)
16.5
Male
Female
Sensitivity analysis
Inflation (RPI) (0.25% increase)
Discount rate for scheme liabilities (0.25% increase)
Future mortality (one year increase)
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
The charge in respect of defined contribution pension schemes was £1.1m (2018: £1.0m).
139
6.3 Share-based payments
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 pages 73 to 89 and are incorporated by reference into these financial statements. An expense of
£0.4m (2018: £1.2m) was recognised in the year.
The table below summarises the movements in the number of share options outstanding for the Group:
Outstanding at 1 October
Forfeited during the year
Exercised during the year
Granted during the year
Outstanding at 30 September
Number of options
(thousands)
2019
Number of options
(thousands)
2018
427
(20)
(93)
177
491
413
(5)
(155)
174
427
A Monte Carlo simulation was used to calculate the fair value of awards granted that are subject to a Total Shareholder Return performance
condition. The fair value of other awards was calculated as the market price of the shares at the date of grant reduced by the present value
of the dividends expected to be paid over the vesting period. The principal assumptions used were:
Weighted average fair value (£)
Key assumptions used:
Closing share price at date of grant (£) (2018: Weighted average share price)
Expected volatility (%)
Risk-free interest rate (%)
Expected option term (yrs.)
Dividend yield (%)
Volatility is estimated based on actual experience over the last three years.
Section 7 – Other
7.1 Provisions for liabilities and charges
Balance at 30 September 2017
Reclassification from other payables
Provision utilised
Payments in the year
Balance at 30 September 2018
Provision reversed during the year
Payments in the year
Balance at 30 September 2019
Prior year movements include the reclassification of property provisions previously held within Other Payables.
Analysis of total provisions
Non–current
Current
2019
9.48
12.50
24
0.7
2.7
–
2019
£m
2.3
–
2.3
2018
8.62
11.94
29
0.5
3.0
1.0
Property
obligations
£m
2.0
1.5
(0.4)
(0.3)
2.8
(0.4)
(0.1)
2.3
2018
£m
2.5
0.3
2.8
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Notes to the Group Financial Statements continued
For the year ended 30 September 2019
Section 7 – Other continued
7.1 Provisions for liabilities and charges continued
Property obligations previously included an onerous lease provision of £0.9m in respect of unutilised space at the Group’s leased Melksham
facility in the U.K., £0.1m of this provision was utilised in 2019 with the remaining £0.8m being released as a result of the this facility now being
fully utilised. Other property obligations relate to leased premises of the Group which are subject to dilapidation risks and are expected to
be utilised within the next ten years. Such provisions were increased by £0.4m during the year. Property provisions are subject to uncertainty
in respect of the utilisation, non-utilisation, subletting of surplus leasehold property and any final negotiated settlement of any dilapidation
claims with landlords.
7.2 Acquisitions & disposals
Acquisition – 3M’s ballistic protection business
The signing of an agreement to acquire 3M’s ballistic protection business and the rights to the Ceradyne brand was announced on 6 August
2019. The acquisition is subject to U.S. regulatory approvals and is expected to close during the first half of 2020. The results of the Ceradyne
business are not consolidated within the 2019 financial statements as the purchase agreement does not transfer control to the Group and
therefore this announcement has a limited impact on the 2019 financial statements. However the following transactions have been included
and reported within these financial statements:
Acquisition costs
The acquisition related costs are expensed in the periods in which the services are received, in line with recognised accounting practices.
£2.8m of such costs, including legal, due diligence and tax advisory fees, have been recognised during the year. These acquisition costs are
presented as an exceptional item and excluded from adjusted profit measures.
Deal contingent forward
On signing the acquisition agreement the Company entered a deal contingent forward contract to hedge the foreign exchange risk on
the U.S. dollar equivalent of the £35m cash funded element of the purchase price. The forward contract will only crystallise if the deal
completes within a specified timeframe, three to twelve months from exchange. As a result, the fair value movements due to changes in
the currency exchange rates to the balance sheet date of £0.9m, are held on the balance sheet as a liability at year end rather than impacting
the income statement.
Disposal – Avon Engineered Fabrications
In March 2018, the Group disposed of Avon Engineered Fabrications, Inc. Further details are given in Note 2.2.
Total consideration received
Net assets disposed
Disposal cost
Gain on disposal
Assets and liabilities at the date of disposal were:
Intangible assets
Property, plant and equipment
Inventories
Receivables
Payables
Total net assets disposed
£m
7.1
(5.1)
(0.6)
1.4
£m
0.1
2.4
1.2
2.0
(0.6)
5.1
Acquisition – Merricks Inc. calf nurser product line
In June 2018, the Group acquired the Merrick’s Inc Calf Nurser product line. The consideration was $1.8m in cash and associated costs of
acquisition were $0.3m, giving a total cost of acquisition of $2.1m. The acquisition involved the purchase of both tangible assets – tooling
equipment, and intangible assets comprising customer lists, order book and the Merrick’s brand.
141
£m
1.2
0.4
1.6
2018
£m
2.3
2019
£m
0.9
Intangible assets
Tangible assets
Total net assets acquired
7.3 Other financial commitments
Capital expenditure committed
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 one and five years
Later than five years
The majority of leases of land and buildings are subject to rent reviews
7.4 Group undertakings
2019
£m
2.2
8.0
8.3
18.5
2018
£m
2.2
7.2
9.5
18.9
Registered Office Address
Activity
Country in which
incorporated
Held by Parent Company
Avon Polymer Products Limited
Hampton Park West, Melksham, SN12 6NB, U.K.
The manufacture and distribution of
rubber and polymer based products
Avon Rubber Overseas Limited
Hampton Park West, Melksham, SN12 6NB, U.K.
Investment company
Avon Rubber Pension Trust Limited
Hampton Park West, Melksham, SN12 6NB, U.K.
Pension fund trustee
milkrite | Interpuls (Shanghai)
International Trading Company Limited
(previously Avon Dairy Solutions
(Shanghai) International Trading
Company Limited)
Section B1, 1F, District D12C 207 Taigu Road,
Waigaoqiao Free Trade Zone, Shanghai, PRC
Trading company
Avon Rubber Italia S.r.l.
Corso di Porta Vittoria, 9 20122, Milano, Italy
Investment company
Held by Group undertakings
milkrite | Interpuls, Inc.
(previously Avon Hi-Life, Inc.)
110 Lincoln St, Johnson Creek, WI 53038, United States
Avon Protection Systems, Inc.
503 8th St, Cadillac, MI 49601, United States
The manufacture and distribution of
rubber and polymer based products
The manufacture and distribution of
respiratory protection systems
Avon Rubber & Plastics, Inc.
503 8th St, Cadillac, MI 49601, United States
Investment company
Avon Group Limited
Hampton Park West, Melksham, SN12 6NB, U.K.
Dormant company
Avon Protection Systems U.K. Limited
Hampton Park West, Melksham, SN12 6NB, U.K.
Dormant company
milkrite | Interpuls Solucoes Para Ordenha
LTDA (previously Avon-Dairy America do
sul Solucoes Para Ordentia LTDA)
City of Castro, State of Parana, at Rua Jose Antonio de
Oliveira, 80, Jardim das Araucarias, Zip Code 84174620
Trading company
Interpuls S.p.A.
via F. Maritano, 11 | 42020, Albinea RE, Italy
The manufacture and distribution of
milking point technology
U.K.
U.K.
U.K.
China
Italy
U.S.
U.S.
U.S.
U.K.
U.K.
Brazil
Italy
OverviewOther informationFinancial Statements GovernanceStrategic Report 142
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Notes to the Group Financial Statements continued
For the year ended 30 September 2019
Section 7 – Other continued
7.4 Group undertakings continued
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, Avon Rubber Italia S.r.l. and Avon Rubber & Plastics, Inc. are investment holding companies.
InterPuls S.p.A. designs and manufactures specialist milking components for use in the dairy industry.
The activities of all of the other companies listed above are the manufacture and/or distribution of rubber and other polymer based products.
Avon Polymer Products Limited and Avon Rubber Overseas Limited are exempt from the requirement to file audited accounts by virtue of
Section 479A of the Companies Act 2006 (‘the Act’). All remaining U.K. subsidiaries are exempt from the requirement to file audited accounts
by virtue of Section 480 of the Act.
7.5 Related party transactions
There were no related party transactions during the year or outstanding at the end of the year (2018: £nil). Key management compensation
is disclosed in note 6.1.
7.6 Significant accounting policy changes – IFRS 16
Under IFRS 16 the Group will recognise right of use assets and lease liabilities for most leases previously classified as operating leases.
The most material of such leases relate to leasehold property. The Group intends to apply the lease standard retrospectively allowing
comparability with prior period reported numbers in the 2020 Annual Report.
The change in accounting treatment will result in the creation of a deferred tax asset on application as a result of the timing difference
arising between the accounting and tax treatments of the lease payments, that will unwind over the remaining life of the leases.
The expected impact of the application of IFRS 16 on the balance sheet can be summarised as follows:
Right of use lease asset
Lease liability
Associated deferred tax asset
Net assets
On transition
At 1 October
2018
Balance sheet date
At 30 September
2019
7.4
(11.1)
0.7
(3.0)
6.5
(10.2)
0.7
(3.0)
The application of the new standard is expected to have a minimal impact on Earnings and Earnings per share in the short to medium-term.
However the lease costs that were previously reported in operating expenses will now be split between finance costs and amortisation, both
of which are carried below EBITDA, impacting EBITDA and cash conversion metrics.
The table below shows the impact of applying IFRS 16 on the 2019 reported results:
EBITDA
Earnings
Earnings per share
Adjusted EBITDA
Adjusted Earnings
Adjusted Earnings per share
As reported
2019
£m
Impact IFRS 16
2019
£m
31.0
14.3
46.9p
39.5
28.0
91.7p
2.0
–
–
2.0
–
–
Revised
2019
£m
33.0
14.3
46.9p
41.5
28.0
91.7p
Parent Company Balance Sheet
At 30 September 2019
143
Assets
Non-current assets
Intangible assets
Investments in subsidiaries
Deferred tax assets
Current assets
Trade and other receivables
Amounts owed by Group undertakings
Cash and cash equivalents
Liabilities
Current liabilities
Trade and other payables
Amounts owed to Group undertakings
Provisions for liabilities and charges
Net current assets
Non-current liabilities
Provisions for liabilities and charges
Net assets
Shareholders’ equity
Ordinary shares
Share premium account
Capital redemption reserve
Retained earnings
Total equity
Note
2019
£m
2018
£m
4
5
6
7
8
9
9
11
0.1
87.8
1.1
89.0
1.2
44.6
32.9
78.7
4.4
24.9
–
29.3
49.4
1.6
1.6
136.8
31.0
34.7
0.5
70.6
136.8
0.1
70.8
0.7
71.6
0.5
69.1
32.4
102.0
3.6
29.5
0.3
33.4
68.6
1.7
1.7
138.5
31.0
34.7
0.5
72.3
138.5
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the Company profit and loss
account. The profit for the Company for the year was £5.1m (2018: 11.5m).
These financial statements on pages 143 to 150 were approved by the Board of Directors on 13 November 2019 and signed on its behalf by:
Paul McDonald
Chief Executive Officer
Nick Keveth
Chief Financial Officer
OverviewOther informationFinancial Statements GovernanceStrategic Report
144
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Parent Company Statement of Changes in Equity
For the year ended 30 September 2019
At 30 September 2017
Profit and total comprehensive income for the year
Dividends paid
Own shares acquired
Fair value of share-based payments
Deferred tax relating to employee share schemes
At 30 September 2018
Profit for the year
Dividends paid
Own shares acquired
Fair value of share-based payments
Deferred tax relating to employee share schemes
Cashflow hedges
Deferred tax relating on cash flow hedges
At 30 September 2019
Note
1
2
11
13
6
1
2
11
13
6
6
Share
capital
£m
31.0
Share
premium
£m
Capital
redemption
reserves
£m
34.7
0.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31.0
34.7
0.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31.0
34.7
0.5
Retained
earnings
£m
64.5
11.5
(4.1)
(1.1)
1.2
0.3
72.3
5.1
(5.4)
(1.3)
0.4
0.2
(0.9)
0.2
70.6
Total
equity
£m
130.7
11.5
(4.1)
(1.1)
1.2
0.3
138.5
5.1
(5.4)
(1.3)
0.4
0.2
(0.9)
0.2
136.8
145
Parent Company Accounting Policies
For the year ended 30 September 2019
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.
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 U.K. pension schemes have been
provided in the Group financial statements.
Basis of preparation
The accounts have been prepared on a going concern basis and
in accordance with the Companies Act 2006 and with Financial
Reporting Standard 101 Reduced Disclosure Framework (FRS 101)
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 has taken advantage of the disclosure exemptions
available under FRS 101 in relation to the following:
• presentation of a cash flow statement and related notes (IAS 7)
• comparative period reconciliations for share capital and intangible
and tangible fixed assets (paragraph 38, IAS 1)
•
transactions with wholly owned subsidiaries (IAS 24)
• capital management (paragraph 134–136, IAS 1)
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.
•
share-based payments (paragraph 45(b) and 46 to 52, IFRS 2)
Intangible assets
• financial instruments (IFRS 7)
• compensation of key management personnel
(paragraph 17, IAS 24)
Where required, equivalent disclosures are given in the Group
financial statements.
Recent accounting developments
No new accounting standards, or amendments to accounting
standards, or IFRIC interpretations that are effective for the year ended
30 September 2019 have had a material impact on the Company.
Foreign currencies
The Group’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.
Pensions
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 U.K. 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.
One of the Company’s subsidiaries, Avon Polymer Products Limited is
the employer that is legally responsible for the scheme and the pension
obligations are included in full in its accounts. No asset or provision has
been reflected in the Company’s balance sheet for any surplus or deficit
arising in respect of pension obligations.
Computer software is included in intangible assets at cost and
amortised over its estimated life.
Impairment charges are made if there is significant doubt as to the
sufficiency of future economic benefits to justify the carrying values
of the intangible assets based upon discounted cash flow projections
using an appropriate risk weighted discount factor.
Plant and equipment
Property, plant and equipment is stated at historical cost 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.
Depreciation is provided estimated to write down the depreciable
amount of relevant assets by equal annual instalments over their
estimated useful lives.
In general, the lives used are:
• Computer hardware – three years
• Other plant and machinery – five to ten years
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.
OverviewOther informationFinancial Statements GovernanceStrategic Report 146
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Parent Company Accounting Policies continued
For the year ended 30 September 2019
Leased assets
Trade payables
Operating lease rentals are charged against profit over the term
of the lease on a straight line basis.
Trade payables are obligations to pay for goods or services that have
been acquired in the ordinary course of business from suppliers.
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.
Deferred taxation
Accounts payable are classified as current liabilities if payment is due
within one year or less (or in the normal operating cycle of the business
if longer). If not, they are presented as non-current liabilities. They are
initially recognised at fair value and subsequently held at amortised cost.
Provisions
Provisions are recognised when:
Because of the differences between accounting and taxable profits
and losses reported in each period, temporary differences arise on
the amount certain assets and liabilities are carried at for accounting
purposes and their respective tax values. Deferred tax is the amount
of tax payable or recoverable on these temporary differences.
•
•
the Company 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
Deferred tax liabilities arise where the carrying amount of an asset is
higher than the tax value (more tax deduction has been taken). This can
happen where the Company invests in capital assets, as governments
often encourage investment by allowing tax depreciation to be
recognised faster than accounting depreciation. This reduces the
tax value of the asset relative to its accounting carrying amount.
Deferred tax liabilities are generally provided on all taxable temporary
differences. The periods over which such temporary differences
reverse will vary depending on the life of the related asset or liability.
Deferred tax assets arise where the carrying amount of an asset is lower
than the tax value (less tax benefit which has been taken). Deferred tax
assets are recognised only where the Company considers it probable
that it will be able to use such losses by offsetting them against future
taxable profits.
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 tax is calculated using the enacted or substantively enacted
rates that are expected to apply when the asset is realised or the
liability is settled.
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.
Dividends
Final dividends are recognised as a liability in the Company’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.
Trade and other receivables
Share Capital
Trade and other receivables are classified as measured at amortised
cost. The Company recognises loss allowances for expected credit
losses (ECLs) on financial assets measured at amortised costs. Loss
allowances for trade receivables are always measured at an amount
equal to lifetime ECL.
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.
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.
147
Notes to the Parent Company Financial Statements
For the year ended 30 September 2019
1 Parent Company
As a consolidated statement of comprehensive income is published, a separate profit and loss account for the Parent Company is omitted
from the accounts by virtue of section 408 of the Companies Act 2006. The Parent Company’s profit for the financial year was £5.1m
(2018: £11.5m).
The audit fee in respect of the Parent Company is set out in note 2.5 to the Group financial statements.
2 Dividends
Details of the Company’s dividends are set out in note 5.6 to the Group financial statements.
3 Employees
The total remuneration and associated costs during the year were:
Wages and salaries
Social security costs
Other pension costs
Share-based payments
2019
£m
2.8
0.3
0.1
0.4
3.6
2018
£m
2.4
0.3
0.1
1.2
4.0
Detailed disclosures of Directors’ remuneration and share options, including disclosure of the highest paid Director, are given on pages 73 to 89.
The average monthly number of employees (including Executive Directors) during the year was: 23 (2018: 17), all of whom were classified as
administrative staff.
4 Intangible assets
Cost
At 1 October 2018
Additions
At 30 September 2019
Amortisation charge
At 1 October 2018
Charge for the year
At 30 September 2019
Net book value
At 30 September 2019
At 30 September 2018
Computer software
£m
0.2
0.1
0.3
0.1
0.1
0.2
0.1
0.1
OverviewOther informationFinancial Statements GovernanceStrategic Report 148
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Notes to the Parent Company Financial
Statements continued
For the year ended 30 September 2019
5 Investments in subsidiaries
Cost and net book value
At 1 October 2018
Additions
At 30 September 2019
£m
70.8
17.0
87.8
The Directors believe that the carrying value of the investments is supported by their underlying net assets. During the year an intercompany
loan with Avon Rubber Overseas Limited with a value of £17.0m was capitalised.
The investments consist of a 100% (unless indicated as otherwise) interest in the following subsidiaries:
Principal activity
Registered office
Country in which
incorporated
Avon Polymer Products Limited
The manufacture and distribution of
rubber and polymer based products
Hampton Park West, Melksham, SN12 6NB, U.K. U.K.
Avon Rubber Overseas Limited
Investment company
Hampton Park West, Melksham, SN12 6NB, U.K. U.K.
Avon Rubber Pension Trust Limited
Pension Fund Trustee
Hampton Park West, Melksham, SN12 6NB, U.K. U.K.
milkrite | InterPuls (Shanghai)
International Trading Company Limited
(previously Avon Dairy Solutions
(Shanghai) International Trading
Company Limited)
Trading company
Section B1, 1F, District D12C 207 Taigu Road,
Waigaoqiao Free Trade Zone, Shanghai, PRC
China
Avon Rubber Italia S.r.l.
Investment company
Corso di Porta Vittoria, 9 20122, Milano, Italy
Italy
milkrite | InterPuls Solucoes Para Ordenha
LTDA (previously Avon-Dairy America do
sul Solucoes Para Ordenha LTDA (1%))
Trading company
City of Castro, State of Parana, at Rua Jose
Antonio de Oliveira, 80, Jardim das Araucarias,
Zip Code 84174620
Brazil
Details of investments held by these subsidiaries are given in note 7.4 to the Group financial statements.
6 Deferred tax assets
At 30 September 2017
(Charged)/credited to profit for the year
Charged to equity
At 30 September 2018
(Charged)/credited to profit for the year
Charged to equity
At 30 September 2019
Share
Options
£m
Accelerated
capital
allowances
£m
Other Temporary
Differences
£m
0.4
(0.1)
0.3
0.6
0.1
0.2
0.9
0.1
–
–
0.1
–
–
0.1
–
–
–
–
0.1
–
0.1
Total
£m
0.5
(0.1)
0.3
0.7
0.2
0.2
1.1
7 Trade and other receivables
Other receivables
Prepayments
8 Trade and other payables
Trade payables
Accruals
149
2019
£m
0.3
0.9
1.2
2019
£m
0.4
4.0
4.4
2018
£m
0.1
0.4
0.5
2018
£m
0.5
3.1
3.6
Amounts due to Group undertakings are unsecured, interest free, have no fixed date of repayment and are repayable on demand.
9 Provisions for liabilities and charges
Balance at 30 September 2017
Reclassification from other payables
Payments in the year
Balance at 30 September 2018
Provision reversed during the year
Payments in the year
Balance at 30 September 2019
Analysis of total provisions
Non-current
Current
Property
obligations
£m
1.5
0.8
(0.3)
2.0
(0.3)
(0.1)
1.6
2018
£m
1.7
0.3
2.0
2019
£m
1.6
–
1.6
Property obligations previously included an onerous lease provision of £0.9m in respect of unutilised space at the Group’s leased Melksham
facility in the U.K. £0.1m of this provision was utilised in 2019 with the remaining £0.8m being released as a result of this facility now being fully
utilised. Other property obligations relate to leased premises of the Company which are subject to dilapidation risks and are expected to be
utilised within the next ten years. Such provisions were increased by £0.5m during the year. Property provisions are subject to uncertainty in
respect of the utilisation, non-utilisation, or subletting of surplus leasehold property and any final negotiated settlement of any dilapidation
claims with landlords.
OverviewOther informationFinancial Statements GovernanceStrategic Report 150
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Notes to the Parent Company Financial
Statements continued
For the year ended 30 September 2019
10 Borrowings
During the year the Group extended its $40m revolving credit facility with Barclays Bank and Comerica Bank to $85m with an expiry date
of 28 June 2022 and an option to extend for a further year. This facility is priced on the dollar LIBOR plus margin of 1–1.75% depending
on leverage and includes financial covenants which are measured on a quarterly basis. The Company was in compliance with its financial
covenants during 2019 and 2018.
The Company has provided the lenders with a negative pledge in respect of certain shares in Group companies.
There was no drawdown of loans in 2019 and 2018.
11 Share capital
Details of the Company’s share capital are set out in note 5.5 to the Group financial statements.
12 Other financial commitments
The Company has no capital expenditure committed at the year end (2018: nil).
The future aggregate minimum lease payments under non-cancellable operating leases are:
Within one year
Between one and five years
Later than five years
2019
£m
1.0
3.5
7.6
12.1
2018
£m
1.0
3.6
8.5
13.1
The majority of leases of land and buildings are subject to rent reviews.
13 Share-based payments
The Company operates an equity-settled share-based performance share plan (PSP), details of which are disclosed in note 6.3 to the Group
financial statements.
151
Five Year Record
For the year ended 30 September 2019
Revenue
Operating profit before amortisation of acquired intangibles,
exceptional items, acquisition costs and defined benefit pension
scheme costs
Amortisation of acquired intangibles, exceptional items,
acquisition costs and defined benefit pension scheme costs
Operating profit
Net finance costs and other finance expense
Profit before taxation
Taxation
Profit for the year from continuing operations
Discontinued operations – loss for the year
Profit attributable to equity shareholders
Ordinary dividends
Retained profit
Intangible assets and property,plant and equipment
Working capital
Provisions
Pension liability
Net deferred tax liability
Net cash/(borrowings)
Net assets employed
Financed by:
Ordinary share capital
Reserves attributable to equity shareholders
Total equity
Basic earnings per share – continuing operations
Adjusted basic earnings per share
Dividends per share paid in cash
2019
£m
179.3
31.3
(16.9)
14.4
(0.7)
13.7
0.6
14.3
–
14.3
(5.4)
8.9
56.7
19.6
(2.3)
(43.0)
7.1
48.3
86.4
31.0
55.4
86.4
2018
£m
165.5
27.3
(4.5)
22.8
(1.2)
21.6
(1.8)
19.8
1.6
21.4
(4.1)
17.3
64.1
6.2
(2.8)
(30.5)
1.3
46.5
84.8
31.0
53.8
84.8
2017
£m
159.2
26.1
(6.0)
20.1
(1.2)
18.9
2.9
21.8
(0.3)
21.5
(3.2)
18.3
66.7
8.9
(2.0)
(44.1)
1.4
24.7
55.6
31.0
24.6
55.6
46.9p
91.7p
17.62p
64.9p
77.1p
13.56p
71.6p
83.8p
10.43p
2016
£m
138.1
20.5
(4.1)
16.4
(0.9)
15.5
2.1
17.6
–
17.6
(2.4)
15.2
77.4
7.2
(2.5)
(39.9)
(2.2)
2.0
42.0
31.0
11.0
42.0
58.0p
71.8p
8.02p
2015
£m
123.9
16.1
(1.3)
14.8
(1.0)
13.8
(2.3)
11.5
1.4
12.9
(1.9)
11.0
69.5
10.3
(2.6)
(16.6)
(5.2)
(13.2)
42.2
31.0
11.2
42.2
41.7p
52.5p
6.17p
OverviewOther informationFinancial Statements GovernanceStrategic Report 152
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Glossary of Financial Terms
Definition
Adjusted basic earnings per share
Adjusted profit for the year divided by the weighted average number of shares in issue
Adjusted EBITDA
Adjusted EBITDA is defined as operating profit before depreciation, amortisation, exceptional items
and defined benefit pension scheme costs. It excludes any effect of discontinued operations
Adjusted EBITDA margin
The ratio of Adjusted EBITDA to revenue
Adjusted operating profit
Cash conversion
Closing order book
Constant currency
Operating profit adjusted to exclude amortisation of acquired intangibles, pension administration
costs and any exceptional items
The ratio of cash generated from operations before the effect of exceptional items, as a percentage
of adjusted EBITDA
Orders held by the Group at the end of the year which are not yet fulfilled
Comparative performance measures are retranslated at current year exchange rates to present a
comparison unaffected by currency movements. Current year exchange rates are disclosed in Note 5.4
Continuing operations
The segments of the Group that are expected to still be operating in the future
Discontinued operations
The segments of the Group that no longer function within the core business and which are
separately disclosed within the Income Statement
Dividend per share
Dividends paid/proposed, divided by the weighted average number of shares in issue
EBITDA
Exceptional Items
Intellectual Property
Net cash/debt
Orders received
Return on capital employed
Product development
as % of revenue
The Group’s earnings before charging interest, tax, depreciation and amortisation
Significant non recurring items such as significant restructuring and project cancellation costs
Intangible property created by the Group through research and development, that is protected
through patents, copyrights or trademarks
Net cash is the Group’s cash net of any drawn debt or overdraft. Net debt is the Group’s drawn
debt and overdrafts net of any cash balance
The orders received throughout the year and recognised as revenue together with orders in the
closing order book
Adjusted operating profit as a percentage of average capital employed. Capital employed is the
sum of shareholders’ funds adjusted for non-current liabilities and current borrowings. See below for
current year calculation:
Total expenditure on research and development expressed as a percentage of revenue.
2019 return on capital employed calculation
Shareholders funds
Current borrowings
Non current liabilities
Capital employed
Average capital employed
Adjusted operating profit
Return on capital employed
2018
£m
84.8
0.1
39.9
124.8
2019
£m
86.4
0.1
50.7
137.2
131.0
31.3
23.9%
153
Abbreviations
Term
Explanation
50 Series
Range of masks based on the proven technology of the M50 mask system
AEF
BPS
CBRN
CE
CES
DOD
FX
FY
GSR
H1/H2
MOD
NFPA
NIOSH
OEM
PAPR
PCI
PES
RoW
SCBA
TES
Avon Engineered Fabrications, Inc. was the U.S. based hovercraft skirt and bulk liquid storage tank business
Basis Points
Chemical, Biological, Radiological, Nuclear
CE markings indicate conformity to health and safety standards sold within the European Economic Area
Cluster Exchange Service
Department of Defense
Foreign Exchange
Financial Year
General Service Respirator
First half of the financial year (October – March)/Second half of financial year (April – September)
Ministry of Defence
National Fire Protection Association, a North American trade association that maintains usage standards for the Fire service
National Institute of Occupational Safety and Health. NIOSH approval indicates conformity to health and safety standards of
products sold within North America
Original equipment manufacturer
Powered Air Purifying Respirator
Precision, Control and Intelligence
Pulsator Exchange Service
Rest of World
Self Contained Breathing Apparatus
Tag Exchange Service
OverviewOther informationFinancial Statements GovernanceStrategic Report 154
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Notice of Annual General Meeting
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 bank
manager, stockbroker, solicitor, accountant or other independent financial adviser authorised under the Financial Services and Markets
Act 2000. If you have sold or otherwise 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 2019
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 30 January 2020 at 10.30am for the purposes set out below.
You will not receive a form of proxy for the Annual General Meeting
in the post. Instead, you will receive instructions to enable you to
vote electronically and how to register to do so. You will still be able
to vote in person at the Annual General Meeting, and may request
a hard copy proxy form directly from the registrars, Link Asset
Services, 34 Beckenham Road, Beckenham, BR3 4TU (telephone
number: 0871 664 0300).
Resolution 9
To re-appoint KPMG LLP as auditor of the Company, to hold office
until the conclusion of the next general meeting at which accounts
are laid before the Company.
Resolution 10
To authorise the Directors to determine the auditors’ remuneration.
Ordinary business
Special business
To consider and, if thought fit, pass resolutions 1–10 (inclusive)
as Ordinary Resolutions:
To consider and if thought fit, pass resolution 11 as an Ordinary
Resolution and resolutions 12–15 (inclusive) as Special Resolutions:
Resolution 1
Resolution 11
To receive the Company’s accounts and the reports of the
Directors and the Auditors for the year ended 30 September 2019.
Resolution 2
To approve the Directors’ Remuneration Report for the
financial year ended 30 September 2019.
Resolution 3
To declare a final dividend of 13.89p per ordinary share as
recommended by the Directors.
Resolution 4
To re-elect David Evans as a Director of the Company.
Resolution 5
To re-elect Pim Vervaat as a Director of the Company.
Resolution 6
To re-elect Chloe Ponsonby as a Director of the Company.
Resolution 7
To re-elect Paul McDonald as a Director of the Company.
Resolution 8
To re-elect Nick Keveth as a Director of the Company.
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.
155
Resolution 12
Resolution 14
That, subject to the passing of resolution 11, the Directors be
authorised to allot equity securities (as defined by section 560 of
the Act) for cash under the authority conferred by that resolution
and/ or to sell ordinary shares held by the Company as treasury
shares for cash, as if section 561 of the Act did not apply to any
such allotment or sale, provided that this power shall:
(a)
(b)
be limited to the allotment of equity securities or sale of
treasury shares up to an aggregate nominal amount of
£1,551,164; and
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 equity securities to be allotted (or treasury shares to
be sold) after such expiry and the Directors may allot equity
securities (or sell treasury shares) in pursuance of any such offer
or agreement notwithstanding that the power conferred by
this resolution has expired.
Resolution 13
That, subject to the passing of resolution 11, the Directors be
authorised, in addition to any authority granted under resolution
12, to allot equity securities (as defined by section 560 of the Act)
for cash under the authority conferred by that resolution and/or to
sell ordinary shares held by the Company as treasury shares for cash,
as if section 561 of the Act did not apply to any such allotment or
sale, provided that this power shall:
(a)
(b)
(c)
be limited to the allotment of equity securities or sale of
treasury shares up to an aggregate nominal amount of
£1,551,164; and
be used for the purposes of financing (or refinancing, if the
authority is to be used within six months after the original
transaction) a transaction which the Directors have determined
to be an acquisition or other capital investment of a kind
contemplated by the Statement of Principles on Disapplying
Pre-Emption Rights most recently published by the Pre-
Emption Group prior to the date of this notice; and
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 equity securities to be allotted (or treasury shares to
be sold) after such expiry and the Directors may allot equity
securities (or sell treasury shares) in pursuance of any such offer
or agreement notwithstanding that the power conferred by
this resolution has expired.
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)
(b)
(c)
the maximum number of shares which may be purchased
is 3,102,329;
the minimum price (excluding expenses) which may be paid
for each share is £1;
the maximum price (excluding expenses) which may be paid
for each ordinary share is an amount equal to the higher of:
(i)
(ii)
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 Daily Official List of the London
Stock Exchange for the five business days immediately
preceding the day on which such share is contracted to be
purchased; and
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 Daily 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.
Resolution 15
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
13 November 2019
OverviewOther informationFinancial Statements GovernanceStrategic Report
156
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Notice of Annual General Meeting continued
Explanatory notes relating to the Resolutions
Resolution 11 – Directors’ authority to allot
The Board believes that the adoption of resolutions 1 to 15 will
promote the success of the Company and is in the best interests
of the Company and its shareholders as a whole. The Board
unanimously recommends that all shareholders should vote
in favour of all the resolutions to be proposed at the Annual General
Meeting. Each of the Directors of the Company intends to vote in
favour of all resolutions in respect of their own beneficial holdings.
Resolution 1 – Report and Accounts
The Directors are required by law to present to the Annual General
Meeting the accounts, and the reports of the Directors and Auditors,
for the year ended 30 September 2019. These are contained in the
Company’s 2019 Annual Report.
Resolution 2 – Directors’ Remuneration Report
This resolution seeks shareholders’ approval of the Directors’
Remuneration Report for the year ended 30 September 2019
contained on pages 73 to 89 of the Annual Report. As in previous
years, the vote is advisory only and the Directors’ entitlement to
remuneration is not conditional on it being passed.
Resolution 3 – Declaration of final dividend
A final dividend can only be paid after the shareholders have
approved it at a general meeting. The Directors recommend that a
final dividend in respect of the financial year ended 30 September
2019 of 13.89p be paid. Subject to approval, the final dividend will
be paid on 13 March 2020 to eligible shareholders on the Company’s
register of members at close of business on 14 February 2020.
Resolutions 4 to 8 – Re-appointment of Directors
Each member of the Board has offered himself/herself for re-election
in accordance with best practice corporate governance standards.
The Board unanimously recommends that they each be re-elected
as Directors of the Company. The Chairman confirms that each of the
Non-executive Directors who are seeking re-election at the Annual
General Meeting continues to be an effective member of the Board
and to demonstrate their commitment to their role. The Chairman
himself is also seeking re-election to the Board. Pim Vervaat, in his
capacity as Senior Independent Director, has confirmed that the
Chairman continues to be an effective Chairman and demonstrates
commitment to his role as Chairman.
Biographical details for each Director are set out on pages 62 and 63
of the Annual Report.
Resolutions 9 & 10 – Re-appointment of auditor and authorisation
for the Directors to set the auditor’s remuneration
The Company is required to appoint an auditor at each general
meeting at which its accounts are presented. The Board is
recommending to shareholders the re-appointment of KPMG LLP
as the Company’s auditor for the financial year commencing on
1 October 2019.
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 Annual General Meeting and accordingly it is
proposed to renew this authority.
This resolution 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 13 November 2019 in accordance with institutional
shareholder guidelines. The Directors have no present intention of
exercising this authority. 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.
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 12 – General disapplication of pre-emption rights
This resolution will, if passed, give the Directors power, pursuant
to the authority to allot granted by resolution 11, to allot equity
securities (as defined by section 560 of the Act) 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 13 November 2019 and renews
the authority given at the Annual General Meeting in 2019.
The figure of 5% reflects the Pre-Emption Group 2015 Statement of
Principles for the disapplication of pre-emption rights (the ‘Statement
of Principles’). The Directors will have due regard to the Statement
of Principles in relation to any exercise of this power, in particular
they do not intend to allot shares for cash on a non-pre-emptive
basis pursuant to this power in excess of an amount equal to 7.5% of
the total issued ordinary share capital of the Company in any rolling
three year period, without prior consultation with shareholders save
as permitted in connection with an acquisition or specified capital
investment as described in the notes for resolution 13.
157
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.
The Directors have no present intention to exercise the authority
conferred by this resolution.
Resolution 13 – Additional disapplication of pre-emption rights
This resolution seeks a further power pursuant to the authority
granted by resolution 11, to allot equity securities (as defined by
section 560 of the Act) 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 13 November 2019. This is in addition to the 5% referred to in
resolution 12 above.
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.
The Directors will have due regard to the Statement of Principles
in relation to any exercise of this power and in particular they
confirm that they intend to use this power only in connection with
a transaction which they have determined to be an acquisition or
other capital investment (of a kind contemplated by the Statement
of Principles most recently published prior to the date of this Notice)
which is announced contemporaneously with the announcement
of the issue, or which has taken place in the preceding six-month
period and is disclosed in the announcement of the issue.
Resolution 14 – 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 3,102,329 ordinary shares of £1 each, representing 10% of the
Company’s issued ordinary share capital as at 13 November 2019.
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. The Company purchased no ordinary shares in the period
from the last Annual General Meeting to 13 November 2019 under
the existing authority.
The Directors have no present intention of exercising the authority
to make market purchases; however, the authority provides the
flexibility to allow them to do so in the future.
The Directors will exercise this authority 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. In the event of any
purchase under this authority, the Directors would either hold the
purchased ordinary shares in treasury or cancel them.
Bonus and incentive scheme targets for Executive Directors would
not be affected by any enhancement of earnings per share following
a share re-purchase.
As of 13 November 2019 there were options to subscribe outstanding
over 461,55 ordinary shares, representing 1.48% of the Company’s
ordinary issued share capital. If the authority given by resolution
14 were to be fully exercised, these options would represent 1.65% of
the Company’s ordinary issued share capital after cancellation of the
re-purchased shares. As of 13 November 2019, there were no warrants
outstanding over ordinary shares.
Resolution 15 – Notice of Meeting
Resolution 15 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 15 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 only when permitted to do so in accordance with
the Act and when the Directors consider it appropriate to do so.
OverviewOther informationFinancial Statements GovernanceStrategic Report 158
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Notice of Annual General Meeting continued
Notice of meeting notes
The following notes explain your general rights as a shareholder and
your right to attend and vote at this Meeting or to appoint someone
else to vote on your behalf.
In order for a proxy appointment to be valid a form of proxy must be
completed. In each case the form of proxy must be received by Link
Asset Services at 34 Beckenham Road, Beckenham, Kent, BR3 4ZF by
10:30 am on 28 January 2020.
1.
2.
3.
4.
5.
7.
8.
9.
10.
To be entitled to attend and vote at the Meeting (and for the
purpose of the determination by the Company of the number
of votes they may cast), shareholders must be registered in the
Register of Members of the Company at close of business on
28 January 2020. Changes to the Register of Members after the
relevant deadline shall be disregarded in determining the rights
of any person to attend and vote at the Meeting.
Shareholders, or their proxies, intending to attend the Meeting
in person are requested, if possible, to arrive at the Meeting
venue at least 20 minutes prior to the commencement of the
Meeting at 10:30am (U.K. time) on 31 January 2019 so that their
shareholding may be checked against the Company’s Register
of Members and attendances recorded.
Shareholders are entitled to appoint another person as a proxy to
exercise all or part of their rights to attend and to speak and vote
on their behalf at the Meeting. A shareholder may appoint more
than one proxy in relation to the Meeting provided that each
proxy is appointed to exercise the rights attached to a different
ordinary share or ordinary shares held by that shareholder.
A proxy need not be a shareholder of the Company.
In the case of joint holders, where more than one of the joint
holders purports to appoint a proxy, only the appointment
submitted by the most senior holder will be accepted. Seniority
is determined by the order in which the names of the joint
holders appear in the Company’s Register of Members in respect
of the joint holding (the first named being the most senior).
A vote withheld is not a vote in law, which means that the vote
will not be counted in the calculation of votes for or against the
resolution. If no voting indication is given, your proxy will vote
or abstain from voting at his or her discretion. Your proxy will
vote (or abstain from voting) as he or she thinks fit in relation
to any other matter which is put before the Meeting.
6.
You can vote either:
If you return more than one proxy appointment, either by
paper or electronic communication, the appointment received
last by the Registrar before the latest time for the receipt of
proxies will take precedence. You are advised to read the terms
and conditions of use carefully. Electronic communication
facilities are open to all shareholders and those who use them
will not be disadvantaged.
The return of a completed form of proxy, electronic filing or any
CREST Proxy Instruction (as described in note 11 below) will not
prevent a shareholder from attending the Meeting and voting
in person if he/she wishes to do so.
CREST members who wish to appoint a proxy or proxies
through the CREST electronic proxy appointment service may
do so for the Meeting (and any adjournment of the Meeting) by
using the procedures described in the CREST Manual (available
from www.euroclear.com/site/public/EUI). CREST Personal
Members or other CREST sponsored members, and those
CREST members who have appointed a 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 U.K. & Ireland Limited’s
specifications and must contain the information required
for such instructions, as described in the CREST Manual. The
message must be transmitted so as to be received by the
issuer’s agent (ID RA10) by 10:30am on 29 January 2019. For this
purpose, the time of receipt will be taken to mean the time (as
determined by the timestamp applied to the message by the
CREST application host) from which the issuer’s agent is able
to retrieve the message by enquiry to CREST in the manner
prescribed by CREST. After this time, any change of instructions
to proxies appointed through CREST should be communicated
to the appointee through other means.
• by logging on to www.signalshares.com and following
the instructions;
• you may request a hard copy form of proxy directly from
the registrars, Link Asset Services (previously called Capita),
on Tel: 0371 664 0300. Calls cost 12p per minute plus your
phone company’s access charge. Calls outside the United
Kingdom will be charged at the applicable international
rate. Lines are open between 09:00–17:30, Monday to
Friday excluding public holidays in England and Wales.
•
in the case of CREST members, by utilising the CREST
electronic proxy appointment service in accordance
with the procedures set out below.
159
Any shareholder attending the Meeting has the right to ask
questions. The Company must cause to be answered any
such question relating to the business being dealt with at the
Meeting but no such answer need be given if: (a) to do so
would interfere unduly with the preparation for the Meeting or
involve the disclosure of confidential information; (b) the answer
has already been given on a website in the form of an answer to
a question; or (c) it is undesirable in the interests of the Company
or the good order of the Meeting that the question be answered.
The following documents are available for inspection during
normal business hours at the registered office of the Company
on any business day from the date of this Notice until the time
of the Meeting and may also be inspected at the Meeting
venue, as specified in this Notice, from 30 minutes before the
Meeting until the conclusion of the Meeting:
• copies of the Directors’ letters of appointment or
service contracts;
• a copy of the draft rules of the Long-Term Incentive Plan; and
• a copy of the current Articles of Association of the Company.
You may not use any electronic address (within the meaning
of Section 333(4) of the Companies Act 2006) provided in either
this Notice or any related documents (including the form of
proxy) to communicate with the Company for any purposes
other than those expressly stated.
11.
12.
13.
14.
15.
16.
CREST members and, where applicable, their CREST sponsors
or voting service providers should note that Euroclear U.K. &
Ireland Limited does not make available special procedures
in CREST for any particular message. Normal system timings
and limitations will, therefore, apply in relation to the input of
CREST Proxy Instructions. It is 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 their 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 system providers are referred, in particular, to those
sections of the CREST Manual concerning practical limitations
of the CREST system and timings. The Company may treat as
invalid a CREST Proxy Instruction in the circumstances set
out in Regulation 35(5)(a) of the Uncertificated Securities
Regulations 2001.
Any corporation which is a shareholder can appoint one or
more corporate representatives who may exercise on its behalf
all of its powers as a shareholder provided that no more than
one corporate representative exercises powers in relation to
the same shares.
17.
As at 13 November 2019 (being the latest practicable business
day prior to the publication of this Notice), the Company’s
ordinary issued share capital consists of 31,023,292 ordinary
shares, carrying one vote each. Therefore, the total voting
rights in the Company as at 13 November 2019 are 31,023,292.
Under Section 527 of the Companies Act 2006, shareholders
meeting the threshold requirements set out in that section
have the right to require the Company to publish on a
website a statement setting out any matter relating to: (i) the
audit of the Company’s financial statements (including the
Auditor’s Report and the conduct of the audit) that are to be
laid before the Meeting; or (ii) any circumstances connected
with an auditor of the Company ceasing to hold office since
the previous meeting at which annual financial statements
and reports were laid in accordance with Section 437 of the
Companies Act 2006 (in each case) that the shareholders
propose to raise at the relevant meeting. The Company may
not require the shareholders requesting any such website
publication to pay its expenses in complying with Sections
527 or 528 of the Companies Act 2006. Where the Company is
required to place a statement on a website under Section 527
of the Companies Act 2006, it must forward the statement to
the Company’s auditor not later than the time when it makes
the statement available on the website. The business which
may be dealt with at the Meeting for the relevant financial
year includes any statement that the Company has been
required under Section 527 of the Companies Act 2006 to
publish on a website.
OverviewOther informationFinancial Statements GovernanceStrategic Report 160
Avon Rubber p.l.c. | Annual Report & Accounts 2019
Shareholder Information
Shareholding
As at 30 October 2019 the Company had 1,340 shareholders,
of which 803 had 1,000 shares or fewer.
Financial calendar
Half year results are announced in May and year end results
in November.
In respect of the year ended 30 September 2019 the Annual General
Meeting will be held on 30 January 2020 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)
Paul McDonald (Chief Executive Officer)
Nick Keveth (Chief Financial Officer)
Pim Vervaat (Senior Independent Director)
Chloe Ponsonby (Non-Executive Director)
Company secretary
Miles Ingrey-Counter
Independent auditors
KPMG LLP
Chartered Accountants and Statutory Auditors
Registrars and transfer office
Link 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, Monday to Friday excluding U.K. public holidays)
Financial Advisor
Rothschild & Co
Brokers
Peel Hunt LLP
Jefferies Group LLC
Financial PR
MHP Communications
Lawyers
TLT LLP
White & Case LLP
Principal bankers
Barclays Bank PLC
Comerica Inc.
Website
www.avon-rubber.com
© Copyright Avon Rubber p.l.c 2019
Hampton Park West
Semington Road
Melksham, Wiltshire
SN12 6NB
England
Telephone:
Email:
+44 (0) 1225 896 800
enquiries@avon-rubber.com
www.avon-rubber.com