PROTECTING WITH PURPOSE
AV O N P R O T E C T I O N P L C
A N N U A L R E P O R T A N D A C C O U N T S 2 0 2 2
OUR MISSION
We make products that are trusted to protect
the world’s militaries and first responders.
Our dedicated teams achieve this by
developing mission-critical solutions that enhance
our customers’ performance, efficiency and
capability, whilst providing ever-increasing
levels of protection.
With a portfolio that includes respiratory and
head protection systems, we are renowned for our
innovative thinking and our steadfast approach
to manufacturing unrivalled products.
FINANCIAL HEADLINES
Orders received
Revenue
Adjusted operating profit
Operating loss
$280.1m
$271.9m
$10.1m
$(2.1)m
Adjusted basic earnings per share
Basic loss per share
Dividend per share
Closing order book
20.4c
(25.1)c
44.9c
$151.3m
HIGHLIGHTS
Our mission is only achievable as a result of the exceptional people we have across
the business. We are incredibly proud of their hard work and dedication
and have watched them achieve great things together this year.
WE ARE GROWING OUR CORE BY
MAXIMISING OPPORTUNITIES
Delivering Growing The Core: Kent’s Story on page 27
Read more on our strategy on page 26
WE ARE ADVANCING OUR PRODUCT
DEVELOPMENT TO PROTECT PEOPLE
Advancing Product Development: Justin’s Story on page 29
Read more on our strategy on page 26
WE ARE INTEGRATING RECENT ACQUISITIONS
TO BUILD A STRONGER BUSINESS
Integrating Acquisitions: Lauren’s story on page 31
Read more on our strategy on page 26
Overview
1
2
4
6
Highlights
At a Glance
Investment Case
Chair’s Statement
Strategic Report
10 Market Overview
Product Portfolio
16
Business Model
20
Operational Review
22
Strategy in Action
26
Future Priorities
32
KPIs
34
S172 Statement
38
Sustainability
42
Our approach to TCFD
54
Financial Review
56
Principal Risks and Risk Management
62
Governance
72
74
76
80
82
86
106 Directors’ Report
Chair’s Introduction to Governance
Board of Directors
Corporate Governance
Nomination Committee Report
Audit Committee Report
Remuneration Report
Adjusted Performance Measures
110 Adjusted Performance Measures
Financial Statements
120
127 Consolidated Statement of
Independent Auditor’s Report
Comprehensive Income
128 Consolidated Balance Sheet
129 Consolidated Cash Flow Statement
130 Consolidated Statement
of Changes in Equity
131 Accounting Policies and Critical
Accounting Judgements
136 Notes to the Group Financial Statements
164 Parent Company Balance Sheet
165 Parent Company Statement
of Changes in Equity
166 Parent Company Accounting Policies
168 Notes to the Parent Company
Financial Statements
172 Notice of Annual General Meeting
177 Glossary of Financial Terms
and Abbreviations
179 Shareholder Information
Annual Report and Accounts 2022 Avon Protection plc
1
A T A G L A N C E
OUR PURPOSE
We make products that are trusted around the world to protect militaries
and first responders in the most hostile of environments. Our products enable
our customers to not only complete their mission safely and with confidence,
but also enhance their capability and performance.
Pre-emptive
We use our ingenuity to design
next generation protection,
constantly anticipating and
adapting to the ever-increasing
needs of our customers.
OUR CULTURE
Fearless
We are leaders in our field,
pushing the boundaries of what
others think is possible.
Read more on our culture on page 52
OUR STRATEGY
Targeted
We set a clear strategy, identifying
key priorities and the resources
we require for success – and then
work to make this a reality to
grow and evolve.
Growing
the core
We are recognised as the leader
within our chosen market segments.
There are further opportunities
to maximise growth from our
product portfolio.
Selective product
development
We have a reputation for
technological excellence and
innovation, with a strong tradition
of new product development.
Value enhancing
acquisitions
We target carefully selected,
value enhancing acquisitions to
complement our organic growth
and enable us to enter adjacent
product and market segments.
Read more on our strategy on pages 26–31
SUPPORTED BY
Our people
and culture
Our people are at the heart
of everything we do.
Robust risk
management
We have an established
process for the identification
and management of risk.
Responsible approach
to sustainability
We have a fundamental
role to play in minimising
our environmental impact
on the world.
Effective
governance
We are committed to high
standards of corporate
governance as set out in
the U.K. Corporate
Governance Code.
Read more on page 52
Read more on page 62
Read more on page 42
Read more on page 72
2
Avon Protection plc Annual Report and Accounts 2022
OUR PRODUCTS
73%
of revenue (excl. armor)
27%
of revenue (excl. armor)
Respiratory protection
We have an extensive history of providing respiratory
protection and a comprehensive knowledge of our customers’
requirements for respirators, powered and supplied air systems,
filters, spares and accessories.
Head protection
We have a deep understanding of traumatic brain
injury (TBI) which enables us to design next generation
ballistic helmets and bump protection helmets, as well as
helmet liner and retention systems.
Read more on page 16
Read more on page 18
OUR MARKETS
U.S. DOD
$218m
Total market opportunity
Commercial Americas
$130m
Total market opportunity
U.K. & International
$561m
Total market opportunity
Read more on page 10
Read more on page 12
Read more on page 14
OUR PEOPLE
Global operations
We operate on a global scale with sites
located in the U.S. and the U.K.
6
Sites in the U.K. and the U.S.
Talented people
Our people are at the heart of everything
we do, with everyone focused on
protecting our customers.
1,000+
Number of employees
Annual Report and Accounts 2022 Avon Protection plc
3
OVERVIEW I N V E S T M E N T C A S E
OUR INVESTMENT CASE
IS DRIVEN BY OUR CLEAR
STRATEGY TO GENERATE
LONG-TERM GROWTH
LARGE ADDRESSABLE
MARKETS
INVESTING IN
INNOVATION
Our world-leading portfolio, combined with strong
relationships with our long-term customers, like the U.S. DOD
and U.K. MOD, positions us well in growing markets with
opportunities for share gain.
We continue to develop our product portfolio in partnership
with our customers to ensure their exacting performance
requirements are met, whilst providing a committed
and commercial route to market to maximise our return
on investment.
$9.8bn
Total market opportunity
(2021–2030)
4–7%
Total R&D as a percentage of revenue
Read more about our markets on page 10
Read more about our business model on page 20
TALENTED AND
DEDICATED PEOPLE
Our people are at the heart of everything we do. We aim to
attract and retain the best people to establish a culture that
gives all individuals the opportunity and support to develop to
their full potential.
We are committed to making Avon Protection a great place
to work by investing in the development and wellbeing of
our people, celebrating diversity and inclusion and listening
and responding to our colleagues through increased levels
of engagement.
Read more about our employee-centric approach on page 52
4
Avon Protection plc Annual Report and Accounts 2022
WE HAVE A HIGHLY SKILLED TEAM,
STRONG MARKET POSITIONS AND
WORLD-LEADING TECHNOLOGY.
COMBINED WITH OUR LONG-TERM
STRATEGY TO DRIVE SUSTAINABLE
GROWTH WE ARE CONFIDENT IN
OUR ABILITY TO DELIVER VALUE
FOR OUR STAKEHOLDERS.
STRONG CASH
CONVERSION
DEVELOPING
SUSTAINABILITY AGENDA
Our objective of delivering adjusted EBITDA cash conversion
of 90% or more provides the cash flow to fund our
growth strategy.
We protect; it’s ingrained within our culture and is at the heart
of everything we do. This includes a commitment to protecting
the communities and environment in which we operate to
ensure a sustainable future for us all.
90%+
Adjusted EBITDA cash conversion
2045
Net Zero target
Read more about our financial performance on page 56
DISCIPLINED APPROACH
TO CAPITAL ALLOCATION
I N N O V A T I O N
P E R F O R M A N C E
T R U S T
1. Invest in the business
Key priorities for capital
• R&D pipeline (including
business development)
• Manufacturing capacity
• New products
I M P R O V E D
C A S H
G E N E R A T I O N
2. Dividends
• Target increase in cover before
returning to dividend growth
3. Other M&A
• Strict discipline on value creation
4. Other returns to shareholders • Special dividends and
share buybacks
Annual Report and Accounts 2022 Avon Protection plc
5
OVERVIEW C H A I R ’ S S T A T E M E N T
A STRONG PIPELINE OF
OPPORTUNITY
I want to thank our people for their continued effort, focus and
commitment to delivering this year’s results.
Bruce Thompson
Executive Chair
I want to start by thanking our people in our operations across the world,
who have continued to work with enthusiasm and determination in what
has been a challenging period for the Group. As COVID-19 restrictions
eased, I and the rest of the Board were delighted to have the opportunity
to visit our U.S. operating sites and meet a number of our teams face to
face. It is clear to see that at the core of our DNA is pride for our products
and the protection they provide the user.
Strategy and results
At Avon Protection, our purpose is clear – to provide trusted and
innovative solutions to enable those at risk to perform their mission safely
and with confidence.
To deliver this purpose and create value for all our stakeholders, our strategy
has three main elements. Firstly, we grow the core by leveraging our existing
product portfolio to widen our customer base. Secondly, we invest selectively
in new product development to maintain our leadership in innovation and
finally we aim to extend our business capabilities and accelerate our organic
growth through carefully selected, value enhancing acquisitions.
2022 has been my first full year as Chair of the Board and has presented
both challenges and opportunities for the Group. In the first half of the
year, we experienced subdued demand post-Afghanistan and pre-
Ukraine leading to delays in orders and approval processes, impacting
both operational planning and supply chain management. As reported
at the half year, additional manufacturing costs due to supply chain
and process inefficiencies and the level of product development work
impacted profitability. In addition, following the strategic decision to exit
the armor business announced last year, body armor has continued to be
a headwind in our reported results, but we expect to have fully exited this
business by the end of 2023.
After the challenges encountered during the first half, I am pleased
to report the second half was characterised by a step-up in financial
performance and improved operational delivery. Given the current
increased threat environment, prompted by the ongoing events in
Ukraine, the Group experienced increased demand with more urgency
in order placement and technical approvals. In Respiratory, we have
delivered over 65,000 50 series respirators to protect military, government
and humanitarian personnel in Ukraine throughout the year. This increase
in demand has given us confidence to buy-forward inventory and lean
forward into production which has improved our ability to react to the
current higher threat environment.
In Head Protection, the award of the U.S. DOD next generation Advanced
Combat Helmet (ACH GEN II) contract earlier in the year and the first
delivery order in September from the U.S. Army under the Next Generation
IHPS (NG IHPS) contract have established Avon Protection as the global
leader in head protection technology. This has been achieved by
combining the strengths of Ceradyne’s ballistic shell technology with
Team Wendy’s helmet liner and retention system technologies.
Now more than ever it is clear our world-leading products and solutions in
both the respiratory and head protection markets have a key role to play in
protecting service personnel in an increasingly unstable environment.
Dividend
The Board is recommending a final dividend of 30.6 cents per share which
together with the 14.3 cents per share interim dividend, gives a total
dividend of 44.9 cents, consistent with last year.
Our policy is to grow dividends in line with adjusted earnings growth.
Given the decline in earnings over the last two years, we would not seek
to grow dividends further ahead of an increase in dividend cover.
6
Avon Protection plc Annual Report and Accounts 2022
Q&A
We talked to Jos Sclater,
incoming Chief Executive Officer,
on his appointment.
Q Can you tell us about your career history?
A I’ve spent the last three years as Group Chief Financial
Officer at Ultra Electronics plc where I led a broad-based
transformation programme focused on improving growth
and efficiency. I also had group-wide responsibility for
the Finance, Treasury, IT, Procurement, Transformation,
Continuous Improvement and Risk functions, as well
as direct oversight of Ultra’s Forensic Technology and
Energy business.
Prior to this, I was Group Chief Financial Officer at Castrol
Lubricants and, before that, spent seven years at GKN plc,
including as Group Chief Financial Officer and Director of
Corporate Finance and Strategy. I started my career as a
qualified solicitor and have held in-house legal and M&A
roles at ICI plc, AkzoNobel N.V. and GKN plc.
Q What excites you about joining Avon Protection?
A Avon Protection is a business with a proud history and an
exciting future. The Group has unique technologies with
global market-leading positions in respiratory and head
protection markets. I am excited by its growth potential,
and I very much look forward to leading the next stage
of its development.
Jos Sclater
Incoming Chief Executive Officer
Advancing our sustainability agenda
Establishing the foundations of our sustainability agenda has been a
key focus in 2022 and I am pleased with the progress made this year. We
recognise the importance of ensuring we proactively engage with our
stakeholders in this area as expectations continue to grow. This year we
carried out a materiality assessment to ensure our efforts are focused on
the sustainability aspects that are most material to our stakeholders.
We committed in last year’s report to achieving net zero by 2045 at the
latest. This year we have focused on gaining a better understanding of
our data, in order to ensure accuracy and set an appropriate base year for
setting targets against, as we continue working on our detailed Net Zero
Plan. In addition, this year is our first year publishing our Task Force on
Climate-Related Financial Disclosures (TCFD) Statement. To ensure focus
and greater transparency of our sustainability agenda, a new governance
framework has been put in place. The Board takes overall responsibility
for our sustainability agenda, disclosure and reporting. A Sustainability
Steering Committee, chaired by our Chief Financial Officer, Rich Cashin,
has been established with responsibility for the implementation and
delivery of our sustainability agenda on behalf of the Board.
Health, safety and wellbeing of our people
Protecting the health, safety and wellbeing of our people remained a key
priority in 2022. In line with our goal of zero harm, we continue to actively
promote a strong safety culture at all our sites.
Previously, the Board established a Global Employee Advisory Forum as
its employee engagement mechanism. This has generated a significant
increase in dialogue between the Board and the Group’s employees. With
easing travel restrictions, the Board this year has been able to visit the sites
in person and hear directly from employees about issues they face on a
day-to-day basis.
Governance and the Board
The Board brings together a diverse range of relevant skills and expertise.
There have been several changes to the Board during the year. Nick Keveth
retired as Chief Financial Officer on 31 March 2022 and was replaced by Rich
Cashin, who has proved to be a strong addition to the Board. After 5 years
as Chief Executive Officer, and more than 19 years with the Company, Paul
McDonald stepped down as Chief Executive Officer on 30 September 2022.
On 17 October I was delighted to announce Jos Sclater will join the Board
as Chief Executive Officer with effect from 16 January 2023. As previously
confirmed to shareholders in September, I have taken on the role of Executive
Chair for the interim period until Jos is in place as our new Chief Executive
Officer. The Board therefore currently comprises one Executive Director,
three independent Non-Executive Directors and myself as Executive Chair.
We conducted an internal Board performance evaluation this year and
remain confident that the Board continues to operate to high standards as
a cohesive body with a good balance of support and challenge. Full details
of this year’s evaluation are contained in the Governance section of this
Annual Report. The Board regularly reviews its composition to ensure it has
the necessary breadth and depth of skills and experience to support the
development of the Group and will repeat this review once the new Chief
Executive Officer is in place and established.
Looking ahead to 2023 with confidence
We have made good progress in 2022 preparing Avon Protection for a new
chapter of growth and future value generation, including restructuring several
areas of the business, improving operational efficiency, right-sizing overhead
costs and strengthening Executive management with the appointments
of Rich Cashin as Chief Financial Officer and Jos Sclater as our new Chief
Executive Officer. While not underestimating the challenges in execution of
our strategy, I am confident the Group is well positioned moving forward to
deliver long-term sustainable growth for the benefit of all our stakeholders.
Bruce Thompson
Executive Chair
22 November 2022
Annual Report and Accounts 2022 Avon Protection plc
7
OVERVIEW 8
Avon Protection plc Annual Report and Accounts 2022
I TRULY FEEL LIKE I AM PART OF A
GROUP THAT MAKES A DIFFERENCE
AND I STILL GET CHILLS WHENEVER
I HEAR ONE OF OUR HELMETS HAS
HELPED SAVE A LIFE.
Ryan Doris
Mechanical Engineer
STRATEGIC
REPORT
CONTENTS
10 Market Overview
Product Portfolio
16
20
Business Model
22 Operational Review
26
32
34
38
42
54
56
62
Strategy in Action
Future Priorities
KPIs
S172 Statement
Sustainability
Our approach to TCFD
Financial Review
Principal Risks and Risk Management
Annual Report and Accounts 2022 Avon Protection plc
9
STRATEGIC REPORT M A R K E T O V E R V I E W
MARKET OVERVIEW
U.S. DEPARTMENT OF DEFENSE
Defence budgets are expected to flatten over the next
five years, but the U.S. will remain the world’s largest and
most sophisticated market.
2 0 2 2 A N N U A L R E V E N U E O P P O R T U N I T Y F O R B A L L I S T I C H E L M E T S
A N D R E S P I R A T O R Y P R O T E C T I O N I N A D D R E S S A B L E D O D M A R K E T S *
RESPIRATORY
$92m
HELMET
$126m
TOTAL
$218m
* Forecast in 2021 prior to Ukraine conflict and other market developments.
HEIGHTENED THREAT
ENVIRONMENT
The war in Ukraine has had far-reaching
consequences on the geopolitical climate.
In response, the U.S. has led military support
to Ukraine and has provided significant
security assistance, including technology and
equipment transfer. In addition, the U.S. and
other countries around the world have imposed
unprecedented sanctions and export controls
restricting Russia’s access to funding and
critical technology.
INCREASED SPENDING
The U.S. announced it will increase spend
to $813 billion or 3.8% of GDP. China also
announced an increase in military spending,
with a 7.1% rise planned for 2022 relative to the
previous year. Neither appear to be directly
related to the war in Ukraine, but rather to
international and regional geopolitics. China’s
growing assertiveness in and around the South
and East China Seas has also become a major
driver of military budgeting in countries such
as Australia and Japan.
MANAGING INFLATION
Energy prices have been rising since last year
as the economic recovery from the pandemic
encountered overburdened supply chains
and the war in Ukraine has caused trade and
production disruptions. Despite global defence
budgets being increased, we expect them to
be put under pressure by increased inflation.
Inflation is expected to have an impact on
business operations and emphasises our
continued focus on international expansion
to mitigate the risk of exposure to fixed-price
contracts which are common in the U.S.
10
Avon Protection plc Annual Report and Accounts 2022
LINK TO STRATEGY
GROWING
THE CORE
Enduring revenue streams
We are the sole-source supplier to the
U.S. DOD for the Joint Service General
Purpose Mask (JSGPM), M69 aircrew mask,
M53A1 mask and powered air system and
ACH GEN II, as well as dual-source supplier
of the NG IHPS. These contracts solidify
our position as the principal choice with
the U.S. DOD for respiratory and head
protection with four major branches of the
DOD using our products including the Army,
Navy, Air Force and Marine Corps. Our large
base also positions us well for through-life
support programmes.
ADVANCING PRODUCT
DEVELOPMENT
New programmes
We received the first delivery order from
the U.S. Army worth $42.1 million for
the NG IHPS. Manufacturing ramp-up
is progressing to plan after completing
rigorous testing. The receipt of this first
delivery order is an important milestone for
the NG IHPS, and a critical step in getting our
advanced life-saving technology rolled out
to U.S. military personnel. This programme
cements our position as a global leader in
head protection technology, and specifically
as a centre of excellence in high-specification
ballistic helmets.
INTEGRATING
ACQUISITIONS
Cross-functional collaboration
During the year, Head Protection
collaborated to develop an updated liner
system for the NG IHPS which utilises
technology from the Team Wendy product
line. This is expected to be introduced
in 2023 following the receipt of the first
delivery order.
Annual Report and Accounts 2022 Avon Protection plc
11
STRATEGIC REPORT M A R K E T O V E R V I E W C O N T I N U E D
MARKET OVERVIEW
COMMERCIAL AMERICAS
MARKET
The increased threat posed by terrorists and civil unrest is driving
demand for more advanced respiratory and head protection.
2 0 2 2 A N N U A L R E V E N U E O P P O R T U N I T Y F O R B A L L I S T I C H E L M E T S A N D
R E S P I R A T O R Y P R O T E C T I O N I N A D D R E S S A B L E C O M M E R C I A L A M E R I C A S M A R K E T *
NORTH
AMERICA
$82m
SOUTH
AMERICA
$48m
TOTAL
$130m
* Forecast in 2021 prior to Ukraine conflict and other market developments.
INCREASED VIOLENT DEMONSTRATIONS
Terrorist attacks, civil unrest and organised crime are multiplying
the risks of chemical, biological, radiological and nuclear (CBRN) and
ballistic threats.
The frequency and severity of violent demonstrations has increased across
almost all regions of the world resulting in clashes with first responders.
North America recorded the second largest deterioration of any region in
the 2022 Global Peace Index.
CHANGING THREAT
The world is confronting overlapping crises of unprecedented scope
and scale. Amongst other negative consequences, the pandemic
continues to hamper economic and social activity and the threat
environment continues to shift across the world.
First responders are expected to react to these shifting threat
environments which continue to demand the level of protection often
associated with military applications.
12
Avon Protection plc Annual Report and Accounts 2022
LINK TO STRATEGY
GROWING
THE CORE
Sales record
The team in Cleveland has completed four
major annual e-commerce sales this year for
Team Wendy helmets including Fourth of
July and Amazon Prime Day.
During the Fourth of July sale, the team
processed 800+ orders with total sales 72%
higher than last year with the EXFIL LTP the
most popular helmet sold.
ADVANCING PRODUCT
DEVELOPMENT
Recognised for innovation
The CH15 Compact Escape Hood won Best
International Industrial Product Design award
at The Plastics Industry Awards, an annual
event dedicated to rewarding innovation
and exceptional performance. One of the
key design objectives for the product was
to reduce the number of components
compared to the previous generation
product, which led to an overall reduction
in mass by 22%.
INTEGRATING
ACQUISITIONS
Strengthened brand recognition
For many years Team Wendy has been
at the forefront of traumatic brain injury
prevention, through participation in cutting-
edge research programmes and thoughtful
design of complete helmet systems from the
inside out.
Though Team Wendy and Avon Protection
are distinct brands with different product
lines, their shared dedication to protecting
those who risk their lives every day makes
them complementary within the Group.
Annual Report and Accounts 2022 Avon Protection plc
13
STRATEGIC REPORT M A R K E T O V E R V I E W C O N T I N U E D
MARKET OVERVIEW
U.K. & INTERNATIONAL
MARKETS
The current threat environment is driving a greater focus on protective
technologies and capabilities throughout Europe and beyond, giving rise
to a dynamic-demand environment.
2 0 2 2 A N N U A L R E V E N U E O P P O R T U N I T Y F O R B A L L I S T I C H E L M E T S
A N D R E S P I R A T O R Y P R O T E C T I O N I N A D D R E S S A B L E U . K . &
I N T E R N A T I O N A L M A R K E T S *
AFRICA
EUROPE
MENA
APAC
$14m
$268m
$95m
$184m
TOTAL
$561m
* Forecast in 2021 prior to Ukraine conflict and other market developments.
CHANGED SECURITY THREAT
We continue to see the ever-present threat
of the use of CBRN capabilities against NATO,
with China continuing to increase its stockpile
of nuclear capable weapons, Iran claiming to
be nuclear weapon capable and North Korea
testing missiles of varying ranges to carry
nuclear and chemical warheads.
NATO RESPONSE
Even if CBRN threats are considered a remote
possibility, the effects of such an attack would
be devastating and are increasingly considered
by NATO nations and their broader allies as they
recapitalise and grow investment in their ability to
defend against such an attack, whilst continuing
to operate in the hostile conditions it creates.
The non-state threat is also high as toxic
industrial chemicals are unregulated in most
countries presenting little obstruction to those
who would use them to achieve their aims.
NATO pursued the biggest overhaul of its
collective deterrence since the Cold War this
year. The number of troops on high alert has
increased from 40,000 to 300,000 troops and
it has also pledged to provide Ukraine with
protective equipment against CBRN threats.
INCREASED BUDGETS
We are seeing higher public defence spending
as a result of the increased demand for personal
protective equipment in the medium and long-
term, with world military spending reaching an
all-time high of $2.1 trillion in 2021.
Many NATO countries have also announced
clear plans to reach 2% GDP target by 2024.
This will likely result in upgrade programmes
across NATO and militaries globally over the
coming years.
14
Avon Protection plc Annual Report and Accounts 2022
LINK TO STRATEGY
GROWING
THE CORE
Diversified customer base
The sole-source framework respirator
contract with the NATO Support and
Procurement Agency (NSPA), which allows
NATO and associate members to order
from our portfolio of respiratory products
under standard pre-negotiated terms, is
an important route to market for us. The
benefits of this contract are ever-more
evident in the current environment where
ease of ordering is paramount in a fast-
moving situation. On behalf of various NATO
governments, we have delivered over 65,000
50 series respirators to protect military,
government and humanitarian personnel in
Ukraine throughout the year.
ADVANCING PRODUCT
DEVELOPMENT
Adjacent technologies
In response to rising chemical weapon
threats, we developed the EXOSKIN range of
CBRN boots and gloves to protect personnel
without compromising the wearer’s tactical
agility in the field. In expanding our offerings
into protective garments, we aim to provide
the full scope of integrated protective wear
that can be scaled to suit changing threat
environments and readiness levels.
INTEGRATING
ACQUISITIONS
Working in partnership
Head Protection has collaborated on major
tender processes as well as opportunities to
enhance our helmet portfolio. In particular,
collaborated efforts have focused on the
development of the F90, our first combined
commercial helmet for first responders
and Rest of World militaries. This helmet
combines the Ceradyne ballistic helmet shell
forming capabilities and Team Wendy’s liner
and retention.
Annual Report and Accounts 2022 Avon Protection plc
15
STRATEGIC REPORT P R O D U C T P O R T F O L I O
RESPIRATORY
PROTECTION
Our leading range of respiratory protection includes respirators, powered and supplied air
systems, filters, spares and accessories, as well as underwater systems and CBRN protective wear.
RESPIRATORS
POWERED &
SUPPLIED AIR
SPARES &
ACCESSORIES
16
Avon Protection plc Annual Report and Accounts 2022
EXAMPLES OF OUR RESPIRATORY
AND CBRN PROTECTION PORTFOLIO
RESPIRATORS
50 SERIES
The M50 and FM50 masks are the most advanced military general service respiratory
protection masks to date, offering significant improvement in comfort, usability,
operational effectiveness and protection. The C50 mask is based on the M50 and is
the leading mask used by U.S. law enforcement agencies, offering high protection,
outstanding field of vision, and superior comfort. The PC50 was developed for
budget challenged prisons, correctional officers, border control and other non-CBRN
requirements that require protection in dangerous and contaminated environments.
The FM53 and FM54 masks were developed specifically for specialist applications
where the user needs to respond to ever-changing operational conditions.
GSR
The standard issue to all U.K. service personnel across the Army, RAF and Navy, the
General Service Respirator’s (GSR) twin-canister, single-visor design is to the U.K.
MOD’s precise specification and features high-performance filtration technology.
SPARES AND ACCESSORIES
We offer service support to global customers through replacement filters, spares,
accessories and tactical mask communication systems providing through-life
support to our range of respirators and other life sustaining equipment.
ESCAPE HOODS
Our range of escape hoods, including the new CH15 escape hood, provides
portable protection. The ultra-low profile makes them more convenient to carry and
enhances the range of respiratory protection available to escape a hostile situation.
POWERED AND
SUPPLIED AIR
Designed for specialist capabilities, our complementary value-added subsystems
extend operational capability. Our range of Powered Air Purifying Respirators (PAPR),
Self-Contained Breathing Apparatus (SCBA) or a combination of the two (CS-PAPR)
can be deployed with our respirators to provide clean, breathable air.
UNDERWATER
SYSTEMS
Our MCM100 is a fully closed circuit, electronically controlled, mixed gas rebreather
suitable for a range of specialist military or tactical diving disciplines, such as mine
clearance or explosives disposal.
THERMAL
IMAGING
CAMERAS
CBRN
PROTECTIVE
WEAR
Our Mi-TIC range of Thermal Imaging Cameras includes the lightest and smallest
thermal imagers available certified to comply with NFPA 1801:2021, alongside a
wider range of cameras developed from the same technology.
With an extensive knowledge of military and first responder CBRN requirements,
we developed EXOSKIN-B1 CBRN Boots and EXOSKIN-G1 CBRN Gloves, designed to
meet the unique requirements of the modern warfighter and tactical operator.
Annual Report and Accounts 2022 Avon Protection plc
17
STRATEGIC REPORT P R O D U C T P O R T F O L I O C O N T I N U E D
HEAD
PROTECTION
Our head protection portfolio is focused on next generation ballistic helmets
and bump protection helmets, as well as helmet liner and retention systems.
LINER AND
RETENTION
SYSTEMS
HELMETS
18
Avon Protection plc Annual Report and Accounts 2022
EXAMPLES OF OUR HEAD
PROTECTION PORTFOLIO
HELMETS
LINER AND
RETENTION
SYSTEMS
ACH GEN II
ACH GEN II is a new lighter
weight version of the U.S.
military’s general issue
ballistic helmet, making it
more comfortable for the
user to wear.
F90
The F90 ballistic helmet features
the perfect combination of
performance and lightweight
materials at an economical price
point. Innovative ‘No Thru-Hole’
technology for mounting
accessories increases the shell’s
effective protection area.
EXFIL LTP
The EXFIL LTP (Lightweight,
Tactical, Polymer) bump helmet
provides impact protection and
a stable, comfortable platform
for mounting night vision and
other accessories.
CAM FIT
RETENTION
SYSTEM
The CAM FIT Retention System
uses a micro-adjustable BOA
Fit System that stabilises
the weight of the helmet by
distributing light, even pressure
around the head.
EPIC AIR LINER
SYSTEM
The EPIC Air design utilises
proven Zorbium foam
technology, offering leading-
edge impact protection
without adversely affecting
weight or heat dissipation.
NG IHPS
The Next Generation Integrated
Head Protection System (NG
IHPS) is one of four major
components of the U.S. Army’s
Soldier Protection System. The
NG IHPS provides lightweight
and high-performance head
protection to U.S. soldiers.
EXFIL BALLISTIC SL
The EXFIL Ballistic is the general
issue ballistic helmet for the
Australian Defence Force, whilst
the EXFIL Ballistic SL is used
by elite teams and agencies
around the world including
LAPD and Brazilian DPF.
SAR
BACKCOUNTRY
The Team Wendy SAR is the
first purpose-built search
and rescue helmet to
provide accessory mounting
capabilities while meeting key
industrial and mountaineering
performance standards.
ZORBIUM ACTION
PAD (ZAP) 7-PAD
NSN LINER SYSTEM
Since 2005, the ZAP 7-Pad
NSN Liner System is the
standard issue system authorised
for use in all U.S. Army, U.S.
Marine Corps and U.S. Navy
ground combat helmets. More
than seven million pad sets
have been supplied since the
programme’s inception.
EXFIL MARITIME
LINER SYSTEM
The EXFIL Maritime Liner
System features sealed pads
optimised to withstand routine
exposure to water. The liner’s
quick-drying capability helps
reduce the added helmet
system weight and discomfort
that results from waterlogged
helmet pads.
Annual Report and Accounts 2022 Avon Protection plc
19
STRATEGIC REPORT B U S I N E S S M O D E L
OUR ROBUST
MODEL
Our products and services maximise the capabilities of our customers
and create value for all our key stakeholder groups.
HOW WE CREATE VALUE
OUR COMPETITIVE ADVANTAGES
Intellectual Property
We protect our global market-leading
position by registering trade marks
and filing patents that protect our
innovative solutions.
Efficient manufacturing
We aim to optimise and refine our
product design for manufacture
and strive for high asset utilisation
and productivity.
In-house capabilities
Our people provide extensive skills
and experience to strengthen
our in-house capabilities and
manufacturing excellence.
Innovatio n a n
ti n u o u s
n
o
d c
i m provement at every stag
e of t
h
e
p
r
o
Reinvest
for growth
Understand
customer
needs
c
e
s
s
Provide
world class
service and
maintenance
Protecting
people
Perform
research and
development
Bid on new
programmes
Design and
manufacture
life-saving
products
SUPPORTED BY OUR VALUES AND CULTURE
Pre-emptive
Fearless
Targeted
20
Avon Protection plc Annual Report and Accounts 2022
RESOURCES AND RELATIONSHIPS
THE VALUE WE CREATE
SKILLED PEOPLE
We have highly skilled teams across our
business with 1,000+
employees across six sites.
OUR PEOPLE
1,300+
hours of e-learning
content viewed
55%
employee
engagement
UNIQUE TECHNOLOGY
We have a reputation for
technological excellence and
innovation, with a strong tradition
of new product development.
CUSTOMERS
200K+
respirators delivered
to NATO countries
90K+
helmets delivered
around the world
ROBUST PARTNERSHIPS
COMMUNITIES & ENVIRONMENT
We partner closely with our customers to
design products to enhance their capability as well
as provide increasing levels of protection.
$108K+
in charitable
donations
97%
waste recovered
or recycled at our
U.K. facility
ESTABLISHED DISTRIBUTION
SHAREHOLDERS
We have a mature agent and
distributor network to provide a range
of commercial products in over
60 countries.
44.9c
dividend per share
60%+
active shareholder
engagement
Annual Report and Accounts 2022 Avon Protection plc
21
STRATEGIC REPORT O P E R A T I O N A L R E V I E W
SIGNIFICANT
LONG-TERM GROWTH
OPPORTUNITY
Our leading technology and product offering, together with our
long-term contracts and a strong pipeline of opportunities,
underpin our confidence in our future growth prospects.
We have made significant progress during the year towards delivering
our strategy to strengthen and grow our respiratory and head protection
offerings. Our key strategic achievements throughout the year include:
• Organic growth in our respiratory portfolio
•
NSPA continues to be a strong vehicle for providing our mission-
critical personal protection to NATO countries
• Good progress in developing our head protection portfolio
•
•
•
•
First delivery order received for NG IHPS
Award of U.S. DOD ACH GEN II contract in February
In-sourcing of helmet shells for legacy Team Wendy products
Integration of our helmet design and manufacturing capability
•
Continued new product development
•
Launch of the EXOSKIN boots and gloves range to address growing
threats and broaden our CBRN product portfolio
•
Strong demand environment
• Current threat environment driving greater focus on protective
technologies and capabilities throughout Europe and beyond
A robust core business
Our 20-year relationship with the U.S DOD as a sole-source provider
of general-purpose respirators, tactical forces respirators, powered air
purifying respirators and tactical self-contained breathing apparatus
solutions has seen us design, develop and maintain a portfolio of
innovative and world-leading respiratory protection systems. We also have
a long-standing relationship with the U.K. MOD, and, in October 2020,
were awarded the NATO Support and Procurement Agency contract in
relation to our full respiratory range. The importance of these long-term
partnerships has come to the fore as the risk environment has increased
and we are actively engaged with our customers as they decide how to
co-ordinate their response to world events.
The acquisitions of 3M’s ballistic protection business and Team Wendy
have added head protection to our portfolio, combining world-leading
technology in helmet shells and protective inserts. The combination of
the two will position Avon Protection as the leading helmet provider
to the U.S. DOD as we commence deliveries on programmes we have
already won.
Our longer-term strategic aspirations include selling a wider range of both
respirators and helmets to our global customer base. During the year,
we have taken further steps to integrate the two acquired businesses,
resulting in a more streamlined organisation with significant opportunities
for realising manufacturing and technological synergies that will drive
longer-term value creation for the Group.
We have continued to invest during the year to maintain our market-
leading positions through continued development of our existing
portfolio of innovative products, and development of the next generation
of products that will deliver future growth for the business. We continue
to develop our product portfolio in partnership with our customers to
meet exacting performance requirements whilst providing a commercially
robust route to market to maximise our return on investment.
Our people are at the heart of everything we do, and at the core of
our DNA is pride for our product and how it protects the user. The
reorganisation to integrate the two head protection businesses and
streamline the Group, as well as our financial performance, has been a
challenge for our people this year. However, we are making progress and
continuing our journey to shape our culture for the future. We are grateful
to our colleagues for their ongoing commitment as we continue to align
the business for future growth.
Additional programme wins
Following the contract award from the U.S. Army for the NG IHPS in 2021,
we received the first delivery order worth $42.1 million in September 2022.
Manufacturing ramp-up is progressing to plan after completing rigorous
testing, with initial deliveries expected in the first half of FY23.
The award of the ACH GEN II contract in February 2022 is a further
demonstration of the strength of our head protection portfolio. Our ACH
GEN II helmet will be submitted for first article testing (FAT) in early FY23
with initial revenue expected in FY24.
When NG IHPS and ACH GEN II enter service life with the U.S. DOD, this
will position Avon Protection as the leading helmet supplier to the U.S.
DOD, validating the strategic rationale for bringing the two helmet brands
together by combining Ceradyne’s helmet shell moulding capabilities and
Team Wendy’s helmet liner and retention system technologies.
We continue to make progress with our MCM100 underwater rebreather, with
several countries having taken delivery, and others conducting full dive
test programmes.
22
Avon Protection plc Annual Report and Accounts 2022
STRATEGY IN ACTION
GROWING THE CORE
FM50 MASKS PROTECTING
UKRAINE PERSONNEL
On behalf of various NATO governments, we have delivered
over 65,000 50 series respirators to protect military,
government and humanitarian personnel in Ukraine.
The 50 series family of respirators is built on the FM50, a CBRN
full face mask, specifically designed to meet the latest NATO
forces military mask requirements. The twin filter conformal
system sits close against the face, providing the wearer with
high protection and very low breathing resistance. Wearer
comfort is enhanced by the system’s twin filters, and vision
is enhanced by our wide panoramic flexible visor that
incorporates both visual clarity and integral durability.
Our masks are manufactured to the highest standards
with the aim of protecting the wearer from harmful CBRN
agents they may encounter. Thanks to our ability to ramp-up
production across our facilities we have been able to deliver
these orders quickly, and everyone at Avon Protection is
extremely proud to know our equipment is supporting
personnel in Ukraine.
The FM50 is widely deployed by NATO military and
peacekeeping forces including Belgium, Denmark, Finland,
The Netherlands, Norway, Latvia, and Lithuania. More than
3.5 million systems have been delivered worldwide, making
the FM50 the most operationally proven deployed respirator
in the world.
65,000
FM50 masks delivered to
Ukraine personnel
WE HAVE MADE FURTHER
SIGNIFICANT PROGRESS AGAINST
OUR STRATEGIC OBJECTIVES
TO DELIVER MEDIUM-TERM,
SUSTAINABLE GROWTH,
DESPITE THE CHALLENGING
OPERATING ENVIRONMENT.
Revenue split by market ($)
99.1m
65.7m
98.7m
2022
3737+
5252+
2021
125.2m
62.8m
53.8m
U.S. DOD
Commercial Americas
U.K. and International
U.S. DOD
Commercial Americas
U.K. and International
Annual Report and Accounts 2022 Avon Protection plc
23
STRATEGIC REPORT+
25
25
+
+
38
38
+
+
G
G
+
26
+
26
+
22
22
+
+
G
G
O P E R A T I O N A L R E V I E W C O N T I N U E D
Sustainability
We protect; it’s ingrained within our culture and is at the heart of
everything we do, and is why sustainability is so important to us. We
recognise we are at the start of our sustainability journey to achieving net
zero by 2045 at the latest. This year, we commenced work on a high-level
sustainability vision linked to our purpose and strategy.
We have concentrated our efforts on the following:
1) Identifying key sustainability areas
To ensure we focus our efforts on the sustainability issues that are most
material, we engaged our stakeholders through a materiality review
process. Targeting the most material sustainability areas, we have
developed an impact plan consisting of four distinct pillars: an employee-
centric approach, environmental impact, sustainable supply chains and
cybersecurity and data protection.
2) Assessing our existing greenhouse gas (GHG) data and
building an action plan for delivering net zero
We have committed to achieving net zero by 2045 at the latest by
reducing our absolute scope 1 and 2 GHG emissions (compared to
2021). During the year, we have been focused on ensuring data accuracy
and understanding the process by which scope 1 and 2 emissions are
generated to provide an appropriate base year for reporting targets
against. Following this work, we have now improved our data collection
and will use 2021 as a base year. We will be carrying out a further scope of
work based on recommendations to add detail to the Net Zero Plan.
3) Governance of our sustainability agenda and
TCFD reporting
To ensure focus and greater transparency of our sustainability agenda, a
new governance framework has been put in place. The Board takes overall
responsibility for our sustainability agenda, disclosure and reporting.
During the year a Sustainability Committee, chaired by Rich Cashin,
was established with responsibility for the design, implementation and
delivery of our sustainability agenda on behalf of the Board. This approach
will ensure that delivery has top-level support and is underpinned by
strong governance.
We have made substantial progress over the past 12 months in setting the
foundations for our sustainability agenda which will continue to evolve
over the coming months and years.
A heightened threat environment
The current threat environment is driving a greater focus on protective
technologies and capabilities throughout Europe and beyond, giving rise
to a dynamic-demand environment.
NATO nations continue to safeguard against the possibility of adversarial
use of CBRN capabilities, and our core competence in these areas leaves us
well-placed to protect against the increased threat level.
The sole-source framework respirator contract with the NATO Support and
Procurement Agency, which allows NATO and associate members to order
from our portfolio of respiratory products under standard pre-negotiated
terms, is an important route to market for us. The benefits of this contract are
evident in the current environment where ease of ordering is paramount in
a fast-moving situation. On behalf of various NATO governments, we have
delivered over 65,000 50 series respirators to protect military, government
and humanitarian personnel in Ukraine throughout the year.
We are anticipating higher public defence spending to address the
increased need for personal protective equipment in the medium and
long-term. This will likely result in upgrade programmes across NATO and
militaries globally over the coming years, for which we are well positioned.
Our leading position in the CBRN market means we are well positioned
to continue our growth in supporting our customers around the
world to improve and enhance their protective measures. To further
expand our capabilities in the important CBRN market, we developed
the EXOSKIN range of boots and gloves to protect personnel without
compromising the wearer’s tactical agility in the field. In expanding our
offerings into protective garments, we aim to provide the full scope of
integrated protective wear that can be scaled to address changing threat
environments and readiness levels.
Successfully addressing challenges
As a result of global supply chain issues, which in some cases pushed lead
times of components that were once 6 weeks closer to 40 weeks, we took
the initiative to buy-forward inventory where we had identified the most
risk, particularly electronics and textiles. Whilst this increased our working
capital, it greatly improved our ability to react to the higher demand
environment which we now find ourselves in. This has also enabled us to
run our facilities at improved levels of productivity and efficiency.
We have made significant progress against the previously announced cost
savings programmes. Half of the $15 million announced in December 2021
has been executed, with the remainder linked to the closure of the armor
business. We have also delivered the incremental $6 million reduction
announced in May 2022, although as stated at the time of announcement
this cost reduction was more variable in nature and costs will be added
back into the business as revenue continues to grow.
Following FAT approval for the Defense Logistics Agency Enhanced Small
Arms Protective Insert (DLA ESAPI) body armor, we started to deliver
product to the U.S. DOD in H2 2022. This leaves us on track to fulfil our final
contractual obligations and allow the orderly wind-down of the armor
business to conclude by the end of FY23.
The appointments of Rich Cashin as Chief Financial Officer in March 2022,
and of Jos Sclater as Chief Executive Officer with effect from 16 January
2023 brings a wealth of experience and impressive track records within the
aerospace and defence sector to Avon Protection and positions us well for
future growth.
24
Avon Protection plc Annual Report and Accounts 2022
STRATEGY IN ACTION
ADVANCING PRODUCT
DEVELOPMENT
LAUNCH OF EXOSKIN CBRN
PROTECTIVE WEAR
The CBRN threat is a growing concern for military forces, with
the use of chemical weapons rising among both state actors
and terrorist groups. In response, we have developed the
EXOSKIN range of boots and gloves to supplement its CBRN
respiratory protection products to protect personnel without
compromising the wearer’s tactical agility in the field.
Designed to allow for the handling and operation of
electronic touch screen devices, the EXOSKIN-G1 glove
offers a critical operational advantage. The ambidextrous
glove features a rubberised outer layer textured to maintain
grip in wet conditions, with an intelligent, seamless inner
knitted liner that has a conductive tip on both the thumb
and forefinger. Together these layers optimise the wearer’s
dexterity and allow them to complete their mission safely.
The EXOSKIN-B1 boot allows improved durability and agility
in the field, with quick-release straps to secure the garment
over standard footwear. A highly textured sole improves
the wearer’s manoeuvrability in all underfoot conditions.
In addition, it is 100 percent leak tested.
Manufactured from our proven rubber technology, both
the EXOSKIN-G1 glove and EXOSKIN-B1 boot offer Chemical
Warfare Agent and Toxic Industrial Chemical protection and
are impermeable to biological agents. Designed for quick
donning and doffing, they integrate with many protective
suit ensembles including the standard issue U.K. and U.S.
CBRN protective suits.
With more than 100 years of experience delivering
innovatively designed and engineered CBRN solutions, the
EXOSKIN range leverages our material science capability and
deep knowledge of protective CBRN technology.
Annual Report and Accounts 2022 Avon Protection plc
25
STRATEGIC REPORT S T R A T E G Y I N A C T I O N
W E’RE
GROWING
THE CORE
The focus of Growing the Core is to maximise our performance
and efficiency to improve quality and operational excellence.
It relies on selling more of our existing portfolio to a global
customer base by investing in our organic sales and support
teams, including expanding our reach to new customers
and geographies.
Growing the Core also includes a focus on our internal processes
and we are committed to investing in our global facilities and
supply chain, to improve the quality, efficiency and performance
of our operations. We will continue to work in partnership with
our suppliers, ensuring they are a part of our value proposition
to supply the best products and solutions at the highest quality
and value.
Growing the Core ensures that we continuously improve our
existing portfolio, while operating in a sustainable way and as a
force for good within our communities.
A C H I E V E M E N T S O V E R T H E Y E A R
Successful delivery of over 200,000 masks by the second year of our
NATO contract
Upgraded automated inspection as part of our filter production with
barcode tracking of each unique filter
Record-breaking year for Mi-TIC thermal imaging camera range, with
a 30% increase in revenue
Record e-commerce sales of Team Wendy helmets in Fourth of July
and Amazon Prime Day sales
Continued progress with our underwater portfolio bringing
the total number of countries using the MCM100 underwater
rebreather to seven
Composition of order intake for FY22
$128.9m
$68.4m
$70.5m
m
$
150
120
90
60
30
0
U.S. DOD
Commercial Americas
U.K. & International
H1
H2
26
Avon Protection plc Annual Report and Accounts 2022
Revenue split by product ($)
DELIVERING GROWING THE CORE
70.5m
193.0m
2022
7373+
7070+
2021
168.6m
73.2m
Respiratory
Head Protection
Respiratory
Head Protection
KENT’S STORY
The U.S. DOD is always looking for a means to both
improve performance and reduce weight. There’s
a saying that ‘ounces equal pounds, pounds equal
pain’, so anything that we can do to reduce the
warfighter burden from a weight perspective is a
good thing. Over the last 20 years, helmets worn by
most soldiers have not changed in weight. Given the
availability of new materials and technology, the
U.S. Army has now turned its concentration towards
weight reduction, comfort and increased protection
in its requirements, hence the introduction of IHPS
and now the ACH GEN II.
Being the primary helmet producer to the U.S. Army
is an incredible privilege, one we can all be proud of
and one that carries immense responsibility. I have
mentioned reduced weight and increased performance
in the ACH GEN II as well as the enhanced features
of the NG IHPS, but what we can’t lose sight of is
the key protective capabilities these systems provide.
I think what matters most is that our soldiers will
have confidence they have the best head protection
available, manufactured for them by a committed
and passionate partner in Avon Protection.
Kent Moeller
President, Avon Protection Ceradyne
Annual Report and Accounts 2022 Avon Protection plc
27
STRATEGIC REPORT
+
27
27
+
+
G
+
30
30
+
+
G
S T R A T E G Y I N A C T I O N C O N T I N U E D
W E’RE
ADVANCING
PRODUCT
DEVELOPMENT
Our customers continually evolve, as do the threats they face.
We will continue to invest in product development each year,
working in partnership with our customers to develop new
technologies and expand our portfolio into a wider range
of products and solutions to enhance the capabilities of our
customers. We undertake projects to develop equipment to
specifications that no other product has ever met.
A C H I E V E M E N T S O V E R T H E Y E A R
First order for the NG IHPS received from the U.S. Army
Multi-year contract to supply the U.S. Defense Logistics Agency with
the ACH GEN II
Launch of the EXOSKIN boots and gloves range
CH15 Escape Hood won the Best International Product Design
award following a reduction in mass by 22% over the previous
generation NH15
Launch of innovative headset adaptor for the U.S. DOD’s IHPS to
seamlessly integrate with the 3M™ PELTOR™ ComTac™ system
R&D expenditure composition ($)
10.9m
1313+
Customer funded
2022
19.1m
G 1212+
Non-capitalised
2021
Capitalised
28
Avon Protection plc Annual Report and Accounts 2022
+
53
53
+
+
34
34
+
+
G
+
78
78
+
+
10
10
+
+
G
G
R&D SPEND BY LINE OF BUSINESS
ADVANCING PRODUCT DEVELOPMENT
JUSTIN’S STORY
W E’RE
ADVANCING
Respiratory
2021
$7.8m
2022
$6.0m
Head Protection
2021
2022
$5.4m
$4.9m
Development contracts are a great prospect
for us; they provide us with the opportunity to
research new and future technology, sometimes
moving a concept to a prototype, while covering
the costs associated with the research and
development required.
Throughout such programmes, our teams work
closely with the customer, government scientists,
end users and stakeholder communities, building
close relationships and taking part in user feedback
workshop sessions. We get to hear first hand from
the stakeholder communities on any issues with
their existing product or technology, whether that is
related to use, maintenance, integration with other
equipment or training, and then present solutions
back to them. It’s also beneficial in that we learn
about our customer’s future requirements and
can actively be a part of the solution, aligning our
upcoming product offerings and technology with
their needs.
Justin Hine
Category Director – CBRN
Annual Report and Accounts 2022 Avon Protection plc
29
STRATEGIC REPORT S T R A T E G Y I N A C T I O N C O N T I N U E D
W E’RE
INTEGRATING
ACQUISITIONS
FOR A STRONGER
BUSINESS
A C H I E V E M E N T S O V E R T H E Y E A R
Undertaking a portfolio review to align offerings and determine
future investment and development
Integration of our helmet design and manufacturing capability,
with synergies to follow
In-sourcing of helmet shells for legacy Team Wendy products
Work being undertaken to integrate HR and IT systems across
the business
Continuous engagement and inclusion in core employee
engagement programmes to help them feel part of the business
Our priority over the past year has been the integration of 3M’s
ballistic protection business and Team Wendy, which were
acquired in 2020. These steps have resulted in a more streamlined
organisation with significant opportunities for realising
commercial synergies that will drive longer-term value creation
for the Group.
We are also committed to further developing our integration
model so we are able to onboard these acquisitions into the Avon
Protection family with a consistent process and in an efficient
manner as we allow these businesses to invest and grow.
Longer term, we will continue to invest in M&A to further
accelerate the Group’s development and continue to deliver an
industry-leading performance level. As we continue to build a
growing, more efficient business, we will look to invest in the
acquisition of carefully selected, value enhancing businesses to
further accelerate our growth. These acquisitions will not only add
scale, but will extend our business into adjacent markets and new
geographies, adding new technologies to enhance performance,
efficiency and protection levels for our customers.
30
Avon Protection plc Annual Report and Accounts 2022
W E’RE
INTEGRATING
EXPANDING OUR CAPABILITIES
INTEGRATING ACQUISITIONS
Talented people joining
our team
400+
New helmet product lines
added to our portfolio
8
Invested facilities expanding
our in-house capabilities
4
LAUREN’S STORY
Joining the Avon Protection family following the
acquisition of 3M’s ballistic protection business,
along with the addition of Team Wendy, has
positioned us as part of a global team at the
forefront of innovative protective technologies.
The timing of the integration during the COVID-19
pandemic presented challenges not only for IT
integration, but also getting to meet new colleagues
and truly feeling like part of the business. However,
we have been welcomed into the global team and
we are able to effectively share ideas between the
different sites.
The team really comes together under pressure,
and everyone does what it takes to get the job done.
It is highly motivating to work for a company that
makes life-critical products!
Lauren Zinger
Quality Assurance Supervisor
Annual Report and Accounts 2022 Avon Protection plc
31
STRATEGIC REPORT
F U T U R E P R I O R I T I E S
PROGRESS ON OUR
STRATEGY
Strategy focus area
Metrics
Our aim
How we achieve this
Progress during the year
Our ambition is to create substantial value for all
of our stakeholders.
To achieve this, our strategy is based upon three
key elements:
• Growing the core by maximising organic revenue
growth from within the current product portfolio
and improving our operational efficiency;
• Advancing our product development to protect
people and maintain our innovative leadership
position; and
•
Integrating our recent acquisitions to build a
stronger business and accelerate growth.
Our intention as a protection-focused organisation
does not stop at developing lifesaving systems; we
care and are committed to ensuring we execute
our strategy while contributing positively to the
communities and environment in which we operate.
GROWING OUR
CORE TO MAXIMISE
OPPORTUNITIES
Read more on page 26
ADVANCING OUR
PRODUCT
DEVELOPMENT TO
PROTECT PEOPLE
>200,000
FM50 masks delivered
to NATO forces
>150
product and process
attributes streamlined
Significant progress made against
previously announced cost
reduction programmes
>100 years
of material science capability
$204m
contract won for ACH GEN II
Innovative range of protective
boots and gloves launched
Read more on page 28
INTEGRATING RECENT
ACQUISITIONS TO BUILD
A STRONGER BUSINESS
Bringing together
2
world-leading portfolios
Read more on page 30
32
Avon Protection plc Annual Report and Accounts 2022
We are recognised as the leader
• Leveraging the product and
We have completed our first year of delivering against a ten-year
customer base
framework contract to supply a complete CBRN personal respirator
within respiratory, underwater
and head protection markets.
This year, we have continued
to invest in our core products,
maintaining our position at the
forefront of the market.
• Responding to customers’
growing needs
• Offering new models and solutions
• Expanding our reach
through distribution
• Enhancing our commercial effectiveness
• Continuing focus on
operational excellence
system to NATO and affiliated countries.
We have continued to serve a major customer in the U.S. DOD
having received a large order for our M61 filters, compatible with
M50 masks, worth $15.1m.
We have also introduced a state-of-the-art automated inspection
process as part of our filter manufacturing operations, removing
the possibility for human error in the life-saving products that we
produce. With over 150 product and process attributes captured
for each product, the data ensures highest quality product while
facilitating data-driven continuous improvement.
We have a reputation for
• Moving up the value chain in
We have continued to invest to maintain our innovative technology
respiratory and head protection
leadership position across our existing portfolio as well as focusing
technological excellence and
innovation, with a strong legacy
of new product development.
• Enabling technologies and
integrated systems
on developing the next generation of new products that will deliver
future growth for the business. Our main focus has been the first
article testing programmes for both NG IHPS and ACH GEN II.
We continue to design our development pipeline in partnership
with our customers so their exacting performance requirements are
met whilst ensuring we have a committed and commercial route to
market to maximise our return on investment.
We have continued to meet the demands of ever-increasing
CBRN threats through the launch of two products under our new
‘EXOSKIN’ range. The EXOSKIN-B1 CBRN Boot provides improved
durability and agility in the field, with quick release straps to secure
the overboot over standard footwear. Our EXOSKIN-G1 CBRN Gloves
are designed to allow handling and ease of operation of electronic
touch screen devices, offering users a critical operational advantage.
Acquisitions have been a part of
•
In the short-term, we are focused
Following the acquisitions of both 3M’s ballistic protection business
our growth strategy for a number
on the integration of our current
and Team Wendy, we have worked to bring together the people
of years.
operations and building our
and product offerings, allowing us to offer the best helmet
respiratory and head protection
moulding, shell and liner and retention capabilities in a single
business organically
platform to benefit our customers.
•
In the medium to long-term, we
will return to acquisitions as a driver
for growth
Once in service, the awards of the ACH GEN II and NG IHPS contracts
will confirm our position as the leading helmet supplier to the U.S.
DOD, reinforcing the synergies of bringing the knowledge and
expertise of two world-leading organisations together.
Strategy focus area
Metrics
Our aim
How we achieve this
Progress during the year
GROWING OUR
CORE TO MAXIMISE
OPPORTUNITIES
ADVANCING OUR
PRODUCT
DEVELOPMENT TO
PROTECT PEOPLE
>200,000
FM50 masks delivered
to NATO forces
>150
product and process
attributes streamlined
Significant progress made against
previously announced cost
reduction programmes
>100 years
of material science capability
$204m
contract won for ACH GEN II
Innovative range of protective
boots and gloves launched
We are recognised as the leader
within respiratory, underwater
and head protection markets.
This year, we have continued
to invest in our core products,
maintaining our position at the
forefront of the market.
• Leveraging the product and
customer base
• Responding to customers’
growing needs
• Offering new models and solutions
• Expanding our reach
through distribution
• Enhancing our commercial effectiveness
• Continuing focus on
operational excellence
We have completed our first year of delivering against a ten-year
framework contract to supply a complete CBRN personal respirator
system to NATO and affiliated countries.
We have continued to serve a major customer in the U.S. DOD
having received a large order for our M61 filters, compatible with
M50 masks, worth $15.1m.
We have also introduced a state-of-the-art automated inspection
process as part of our filter manufacturing operations, removing
the possibility for human error in the life-saving products that we
produce. With over 150 product and process attributes captured
for each product, the data ensures highest quality product while
facilitating data-driven continuous improvement.
We have a reputation for
technological excellence and
innovation, with a strong legacy
of new product development.
• Moving up the value chain in
respiratory and head protection
• Enabling technologies and
integrated systems
We have continued to invest to maintain our innovative technology
leadership position across our existing portfolio as well as focusing
on developing the next generation of new products that will deliver
future growth for the business. Our main focus has been the first
article testing programmes for both NG IHPS and ACH GEN II.
We continue to design our development pipeline in partnership
with our customers so their exacting performance requirements are
met whilst ensuring we have a committed and commercial route to
market to maximise our return on investment.
We have continued to meet the demands of ever-increasing
CBRN threats through the launch of two products under our new
‘EXOSKIN’ range. The EXOSKIN-B1 CBRN Boot provides improved
durability and agility in the field, with quick release straps to secure
the overboot over standard footwear. Our EXOSKIN-G1 CBRN Gloves
are designed to allow handling and ease of operation of electronic
touch screen devices, offering users a critical operational advantage.
INTEGRATING RECENT
ACQUISITIONS TO BUILD
A STRONGER BUSINESS
2
world-leading portfolios
Bringing together
Acquisitions have been a part of
our growth strategy for a number
of years.
•
•
In the short-term, we are focused
on the integration of our current
operations and building our
respiratory and head protection
business organically
In the medium to long-term, we
will return to acquisitions as a driver
for growth
Following the acquisitions of both 3M’s ballistic protection business
and Team Wendy, we have worked to bring together the people
and product offerings, allowing us to offer the best helmet
moulding, shell and liner and retention capabilities in a single
platform to benefit our customers.
Once in service, the awards of the ACH GEN II and NG IHPS contracts
will confirm our position as the leading helmet supplier to the U.S.
DOD, reinforcing the synergies of bringing the knowledge and
expertise of two world-leading organisations together.
Annual Report and Accounts 2022 Avon Protection plc
33
STRATEGIC REPORT K P I s
HOW WE MEASURE
FINANCIAL KPIS
The adjusted performance section contains further explanation for adjusting
items which are summarised below. The Group uses a variety of key performance
indicators which are in line with our strategy and investor proposition.
CLOSING ORDER BOOK
$151.3m
+5.7%
$101.8m
$143.1m $151.3m
FY20
FY21
FY22
Reason for choice
Provides an indication of revenue to be
recognised in the next financial period.
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.
Comments on results
Our closing order book of $151.3 million
($120.9 million excluding armor) provides
strong visibility going into FY23, including
$42 million for our NG IHPS ballistic helmet.
Link to strategy
ORGANIC CONSTANT CURRENCY REVENUE GROWTH
9.1%
+1260 bps
9.1%
0.1%
(3.5)%
FY20
FY21
FY22
ADJUSTED EBITDA MARGIN
9.4%
-570 bps
22.9%
15.1%
9.4%
FY20
FY21
FY22
Reason for choice
Indicates the rate at which the Group’s
business activity is changing over time.
How we calculate
Growth in revenue excluding acquisitions,
comparing current period revenue with
prior period revenue translated at 2022
exchange rates.
Comments on results
Revenue was up 9.1% on an organic constant
currency basis, reflecting strong growth
in respiratory notably driven by the NSPA
contract, offsetting a small decline in
head protection.
Link to strategy
Reason for choice
Provides a measure of the underlying
profitability of the ordinary activities of the
business and their potential to generate cash.
How we calculate
The ratio of adjusted EBITDA to revenue.
Adjusted EBITDA is defined as operating
profit before depreciation, amortisation and
exceptional items. It excludes any effect of
discontinued operations.
Comments on results
Our adjusted EBITDA margin has seen a
decline as a result of the continued losses
in the winding-down armor business, as
well as operational challenges affecting the
core business.
Link to strategy
The Directors believe that adjusted measures provide a useful comparison of business trends and performance. The metrics are also used internally to measure and manage the business.
A reconciliation of adjusted performance measures is available on page 112. A full glossary of terms is available on page 177.
34
Avon Protection plc Annual Report and Accounts 2022
Key
Growing the core
Selective product development
Value enhancing acquisitions
PRODUCT DEVELOPMENT % OF REVENUE
4.0%
-370 bps
7.7%
5.5%
4.0%
FY20
FY21
FY22
CASH CONVERSION
142.7%
+5,950 bps
142.7%
81.6%
83.2%
FY20
FY21
FY22
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.
Comments on results
Whilst we continue to invest in selective
product development, levels have dropped
from the record high seen in FY21 as
a number of large projects have come
to fruition.
How we calculate
Total expenditure on R&D including amounts
funded by customers, development
expenditure capitalised and amounts
expensed directly to the income statement
expressed as a percentage of revenue.
Link to strategy
Reason for choice
Provides a measure of the management of
working capital and the ability of the Group
to convert profits to cash.
How we calculate
The ratio of cash generated from operations
before the effect of exceptional items to
adjusted EBITDA.
Comments on results
Cash conversion has improved due to more
favourable timing of FY22 revenues, as well as
tight control of receivables in the last quarter
of the period.
Link to strategy
ADJUSTED EARNINGS PER SHARE
20.4c
-40.2c
98.6c
60.6c
20.4c
FY20
FY21
FY22
Reason for choice
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.
How we calculate
Adjusted profit for the year divided by the
weighted average number of shares in issue.
Adjusted profit excludes exceptional items
and discontinued operations.
RETURN ON CAPITAL EMPLOYED
Comments on results
Adjusted earnings per share declined due to
the impact on profit from the armor business
and operational challenges for the Group.
Link to strategy
3.0%
-280bps
22.3%
5.8%
3.0%
FY20
FY21
FY22
Reason for choice
Measures profitability and the efficiency with
which capital is employed.
Comments on results
With a stable capital base, the decrease in
operating profit results in lower return on
capital employed.
How we calculate
Adjusted operating profit as a percentage of
average capital employed. Capital employed
is the sum of shareholders’ funds, non-current
liabilities and current borrowings.
Link to strategy
Annual Report and Accounts 2022 Avon Protection plc
35
STRATEGIC REPORT
K P I s C O N T I N U E D
HOW WE MEASURE
OPERATIONAL KPIS
The Group uses a variety of key performance indicators
which are in line with our strategy and investor proposition.
EMPLOYEE ENGAGEMENT
55%
-1,300 bps
64%
68%
55%
FY20
FY21
FY22
GENDER DIVERSITY
21%
-700 bps
29%
21%
FY21
FY22
HEALTH AND SAFETY
5
-69%
16
5
FY21
FY22
Reason for choice
Our people are crucial to delivering future
business success. This is an objective way to
assess how engaged our employees are with
the business.
How we calculate
Employee engagement is measured through
regular surveys which ask employees to
respond to five statements with how much
they agree or disagree.
Comments on results
The reorganisation to integrate the two
helmet businesses and streamline the Group,
as well as our financial performance, has been
a challenge for our people this year. However,
we are making progress and continuing our
journey to shape our culture for the future.
Link to strategy
Reason for choice
A diverse and inclusive workforce is critical
to ensuring innovative thinking and business
growth. Gender diversity at senior levels ensures
our people are led by a leadership team that is
representative of our gender-diverse workforce
and the communities in which we operate.
Comments on results
The Board is committed to continuous
improvement in this area and acknowledges
that there remains some way to go to ensure
a diverse workforce. We will continue to drive
internal initiatives to champion more women
into leadership roles.
How we calculate
We calculate this based on the number of
females in leadership positions, expressed as
a percentage.
Link to strategy
Reason for choice
We want to keep everyone safe and well
with the support of a strong health and
safety culture.
How we calculate
We track this using a Lost Time Incident
Rate which measures the number of LTIs
per 1,000 employees.
Comments on results
We are pleased with the progress we have
made to reduce the number of Lost time
Incidents across all of our sites globally. In line
with our goal of zero harm, we continue to
actively promote a strong safety culture.
Link to strategy
36
Avon Protection plc Annual Report and Accounts 2022
Key
Growing the core
Selective product development
Value enhancing acquisitions
ON TIME DELIVERY
82%
N/A
82%
FY22
SUPPLIER QUALITY
883
-15.2%
1,041
883
FY21
FY22
ENVIRONMENT
39.9
+11.5%
35.8
39.9
FY21
FY22
Reason for choice
Ensuring that we are meeting our customers
delivery expectations is a core component of
maintaining high levels of satisfaction.
How we calculate
We calculate this based on the percentage of
orders received, which are delivered on time
to our customers expectations.
Comments on results
FY22 was the first full year of tracking on
time delivery and as such we do not have
any comparative data. Moving forward we
are committed to improving this result,
providing superior levels of satisfaction for
our customers.
Link to strategy
Reason for choice
Partnering with our suppliers to ensure
the best quality materials are used in our
products underpins value for our customers.
Comments on results
We are making good progress with
decreasing our Defective Parts per Million
and we have seen a 15% reduction. There is
more work to do in this area to meet our goal.
How we calculate
We measure the success of our supplier
quality in ‘Defective Parts per Million’ which is
calculated by taking the number of defective
units in a same size, dividing that number
by the total sample size, and multiplying by
1 million.
Link to strategy
Reason for choice
Our mission is to be a growing business
with a shrinking environmental impact,
targeting net zero by 2045 by reducing
our absolute scope 1 and 2 GHG emissions
(compared to 2021).
How we calculate
We measure the success of this with an
intensity ratio calculated using the amount
of scope 1 and 2 GHG emitted per $m
of revenue.
Comments on results
We have made progress over the past 12
months in setting the foundations for our
sustainability agenda and developing our
transition to net zero by improving data
collection processes. We hope to see more
progress on this result in the future.
Link to strategy
Annual Report and Accounts 2022 Avon Protection plc
37
STRATEGIC REPORT
S 17 2 S T A T E M E N T
ENGAGING WITH OUR
STAKEHOLDERS
The Board acknowledges that positive interaction with all stakeholders is key to underpinning positive engagement and fully informed decision making
on material issues. As part of ensuring the requirements of section 172 are met and the interests of all stakeholders have been regarded, stakeholder
engagement by the Board and the wider business takes place across the Group at all levels. This includes engagement with the Group’s employees,
shareholders, customers and suppliers and the communities within which we operate.
Further information on how the Board has discharged its duties and considered the factors relating to section 172 are found throughout our Annual
Report, with specific details included in the Governance section of this report.
Key
Growing the core
Selective product development
Value enhancing acquisitions
OUR PEOPLE
Our people drive our culture. Continuous engagement with our people is
fundamental to ensure an engaged employee base that supports how we do
business and which is at the heart of our ability to drive value creation.
How we engage
• Throughout the year the Executive Board and the
Key topics of engagement in 2022
• As a focus area highlighted in the
How we responded
• Following feedback gathered
Board of Directors have hosted townhalls at the sites,
presenting Company updates to employees and
holding Q&A sessions.
• Each year engagement surveys are undertaken with
all employees, seeking their feedback on a wide range
of topics, and the output creates our focus areas of
improvement for the year ahead.
engagement survey, we have looked for
feedback on how our employees would
like to see their work recognised and what
makes them feel valued.
on recognition, a remuneration
review was launched during
the summer to explore our pay
philosophy and grade structures.
• We have also discussed our employees’
• With input from our employees,
views on sustainability and how we should
approach it in the future.
we have developed our
sustainability agenda. Read more
on page 42.
Link to strategy
• Executive Board members and senior leaders host
• Regular communications including
monthly Q&A live events for employees to hear from
leadership on a specific topic and submit questions.
roadshows, townhalls and live events have
been used to provide an update on business
progress and focus for the future.
CUSTOMERS
Our customers are at the forefront of our employees’ mind, and we are proud
of the products we create for the end users. We partner closely with our
customers and gain feedback from multiple levels within the user base to
design products which enhance their performance, efficiency and capability.
How we engage
• Throughout the product development process
we engage with our customers to ensure we are
responding to their developing needs and to identify
future opportunities.
• We have dedicated leadership channels to manage
and prioritise our customer relationships and hold
User Advisory Councils to explore feedback from
specific and key users.
• We work closely with country specific scientific
communities, such as the Defence Science and
Technology Laboratory in the U.K., which provide
insight on the future capability requirements within
their military user base.
Key topics of engagement in 2022
• The majority of our product development
pipeline is designed in partnership with
our customers to ensure we are in active
dialogue and that their performance
requirements are met.
• This year we have also engaged with our
customers on our sustainability approach
to determine their priorities around our
future direction.
How we responded
• We have developed long-
standing relationships with
our customers which provide
opportunities to work with user
groups to ensure their evolving
operational needs are anticipated
in future product developments.
• We maintain an assessment of
broader technology trends we
could adopt quickly to deliver
disruptive technology solutions
to our customers, providing them
with capability advantages.
Link to strategy
38
Avon Protection plc Annual Report and Accounts 2022
EMPLOYEE RELATIONS
Engagement with employees has been
a focus for the Board of Directors and
Executive Board during 2022 with travel
restrictions now eased. Roadshows have
taken place across the sites and townhall
meetings have provided our employees
an opportunity to hear from both Boards,
provide their feedback and discuss
priorities and focuses. Teams across the
business have also been invited to take
part in discussion lunches to have one-to-
one time with Board members.
REACHING KEY
DECISIONS
Q&A
Bruce Thompson
Executive Chair
Q What are your priorities as Directors for
our stakeholders and the engagement
we have with them?
A For the continued success of the Group and
for the benefit of the Company’s members as
a whole, we as a Board recognise all decisions
must be taken with regard to long-term
outcomes and any impact these have on
all our stakeholders. Throughout the year,
we have interactions with our stakeholders
regarding any long-term decisions that could
have an impact on them. For our people, we
always want to account for their interests
and align our decisions to ensure they have
the best experience with Avon Protection.
It’s a priority to foster strong relationships
with our customers, suppliers and other key
stakeholders, maintaining our reputation for
high standards of business conduct and the
need to act fairly.
It is also a priority for the Directors to identify
any impact the Company’s operations
have on the community and environment.
This year we have outlined our approach
to sustainability and becoming net zero by
2045 at the latest.
WE AS A BOARD RECOGNISE ALL DECISIONS
MUST BE TAKEN WITH REGARD TO LONG-TERM
OUTCOMES AND ANY IMPACT THESE HAVE ON
ALL OUR STAKEHOLDERS.
Annual Report and Accounts 2022 Avon Protection plc
39
STRATEGIC REPORT
Key
Growing the core
Selective product development
Value enhancing acquisitions
S 17 2 S T A T E M E N T C O N T I N U E D
COMMUNITIES
We have an established community initiative focused on economic, social and
environmental sustainability in our local communities. We continually work
with and for the communities in which we operate, recognising our role as a
major local employer and our responsibilities with regard to any impact we
have on them.
How we engage
• Within our community initiative is our Charitable Giving Programme,
providing match funding and donations to the organisations in our
local areas which our employees have close ties with.
• We have continued our sponsorship for Bath Rugby’s community
programmes, including support for its Primary Education programme
centred around developing numeracy skills and promoting health
and wellbeing. We also sponsor Bath Rugby’s Girls Participation Hubs,
an initiative that aims to increase female participation in the sport.
• We offer work experience and internship opportunities to
enthusiastic students looking to start developing employability skills
and have opportunities across engineering, science and commercial
job roles.
Key topics of
engagement in 2022
• We engage with local
organisations and charities on
their funding needs and how
our donations can support
their causes.
• We have provided a number of
internship and work placement
opportunities to students in
our local areas. In Cadillac, 124
high school students visited
our facility to learn more about
manufacturing and who we are.
How we responded
• During FY22, we made $108,403
of charitable contributions
to local communities and
organisations, nominated by our
employees and as part of our
community programmes.
• We actively encourage
employees to use the charitable
giving options we provide.
Link to strategy
SUPPLIERS
We strive to build long-term relationships with our suppliers, and ensure
they adhere to our supplier code of conduct and quality expectations.
We continuously engage with our suppliers to develop our knowledge
and product range.
How we engage
•
Committed teams aim to build long-term relationships we strive for
with all our suppliers.
•
Through site visits and a programme of supplier audits, we ensure
their standards and expectations of behaviour reflect our own
Group-wide standards and we have a Supplier Code of Conduct to
support this.
Key topics of
engagement in 2022
• Consistent delivery of quality
materials and services from
our long-term suppliers and
a clear understanding of our
expectations on ethical and
sustainable trading in the
supply chain.
How we responded
•
Prompt and fair payments help to
build the long-term relationships
we strive for with all our suppliers.
• Continuous review of our supplier
code of conduct and terms and
compliance against them.
Link to strategy
SHAREHOLDERS
The Group regards regular communications with shareholders as extremely
important to understand their views and concerns and ensure their ongoing
investment and support.
How we engage
•
We consult with our shareholders through open and frequent
communications, predominantly led by the Chief Executive Officer and
Chief Financial Officer.
•
•
There are open channels of communications during the Annual
General Meeting (AGM) and through the Company Secretary where
shareholders can raise questions for the Directors.
Regular dialogue takes place with institutional shareholders,
including following half and full year results and other milestone
announcements with a series of direct meetings throughout the year.
Key topics of
engagement in 2022
• How we are addressing
challenges has been a key topic
of conversation during the year.
• Chief Executive Officer
succession plan following
Paul McDonald’s resignation.
• Consultation with shareholders
on our sustainability agenda.
• The Chair held over 20 individual meetings with shareholders during
• Throughout the first half of
How we responded
• Continuous open
communication with our
shareholders remains a priority.
• We have developed our
sustainability agenda. Read
more on page 42.
Link to strategy
the year to discuss key issues of concern.
the year we undertook a share
buy back scheme, which was
discussed with shareholders.
40
Avon Protection plc Annual Report and Accounts 2022
CUSTOMER RELATIONS
Driven by governments’ research and
development needs, our teams have been
working on what the future of protection
looks like through development contracts.
These contracts are essential to progress
and provide the opportunity to hear
user feedback first hand, build strong
relationships with our customers, and
partner with other companies to gain
more knowledge of technology outside
our areas of expertise, all whilst developing
future protection concepts and true
technology improvements.
Q&A
C O N T I N U E D
Q What is in place to identify when
Q How does the Board gain an oversight
decisions should be made by the Board?
of engagement with the wider business?
A The Group has a robust governance framework
in place where day-to-day decision making
is delegated to management. There are
certain financial and strategic thresholds
in place to identify matters requiring
Board consideration and approval and any
key decisions relating to strategy and its
implementation are taken by the Board.
We as a Board have a clear framework for
determining the matters within our remit and
have approved terms of reference for matters
delegated to the Committees. We strive to
have interactions with all stakeholders to
underpin decision making on material issues.
A In addition to the summary of engagement
detailed within this report, Executive
management prepares reports which detail
engagement activity across our stakeholder
group. Board members also attend Executive
management meetings when relevant,
giving the Board the opportunity to interact
and discuss any stakeholder issues which
may need to be escalated to the Board by
management. In my position as Executive
Chair, I have spent a great deal of time working
more closely with the teams across the
business and have enjoyed getting to know
everyone more whilst I have been on site.
I HAVE SPENT A GREAT DEAL OF TIME WORKING
MORE CLOSELY WITH THE TEAMS ACROSS THE
BUSINESS AND HAVE ENJOYED GETTING TO KNOW
EVERYONE MORE WHILST I HAVE BEEN ON SITE.
Annual Report and Accounts 2022 Avon Protection plc
41
STRATEGIC REPORT S U S T A I N A B I L I T Y
OUR AMBITIOUS APPROACH TO
SUSTAINABILITY
We protect; it’s ingrained within our culture and is at the heart of everything we do.
This includes a commitment to protecting the communities and environment in which
we operate to ensure a sustainable future for us all. Last year, we commenced work
on a high-level sustainability vision linked to our purpose and strategy.
OUR IMPACT PLAN
ENVIRONMENTAL
IMPACT
SUSTAINABLE
SUPPLY CHAINS
CYBERSECURITY AND
DATA PROTECTION
EMPLOYEE‑CENTRIC
APPROACH
SUPPORTED BY OUR STRONG GOVERNANCE FRAMEWORK
Read more on page 43
We have made significant progress over the past 12 months to build
the foundations of our sustainability agenda. We recognise we are still
at the beginning of our sustainability journey and our approach in this
area will continue to evolve. We have concentrated our efforts in the
following areas:
We have carried out a review of existing data in addition to undertaking
interviews with representatives from each of our sites to further
understand our processes that generate GHG emissions. Following this
work, we have now improved the accuracy of our data management
processes and will use 2021 as a base year.
1) Identifying key sustainability areas
To ensure we focus our efforts on the sustainability issues that are most
material, we formally engaged our stakeholders through a materiality
review process. This was carried out via industry benchmarking, online
surveys and one-to-one interviews with employees, customers, suppliers
and investors. The results of this helped inform the development of our
sustainability agenda and our impact plan, comprised of the following
four pillars:
• Environmental impact
• Sustainable supply chains
• Cybersecurity and data protection
• An employee-centric approach
We have adopted the UN Sustainable Development Goals (SDGs) within
our impact plan to further demonstrate our alignment with universal goals
and opportunities for collective action.
Further details on our impact plan can be found on page 44.
2) Assessing our existing GHG data and building an
action plan for delivering net zero
We have committed to achieving net zero by 2045 at the latest by
reducing our absolute scope 1 and 2 GHG emissions (compared to
2021). During the year, we have been focused on ensuring data accuracy
and understanding the process by which scope 1 and 2 emissions
are generated to provide an appropriate base year for reporting
targets against.
42
Avon Protection plc Annual Report and Accounts 2022
We will be carrying out a further scope of work based on recommendations to
add detail to the Net Zero Plan. Further work is also required to look at scope 3.
See page 46 for our Net Zero Plan.
3) Governance of our sustainability agenda and
TCFD reporting
We recognise the importance of putting in place a robust governance
structure to oversee our sustainability agenda going forward. The Board
will continue to oversee and have overall responsibility for setting and
ensuring delivery of our sustainability agenda. During the past year, we
have established a Sustainability Steering Committee which is chaired by
our Chief Financial Officer, Rich Cashin. The Committee will review the
Company’s progress towards the targets, reporting regularly to both the
Executive Board and main Board.
In addition, we have been preparing to report against TCFD for the
first time. As part of this process, we have spent time developing our
understanding of our exposure to climate change risk. We have also
carried out a gap analysis to full TCFD alignment to identify an action plan
to work towards meeting the four TCFD thematic areas of governance,
strategy, risk management and metrics relating to climate-related risks and
opportunities. We identified that the Group already fulfils many of TCFD’s
recommendations; however, there remains work to do to ensure we are
fully aligned. We have also outlined two qualitative scenario narratives to
help us explore the potential climate change implications in our business.
See page 54 for our TCFD disclosure.
GREATER
TRANSPARENCY
To ensure focus and greater transparency of our sustainability
agenda, a new governance framework has been put in place.
We expect that our approach to governance of our sustainability agenda is
likely to continue to develop, alongside our evolving approach in this area.
Set out below is an overview of how the governance of our sustainability
agenda will be integrated into our existing governance structure.
The Board takes overall responsibility for our sustainability agenda,
disclosure and reporting. During the year a Sustainability Committee,
chaired by Rich Cashin, was established with responsibility for the
implementation and delivery of our sustainability agenda on behalf of
the Board. The Sustainability Committee will recommend to the Board for
approval sustainability-related targets and review the Company’s progress
towards those targets, reporting regularly to both the Executive Board and
main Board. This approach will ensure that delivery of our sustainability
agenda has top level support and is underpinned by strong governance.
EMBEDDING SUSTAINABILITY
Board of Directors
oversees and has overall responsibility for Avon Protection’s sustainability agenda, disclosures and reporting.
This includes, but is not limited to, climate risks and opportunities.
See page 74 for details on our Board of Directors and membership of the three Committees of the Board.
Audit Committee
is responsible for risk
management including
climate-related risks.
See page 82 for the Audit
Committee Report.
Nomination Committee
is responsible for ensuring
the membership of the
Board and the pipeline
for succession planning
purposes reflects diversity.
See page 80 for the
Nomination Committee Report.
Remuneration
Committee
is responsible for remuneration
policies and packages,
including integrating
sustainability into the executive
remuneration structure.
See page 86 for the Remuneration
Committee Report.
Executive Board
is responsible for integrating
sustainability into strategic
management.
Sustainability Steering Committee
Chaired by Rich Cashin, Chief Financial Officer
acts on behalf of the Board to oversee delivery and implementation of our sustainability agenda. Makes recommendations
to the Board including on sustainability-related targets and climate related matters. The Committee is made up of leaders
from across the business that have been identified as enablers for the sustainability agenda.
Employee engagement forum
is responsible for promoting the views
and interests of the workforce.
Site level working groups
embed the sustainability agenda into the Group’s
operational processes.
Annual Report and Accounts 2022 Avon Protection plc
43
STRATEGIC REPORT S U S T A I N A B I L I T Y C O N T I N U E D
MAPPING WHAT
MATTERS MOST
Introducing our new sustainability agenda
One of our objectives during the year has been to put in place a high-level
sustainability agenda.
As a business we recognise our operations around the world impact upon
a number of sustainability areas. We understand we must make progress
in each of them to ensure we protect society, the environment and our
customers to secure a sustainable future for the Group and its stakeholders
over the long-term. Alongside this, we recognise the importance of having
a sustainability agenda that reflects those issues that are most material
to our business and our stakeholders and on which we can have the
greatest impact.
As we take our first steps in our sustainability journey, it was decided action
should be focused on those areas considered material, which means they
have the potential to substantively affect our ability to create value in the
short, medium or long-term, and are of importance to our stakeholders.
Our methodology: starting with materiality
Throughout 2022 we undertook a full materiality assessment, with
the goal of evolving our sustainability agenda. A benchmark of peers,
competitors and customers was carried out to create a defined list of
sustainability areas relevant to our business. Stakeholder engagement
was undertaken to understand the importance of each sustainability area
to our employees, customers and shareholders. Consideration was also
given to understand the impact of each issue on the Company’s ability to
generate value versus the likelihood of the impact. This has culminated in
our materiality matrix which is shown below.
The themes shown in the top right-hand corner are those identified as
most material, although all issues are important. It is important to highlight
we do not view these themes in isolation, as in many cases they are
interconnected. The results of our materiality matrix have underpinned
the evolution of our sustainability agenda, with the creation of the four key
pillars that make up our impact plan.
2022 MATERIALIT Y MATRIX
Economic dimension
Environmental dimension
Social dimension
S
R
E
D
L
O
H
E
R
A
H
S
D
N
A
S
R
E
M
O
T
S
U
C
R
U
O
O
T
E
C
N
A
T
R
O
P
M
I
i
h
g
h
y
r
e
V
1
2
5
3
4
11
8
7
6
14
13
12
10
9
i
l
h
g
h
y
e
t
a
r
e
d
o
M
Moderately high
IMPORTANCE TO OUR PEOPLE
ENGAGING WITH STAKEHOLDERS
1. Cybersecurity and data protection
2. Business conduct and ethics
3. Sustainability in supply chain
Low carbon transition and
4.
climate impacts
5. Energy use and GHG emissions
6. Product design and life cycle
7. Human rights and labour standards
Waste management and the
8.
circular economy
Talent attraction, development
and retention
9.
10. Remuneration and payment practices
11. Water management
12. Occupational health, safety
and wellbeing
13. Diversity, inclusion and
equal opportunities
14. Community wellbeing
Very high
EMPLOYEES
• All employees were given the opportunity
to contribute to the project. A survey was
created and employees were asked to say
on a scale of one to ten how important
each sustainability area was to them.
•
One-to-one interviews with
representatives from across the business
including members of the Executive Board
looked at the scorings of this survey and
examined how much impact each issue
has on our ability to create value against
the likelihood of the impact.
CUSTOMERS
• A benchmarking activity was conducted,
outlining our key customers’ stance on
sustainability areas through the review
of climate and sustainability policies
and legislation.
•
We engaged with customers to allow the
opportunity to state what matters most
to them, and in some cases, one-to-one
interviews were held.
44
Avon Protection plc Annual Report and Accounts 2022
SHAREHOLDERS
• We engaged with a number of investors to
identify the material sustainability areas that
matter most to them, and how they expect
us to respond to emerging issues in the
coming years.
OUR IMPACT PLAN
Taking the five most material sustainability areas, we have developed an impact plan consisting of four distinct pillars
for action over the coming years. This underpins our sustainability agenda and ensures we are progressing in the areas
that matter most to our key stakeholders.
ENVIRONMENTAL
IMPACT
SUSTAINABLE
SUPPLY CHAINS
CYBERSECURITY AND
DATA PROTECTION
EMPLOYEE‑CENTRIC
APPROACH
Topics include:
• Direct and indirect
GHG emissions
• Energy use
• Efficiency
• Exploration of scope
3 emissions
• The low-carbon transition
• Management of climate risk
Topics include:
• Responsible procurement
Topics include:
•
Information security
Topics include:
• Employee engagement
• Risk management
• Diversity and inclusion
• Privacy of data
• Health, safety and wellbeing
• Security of products and
services with internet
connectivity
• Pay and benefits
• Personal development
• Community engagement
• Transparency, traceability,
policies, standards and
reviews related to the
environment
• Labour rights, human rights,
forced or child labour,
and ethics
• Minimising business
continuity risks
• Regulatory and
reputational risks
Alignment to SDGs
Alignment to SDGs
Alignment to SDGs
Alignment to SDGs
Read more on page 48
Read more on page 50
Read more on page 51
Read more on page 52
Our alignment with the United Nations SDGs
This is the first year that we are reporting on our alignment with the United
Nations Sustainable Development Goals (SDGs). They are a collection of
17 global objectives adopted by the United Nations in 2015 to eradicate
poverty, protect the planet and build a peaceful and prosperous world. We
have chosen to report our contribution to SDGs within our impact plan to
further demonstrate our alignment with universal goals and opportunities
for collective action.
The Group contributes to six SDGs. Throughout the year we undertake
projects that contribute to other aspects of sustainability as part of our
everyday stewardship and as such we may also influence other SDGs.
Looking forward
We will be setting ourselves challenging targets against each of the four
pillars within our impact plan. These targets will be monitored at a Group
level by our new Sustainability Steering Committee and reported regularly
to both the Executive Board and Board of Directors.
Annual Report and Accounts 2022 Avon Protection plc
45
STRATEGIC REPORT S U S T A I N A B I L I T Y C O N T I N U E D
OUR JOURNEY TO
NET ZERO
At the heart of what we do is designing and manufacturing innovative mission-critical protection systems and this makes us accountable
for the emissions that we release as part of everyday operations (scope 1 and 2). We also have a responsibility to influence our emissions
impact through our value chains, product life cycle and operating efficiencies which are classed as scope 3. This is also becoming an
increasing consideration for our stakeholders and the communities within which we operate and was highlighted as a key sustainability
area in our materiality assessment; see page 44.
OUR NET ZERO MILESTONES
2021
We are committed to achieving net zero by 2045 at the latest by reducing our absolute scope 1 and 2 GHG emissions
compared to 2021.
2022
This target ensures we limit our impact on irreversible climate change, providing both risks and opportunities for us. As we become
more sophisticated in this area we expect to expand our knowledge and data available to us which could alter the target date.
Our 2045 target supports the U.K.’s agreement to limit global warming to well below 2 degrees Celsius compared to pre-industrial
levels which the U.K. and other countries that we operate in have committed to. To achieve this, countries must reduce their GHG
emissions and many countries including the U.K. have set aims to achieve net zero GHG emissions by 2050. As part of this, governments
are enacting policies which include requirements to detail transition plans and evidence climate resilience to drive change.
During the year we carried out a review of our existing GHG data and
started to build an action plan to delivering net zero. As part of this
we carried out meetings with site representatives to understand our
operational emissions.
The result of the review has led to a recommendation of seven
actions for the Group to focus on, to reduce scope 1 and 2 GHG
emissions, and in parallel begin the assessment of scope 3 emissions.
These actions include:
2022 milestones:
• Data collection and reporting methodology have
been improved
• We have determined that 2021 is an appropriate
base year for measuring targets against
•
Production of a case study to determine the scope 3
emissions resulting from air travel
1.
Embed a net zero mindset and assign accountability
2.
3.
Assess energy efficiency options and set an energy
reduction target
Assess renewable electricity options and set a renewable
electricity target
4. Reduce natural gas consumption
5. Reduce other scope 1 impacts
6. Plan for residual emissions
7. Assess scope 3 emissions
2023 &
ONWARDS
Refine the plan
We believe it is appropriate to continue to verify the actions above
before setting short to medium-term targets and releasing a detailed
plan of action for all sites to implement.
Employee focus
The net zero transition was highlighted as an area of importance
for employees amongst other sustainability areas in our materiality
assessment. Our employees are keen to support us and sustainability
objectives have been embedded into performance management
reviews for our employees.
Over the coming year we will engage with our employees further on
the direction of our sustainability agenda, targets and Net Zero Plan.
Our employees’ engagement with our Net Zero Plan will be critical for
implementing projects and collectively achieving our goals.
Share short to medium-term net zero
targets and action plan publicly
Following these steps, we will be able to deliver a
considered set of short to medium-term targets
and site actions that have had the appropriate level
of engagement with our employees (who will be
responsible for actioning) and the Board (which will
sign them off).
Scope 3 categories
There are 15 areas of scope 3 for us to explore and
determine the most relevant to report and track.
Utilising our representatives across the business we will
conduct a review of all scope 3 categories to determine
which are the most material for reporting against in
the future.
46
Avon Protection plc Annual Report and Accounts 2022
LEVERAGING EXPERTISE
ACROSS THE BUSINESS
We have many talented technical experts across
the business, including material scientists and
technicians. They provide research and development
capabilities in a wide range of rubbers and polymers
and have access to state-of-the-art laboratories.
Our strengths lie in the skills and experience of our
people, many of whom are award winning and
accepted as leading industrial experts in their field.
Utilising the skills and knowledge of our people
will be crucial for developing solutions to meet the
exacting needs of the future including developing
new materials and solutions to reduce our
greenhouse gas emissions.
10
material scientists and technicians
Annual Report and Accounts 2022 Avon Protection plc
47
STRATEGIC REPORT S U S T A I N A B I L I T Y C O N T I N U E D
OUR IMPACT PLAN
ENVIRONMENTAL IMPACT
Our approach
Energy use and GHG emissions in addition to low-carbon transition and
climate impacts came out as two sustainability areas our stakeholders
value as important to the business; due to the interconnected approach,
we have combined these themes under one pillar. As the economy deals
with the soaring cost of energy as well as an increased level of scrutiny to
reduce reliance on carbon and other environmental impacts, this will be
an area of importance for us and our stakeholders for many years.
Last year we committed to being net zero by 2045 at the latest by reducing
our absolute scope 1 and 2 GHG (compared to 2021). We have undertaken
a project with a sustainability consultant during the year to review our
operational (scope 1 and 2) GHG emissions to determine actions that will
help us achieve our target. Off the back of this work, we have created our
Net Zero Plan which provides direction for the Group aligned to these
actions which we will continue to refine.
Our Net Zero Plan and the supporting strategy to follow support our
ambition to minimise the global impact of our operations and protect our
environment as well as our response to and management of climate risk.
Read more on page 46
Energy consumption
Our energy consumption in FY22 was 41,021 MWh; of this, the U.K. accounted
for 28% of our global energy use. Several factors have contributed to the
increase in the Group’s energy use, including a ramp-up of production
in several locations which includes offering last time buys for key armor
business customers as we wind-down the business. A delay in contracts
also resulted in increased energy use that would have otherwise been
generated during FY21.
The focus for the year has been to improve our process for capturing
data relating to energy consumption and set an appropriate base year
for measuring against which has been achieved. As a result, we did
not undertake any Group-led energy efficiency projects during the
year; however, it is likely that site-led process improvements have been
undertaken that have positively impacted energy efficiency but these
have not been captured.
Carbon disclosures
A representative at each of our sites has responsibility for the reporting of
energy use throughout the year. The collected data allows us to calculate
and monitor carbon emissions and is a vital tool for measuring progress
towards reducing our emissions.
During the year we reviewed the sources of GHG emissions generated
at our sites to ensure we are reporting all the relevant emissions. As we
start to extend our reporting into scope 3 we will continue to report in
alignment with the Greenhouse Gas Protocol Corporate Standards.
In FY22 our carbon emissions amounted to 10,856 tCO2e; of this, the U.K.
accounted for 20% of our total scope 1 and 2 emissions (location based).
With a revenue of $271.9 million this gives us an intensity ratio of 39.9 tCO2e
per $million revenue. We have established that tonnes of CO2e per $million
revenue is an appropriate business metric which we will continue to
use to define our emissions data and will be helpful for assessing our
performance as we evolve.
Scope 3 – business travel
Scope 3 emissions quantify a company’s indirect GHG throughout the
value chain. This includes everything from the impact of purchased
products and services to transportation and distribution all the way
to end-of-life treatment of sold products. In total, there are 15 scope 3
categories that need to be accounted for. A top-level view on which scope
3 categories are likely to be relevant suggests ‘purchased goods and
services category’ as significant and likely to be greater than our scope 1
and 2 emissions. We will be staging projects throughout the coming years
to set up appropriate data collection and research into each category.
The availability of data on business travel enabled us to measure our
impact ahead of schedule. Due to our COVID-19 travel policy and country
regulations our business travel was limited in 2021 resulting in 80 tCO2e.
Since travel has been allowed our business has ensured every trip has an
intended purpose. The business recognises the importance of meeting
with our colleagues outside of the virtual environment, but must track the
environmental impact. FY22 is a more reflective year of travel amounting
to 382 tCO2e.
There is further work ongoing on other scope 3 emissions so we can
determine how relevant the scope 3 categories are for the organisation.
We will continue to monitor business travel and report on it.
48
Avon Protection plc Annual Report and Accounts 2022
Site management
Our U.K. operations continue to conform to ISO 14001:2015 which
reinforces how we manage our environmental responsibilities. In April, we
also obtained certification for our U.S. site in California as part of bringing
all our manufacturing sites under this certification. In support of this we
have undergone further strengthening of our management by appointing
EHS coverage at all sites which will be responsible for managing our
licences. We will look to undertake two further certifications next year.
Global GHG emissions (tonnes CO2e)
FY22
FY21 1,3
Scope 1
U.K.
Outside U.K.
Total
Scope 2 (location based)
U.K.
Outside U.K.
Total
Scope 2 (market based)2
Total scope 1 and 2 (location based)
U.K.
Outside U.K.
Total
Intensity ratio
tCO2e (scope 1 and 2) per $million revenue
Selected scope 3 GHG emissions reporting
(tCO2e)
Indirect emissions for business travel
Energy consumption
Energy consumed (MWh)
U.K.
Outside U.K.
Total
905
2,598
3,503
1,294
6,059
7,353
7,518
1,184
1,411
2,595
1,461
4,828
6,289
6,525
2,199
8,657
2,645
6,239
10,856
8,884
39.9
35.8
382
80
11,648
13,356
29,373
19,721
41,021
33,077
1
2
3
2021 data has been restated as a result of improvements made to reporting methodology and
more accurate energy data. Original figures in the 2021 Annual Report were: 11,448 tCO2e total
GHG emissions and 33,911 MWh energy consumption.
Market based emission factors only include CO2 and have been calculated using U.K. supplier-
specific rates as well as 2019 and 2020 U.S. Green-e Energy Residual Mix Emissions Rates.
Team Wendy was acquired in November 2020, however data for the Cleveland facility is
included for the full 2021 financial year to provide a base year.
Data has been compiled according to the operational boundary approach in the Greenhouse Gas
Protocol Corporate Accounting and Reporting Standard and aligns to Streamlined Energy and
Carbon Reporting (SECR).
Overall consumption has been calculated using invoiced data. Estimated data is used where
invoiced data is not available within the timeline for consolidation of year end data. Two small
office sites use estimated emissions based on CREEM data for heating and electricity consumption
per sq ft.
Emission factors have been calculated using 2020 and 2021 U.K. Government GHG Conversion
Factors for Company Reporting and the 2020 EPA eGRID conversions.
Water usage
Water consumption across all six of our sites is limited to mainly domestic
use, for drinking and sanitary disposal. Where water discharges do
occur due to product testing, they are disposed of in line with local
government guidelines.
Waste
During the year we established centralised tracking and monitoring of our
different waste streams at our U.K. headquarters which identified that over
97% of waste generated from operations at this site is either recovered
or recycled (290.15 tonnes of waste generated during FY22). For the
purpose of establishing baseline waste figures for the Group and assessing
our scope 3 emissions we will look at setting up similar data reporting
requirements at our other sites.
We also commenced our partnership with one of our suppliers,
AK Industries Limited, to reuse packaging for all products delivered. All
packaging the site receives from AK Industries is sent back to the supplier
in Correx packaging for them to reuse, which resulted in 5,000 boxes being
reused during the year. By doing this we help to conserve resources, reduce
waste and avoid emissions generated through needless reprocessing.
Any hazardous waste generated, as defined by the Control of Substances
Hazardous to Health and U.S. Environment Protection Agency (U.S. EPA),
is disposed of in line with local guidelines.
Environmental incidents
There have been no environmental incidents as defined by the U.K.
Environment Agency or the U.S. EPA at any of our sites or in relation to our
supply chain throughout the 2022 financial year.
Looking forward
In FY23 we will continue to focus on employees’ engagement
building in greater connection with our Net Zero Plan through internal
information campaigns. We will also expand our data collection to include
waste, water and other scope 3 categories.
H I G H L I G H T S
0
environmental incidents
2
sites certified to
ISO 14001 2015
Annual Report and Accounts 2022 Avon Protection plc
49
STRATEGIC REPORT S U S T A I N A B I L I T Y C O N T I N U E D
OUR IMPACT PLAN
SUSTAINABLE SUPPLY CHAINS
O U R S U P P L Y C H A I N
603
approved production suppliers
Read more on our Code of Conduct on our website
Read more on our Modern Slavery Statement on our website
Product development
Product safety and quality is at the core of all our business practices. The
majority of our products are approved to customer or industry safety
standards which involves rigorous testing. Our production employees
receive mandatory product safety training, and all of our products
undergo internal safety and quality testing programmes. Where standards
require, external safety audits are conducted on our products.
We recognise it is essential to develop products that generate long-term
value for the business and do not compromise the environments and
community in which we operate or influence through cradle to grave.
As we work towards our net zero GHG target, we will be reviewing
our products’ scope 3 emissions which will inform our transition over
time to reduce the GHG emissions generated through the life cycle of
our products.
Looking forward
In FY23 we will continue to develop our knowledge of our supply chain
and how this impacts our scope 3 emissions as well as take opportunities
to support our suppliers to further this agenda.
Our approach
Primarily, we consider sustainable supply chains to encapsulate ethical and
environmentally responsible practices. Recent supply chain disruption,
which has resulted from macro events such as the ongoing conflict in
Ukraine and COVID-19 lockdowns, has heightened our stakeholders’
awareness of supply chains and ensuring they can operate sustainably.
The risk of further disruption through extreme weather and sea level
change is suggested to increase over time under certain climate scenarios,
see page 63. To reduce this risk, we are working towards net zero by
reducing our absolute scope 1 and 2 GHG emissions (compared to 2021),
and recognise we must support our supply chain to do the same.
This is the first year of detailed reporting on issues relating to our supply
chain and over the coming year we will look to develop our direction and
set targets within this pillar.
Supply chain
For us to achieve our long-term ambitions in sustainability, we recognise
that the management of and support from our suppliers will be vital to
ensure they are responsible for conveying the same level of compliance to
their supply base as we are. When we consider a new supplier to provide
products or services, a supplier survey must be completed before they
can be approved which includes evidence that they have implemented
a comprehensive Quality Management System, or progress towards
developing one with the goal of the Sub-Supplier conformity to ISO 9001.
Rationalisation
Following the acquisition of 3M’s ballistic protection business and Team
Wendy, we have undertaken projects to rationalise our supply chain to
create manufacturing efficiencies and reduce the monitoring burden.
Policies
Our supplier Code of Conduct provides a minimum set of requirements
for our suppliers to adhere to and also encourages suppliers to implement
their own Code of Conduct for their employees and to cascade this
throughout their supply chain. If suppliers have concerns regarding any
of the matters covered in this Code of Conduct, we expect them to bring
these to our attention.
50
Avon Protection plc Annual Report and Accounts 2022
OUR IMPACT PLAN
CYBERSECURITY & DATA PROTECTION
Our approach
Cybersecurity and data protection came out strongly as a key sustainability
issue that was highlighted in our materiality assessment. As a contractor
for the U.S. DOD we have an obligation to be compliant and ensure the
highest levels of security are met.
Managing data protection
As a contractor to militaries, we handle defence-related data. Through our
work with the U.S. DOD we are subject to the International Traffic in Arms
Regulations (ITAR) which mandate that access to data related to defence
and military technologies is restricted to U.S. citizens only. A violation
of ITAR could result in fines and/or loss of export licences. As with many
organisations, we face risks from external threats that could cause sensitive
data to be lost, corrupted or accessed by unauthorised users, leading to
financial or reputational loss. Over the past 12 months, we have started
an integration programme to ensure our newly acquired sites are running
on our latest and most secure network. This programme is ongoing
and will continue into the next year as we cover key aspects including
infrastructure, ERP, desktop equipment and applications.
As of 2022, we have revisited and updated our Information Classification
Policy. We commonly exchange information, some of which could have
security classifications with external customers and partners, so as a Group,
we prioritise the placement of appropriate markings, disclosure agreements
and security measures. In addition, during the past year we have launched
the Group’s new Compliance Programme alongside a reviewed and revised
Information Security Policy and Code of Conduct. These documents define
the standards expected of each employee, contractor and third party
acting on behalf of Avon Protection, including meeting physical, digital and
data security requirements. Over the next 12 months we have a target to
introduce additional compliance training covering each of our three core
compliance pillars spanning organisational governance, export compliance
and security in an approach very similar to our proven and successful
cybersecurity training programme.
O U R A C H I E V E M E N T S T H I S Y E A R
>90%
2022
employees completed annual
cybersecurity training
Compliance
Programme launched
Cybersecurity
As workplace COVID-19 restrictions reduce, we continue to be a flexible
employer, allowing individuals to work from home where possible and,
as a result, continue to maintain the enhanced monitoring of phishing
attempts and other security threats both within and outside of our core
locations. We have policies and mandatory online training delivered by
a leading provider throughout the year, continually raising awareness of
such risks with our employees to avoid any data breach of confidential
information. Training includes online courses and questionnaires
surrounding topics such as protecting personal and sensitive data and
how to recognise social engineering attacks, with industry benchmarking
data suggesting users are six times less likely to be prone to a phishing
attack 12 months after this training. With 91% of successful data breaches
starting with a spear phishing attack, we also run regular security tests to
ensure our employees continue to utilise the tools provided to them in
addition to their training. Since joining the programme, our cyber tests
have proven our phish-prone rating to be half that of the industry average.
Cybersecurity training is a key line of defence for the Group and
continues to support us as we work towards meeting the requirements
of Cybersecurity Maturity Model Certification (CMMC) 2.0. CMMC 2.0 is a
requirement for all contractors and subcontractors of the U.S. DOD, as the
model brings together many cybersecurity requirements to better protect
Controlled Unclassified Information (CUI).
Looking forward
As an organisation that handles CUI, we are working towards meeting the
requirements of CMMC 2.0.
Annual Report and Accounts 2022 Avon Protection plc
51
STRATEGIC REPORT S U S T A I N A B I L I T Y C O N T I N U E D
OUR IMPACT PLAN
AN EMPLOYEE-CENTRIC APPROACH
Employee engagement
We are committed to maintaining a high level of employee engagement
across all sites and providing an environment where all employees can
fulfil their potential.
Maintaining high levels of communication with all employees is a focus
across the Group as we host monthly leadership events with members of the
Executive Board. This provides the opportunity for the Executive Board to give
an update on the business, their vision for the future and what requires further
focus in a single clear message to all employees. These events also provide
employees with the opportunity to ask questions directly and anonymously if
they so wish. Over FY22, we have also held more in-person townhall meetings
during each Executive Board site visit, providing employees with a further
opportunity to engage, ask questions and hear directly from leadership.
We greatly value employee feedback and continue our initiative to celebrate
and enhance the culture at Avon Protection. Culture Champions have been
selected from every level of the organisation with the intention of playing a
crucial role in maintaining an open communication culture within the Group.
Their role includes speaking to our employees on matters such as leadership,
learning and development, and social connection. The Executive Board
also actively meets and engages with Culture Champions during each of its
site visits.
Our biannual surveys provide employees with a further opportunity to
provide feedback and suggest improvements on aspects such as leadership
communication, employee engagement, team culture and work environment.
Results from these surveys are then presented to the Board of Directors, the
Executive Board and the wider leadership team with areas for improvement
at both site and Group level discussed. Our Culture Champions then support
in the implementation of the changes and give feedback to our employees.
This discussion is two-way, as Culture Champions then feed back on how this
change or feedback has been accepted across the business.
Health, safety and wellbeing
In line with our goal of zero harm, we continue to actively promote a
strong safety culture. We have mandatory training and policies in place for
all production employees on workplace safety and practices.
This year, across our operational sites, we recorded a total of 5 workplace
lost time cases. We track incidents on a monthly basis and have a global
target to reduce our incident rate to zero, against which we are making
progress. Over the past year, we have also globally aligned the way in
52
Avon Protection plc Annual Report and Accounts 2022
which we collect safety data across all of our sites. We have developed an
online hub for U.K. employees, providing them with access to equipment-
specific safety training courses to become certified by the business upon
course completion. The online hub, once implemented across all sites, will
play an integral part in achieving our zero-incident target.
The health and wellbeing of our employees is important to us and throughout
the year we share resources with them on how to look after their mental
and physical wellbeing. We hold a multitude of wellbeing webinars based
on key topics throughout the year, such as work-life balance, exercise and
seasonal nutrition. These webinars allow employees to switch off from
work for an hour and ask our expert presenters questions, increasing our
employee engagement and involvement.
Diversity and inclusion
Diversity provides a better culture for all. We are committed to equality
for all employees as we strive to provide an environment where every
individual can meet their full potential.
Female representation across our Executive Board and direct reports
is 21% and we are committed to improving this in the future. Across all
employees, we have achieved a ratio of 42% (420 out of 995) female and
58% (575 out of 995) male.
As part of our pledge to continuously improve the balance of female
to male employees across all our sites, we have signed the Women in
Defence U.K. charter. This charter reflects our aspirations to see women
represented and empowered across the defence sector and our intention
to work with fellow industry leaders to enhance the gender balance.
Having established the Balance@Avon initiative two years ago, we are
proud of what we have achieved so far in addressing gender inequalities
in the workplace. The initiative aims to motivate, empower and support all
employees, particularly those who may feel that they are in a minority, to
understand themselves and their aims and how they might work towards
achieving them. To continue our efforts, we regularly rotate the members
of the Steering Committee to ensure that everyone has the opportunity to
contribute new ideas. Following the most recent rotation, the Committee
is in the process of establishing a framework to expand the Balance@Avon
umbrella to give employees a guide for how they can create further sub-
groups for other areas of diversity and inclusion.
PUTTING OUR PEOPLE FIRST
O U R A C H I E V E M E N T S T H I S Y E A R
69%
reduction in
lost time cases
85
members in
Balance@Avon community
30%
pledged female
representation through
the Women in Defence
U.K. charter
16
executive leadership
engagements
Pay and benefits
During 2022 we have engaged an HR consultant to help us with defining
our remuneration philosophy and reviewing our pay and benefits in order
to retain and attract talented individuals. Our aim has been to align and
simplify our approach, ensuring we are fair and consistent in the way we
treat our employees, regardless of location.
Community engagement
We continually work with and for the communities in which we operate,
recognising our role as a major local employer. We have recently expanded
our partnership with Bath Rugby, to support its Primary Education
programme centred around developing numeracy skills and promoting
sport, health and wellbeing. ‘Attacking Maths’, the programme aimed at
developing numeracy skills, has seen over 100 sessions of numeracy and
tag rugby delivered to 20 primary schools in the South-West of the U.K.
The Girls Participation Hubs programme has seen over 450 young girls
participate in training sessions and games led by Bath Rugby’s grassroots
coaches. Feedback from this programme has been very positive, with
high-quality, exciting teaching for the children, upskilling of members
of staff at the school and enthusiasm shared between teachers, children
and parents.
From sponsoring local sports teams and charitable events to our incredible
employees who choose to push themselves for a great cause, this year we
have approved charitable giving requests totalling in excess of $108,403.
Our employees have undertaken ten-hour, 48km hikes and local corporate
challenges spanning months to name but a few, and we will continue to
encourage such efforts, requests and donations throughout FY23.
Looking forward
In the coming year we will continue to embed the new online health and
safety hub across our sites and expand on our successful Balance@Avon
umbrella to enable further areas of improvement in diversity and inclusion.
Personal development
We strive to provide an environment that offers training and
development opportunities for all. We have continued with
our Professional Development Programme (PDP), a year-long
talent development programme, with the aim to identify,
encourage and support the next generation of internal
talent to contribute to the business beyond the scope of
their current roles. Participants set personal development
targets which are worked on for the year 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.
Our talent management process that we call the Global
Performance Management Process (GPMP) is a critical tool
that enables the Group to ensure all employees are working
towards goals aligned with business objectives, their career
aspirations and development needs are being discussed and
reviewed. We also continue to focus on early careers, giving
those at the beginning of their career journey the help and
support that they need to establish a successful and fulfilling
career through work experience, internships, placement
years, apprenticeships and graduate programmes.
We believe our employees thrive the most when they can
improve and enhance their skill sets and work on their
personal development. We have provided our employees
with access to tools, such as LinkedIn Learning, to help
with their career progression and personal development in
whichever way works best for them. With over 30,000 videos
watched over the past year, LinkedIn Learning has proven to
be an invaluable tool for our employees to complete online
courses in any areas of interest to progress their career paths
and expand their knowledge.
61%
30,000+
activated licences
eLearning videos watched
Our U.S. sites report equal employment opportunities data annually
to the U.S. Government and to the State of California under pay equity
requirements. Affirmative action plans are also in place which outline
goals for women and minorities, veterans and people with disabilities
by establishment.
Our average U.K. gender pay gap for FY21 (reported in April 2022) is 37%.
The pay gap is due to the Company having more women in operations
and assembly roles in the lowest quartile (55.2%) compared to more
men in the top quartile (82.1%) and does not stem from paying men and
women differently for the same or equivalent work. While the percentage
of men in the upper quartile of pay has reduced since FY20, our existing
focus to address the gender balance at our Company leadership team
levels continues through initiatives such as Balance@Avon, which will
help to close the overall pay gap with more female representation at this
level. Our gender pay gap data can be found in the Governance section of
our website.
Annual Report and Accounts 2022 Avon Protection plc
53
STRATEGIC REPORT S T R A T E G I C R E P O R T
OUR APPROACH TO TCFD
(TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES)
This is the first year we have reported on TCFD requirements, as per Listing Rule LR9.8.6R. Whilst we acknowledge that we are only partially compliant this year, we
have conducted a gap analysis to identify the key areas for action to ensure that we are fully compliant against each of the four thematic areas and 11 underlying
recommendations by 2024. Our governance disclosure is fully compliant; during FY22 we established an appropriate governance structure which we intend to
further embed in the coming year. Our strategy disclosure is partially compliant; during the year we have worked towards improving compliance by developing
two qualitative climate scenarios for identifying climate-related risks and opportunities. Having identified these risks, we are now looking to better understand the
impact these have on businesses strategy, financial planning and budgeting, in addition to enhancing our approach to climate scenario analysis and modelling.
Our risk management disclosure is partially compliant; using climate scenario analysis we have identified and assessed climate-related risk and opportunities in
FY22 which we have begun to integrate into our Group Risk Management process, and we will continue to review our processes for embedding the identification,
assessment and management of climate risks into the business. Over the coming year we will further develop our climate scenarios and look at opportunities for
quantitative assessment of short, medium, and long-term risks. Our metrics and targets disclosure is partially-compliant, during FY22 we focused on improving
our data collection processes which will be a platform for disclosing additional details on targets, metrics and scope 3 emissions. In FY23 we will investigate a
wider breadth of metrics which may be applicable, and we believe this will enable us to be fully compliant in the next disclosure.
GOVERNANCE
Board oversight of climate-related
risks and opportunities and
management’s role in managing
climate-related risks and opportunities
During the year we have established a formal
governance structure with responsibility for delivering
our sustainability agenda and the management
of climate-related risks and opportunities.
The Board oversees and has overall responsibility
for Avon Protection’s sustainability agenda,
disclosures and reporting. This includes, but is
not limited to, the identification, assessment and
management of climate risks and opportunities.
During the year a Sustainability Committee,
chaired by Rich Cashin, was established with
STRATEGY
What are our climate-related risks, in
the short, medium and long term?
We received technical advice on the requirement
to disclose against TCFD; part of this was to
identify an appropriate climate scenario to
support Avon Protection’s analysis of risks and
opportunities. See the case study on page 63 for
more details on our approach.
We identified climate-related risk and opportunities
through the development of our qualitative climate
scenarios. During the year, these were reviewed
with each business unit and the Risk Committee
identified four new risks to be integrated into our
Group Risk Management process, see page 63. Each
business unit applied bespoke impact assessment
measures based on financial indicators and other
impacts relative to the size of the business unit
to each of the identified risks. This review did not
highlight any material risks that would impact the
business in the year ahead.
We can split the findings into transitional and
physical risks and opportunities.
responsibility for the implementation and
delivery of our sustainability agenda on behalf
of the Board. The Sustainability Committee
meet monthly and will recommend to the Board
for approval, sustainability-related targets and
review the Company’s progress towards those
targets, reporting regularly to both the Executive
Board and main Board. The employee forum
is responsible for promoting the views of the
workforce. Please see the diagram on page 43
that illustrates at a high level how sustainability
and climate-related issues are integrated into our
governance and Board Committee structures.
The Board oversees risk management using the
Three Lines of Defence methodology which is
described within our Risk Management section
on page 62.
Management is responsible for assessing and
managing these climate-related risks and
opportunities at the operational level and raising
to the attention of the Risk Committee any risks
that constitute as emerging (a risk in the next 0
to 3 years that has the potential to become an
increasingly higher risk through either increased
likelihood and/or increased size of impact).
Looking forward
To strengthen ownership on climate-related
matters we will be carrying out internal
campaigns to raise awareness. We will also
consider training opportunities for our Board
and management teams.
Risks and opportunities
Transitional
• Technology adoption and change in
customer requirements (new): Lack of
technology adoption and innovation to
reduce embedded carbon within products
risks increased costs and misalignment with
customer requirements. Innovation in this
area could put us ahead of our competition.
•
Inability to recruit and retain talent: Poor
sustainability results and progress towards
our net zero target may reduce our ability to
recruit and retain talent.
• Failure to reduce reliance on carbon
(new): The business could be impacted
by emerging regulations and policies,
leading to increased costs in procurement,
manufacturing and distribution operations as
well as fines and litigation.
• Deterioration of stakeholders’ perception
of the defence sector (new): Stakeholder
pressure for businesses to act responsibly
continues to grow. The defence sector currently
forms a significant part of governments’ GHG
emissions and there is a reputational risk if
defence suppliers are seen as not meeting
expectations on climate change.
Physical
• Plant closure due to incident or natural
disaster: Likelihood of extreme weather
events such as heatwaves, extreme winds
and flooding will lead to increasing disruption
on production under a 4°C scenario.
• Supply chain disruption (new): Supply
chain becomes increasingly susceptible to
climate-related disruption impacting our
ability to deliver and negatively impacting
our reputation under a 4°C scenario.
The establishment of a climate scenario was part
of a phased approach and we recognise that our
scenarios will develop overtime to distinguish
risks that are short, medium or long term.
54
Avon Protection plc Annual Report and Accounts 2022
STRATEGY CONTINUED
What is the impact of climate-
related risks and opportunities
on our business, strategy and
financial planning?
• Products and markets: Our products and
those of our competitors inherently have
embedded carbon. Climate-related mitigations
will evolve the way we design, manufacture
and manage our product portfolio. This offers
opportunities for us to lead in innovation, as
customers’ requirements may be altered to
favour low-carbon embedded technology.
• Operations: Our operational footprint
covers six manufacturing facilities across two
developed markets which are expected to
have increasing levels of climate scrutiny and
monitoring requirements. We acknowledge
that physical risks (such as extreme weather
events) have potential to affect our operations
and we will continue to develop our continuity
plans to be more forward looking.
RISK MANAGEMENT
What are the processes through
which we identify, assess and
manage climate-related risk and
how are these integrated into our
risk management programme?
Last year we identified sustainability as a new
principal risk to be developed during 2022
which would include climate-related risks and
opportunities, see page 62.
During the year with the help of a consultant,
and through consultation with a cross section of
our leadership team, we developed a qualitative
climate scenario narrative (see case study on
page 63) which has provided us with a tool
to review our likely physical and transitional
risks and opportunities through the lens of
METRICS AND TARGETS
Metrics used to assess climate-
related risks and opportunities and
the targets we use to manage the
risks and opportunities
Many of the climate-related risks and
opportunities we face are related to our
transition to net zero. Therefore, greenhouse gas
emissions data is the key metric we are currently
using to assess these risks. See page 49.
We have also established that tonnes of CO2e
per million revenue is an appropriate business
metric to define our emissions data. This is a
new operational key performance indicator
which is in line with our strategy and investor
proposition, see page 37.
To support the progress towards these targets,
the Remuneration Committee established
• Strategy: Last year we committed to being
net zero by 2045 at the latest by reducing
our absolute scope 1 and 2 GHG emissions.
During the year we have been focused
on setting an appropriate base year for
measurement and action in the coming years
and 2021 was agreed to be appropriate. Net
zero considerations have been added to our
strategy documents; further refinement and
communication with management teams
are required to influence the direction of our
strategy in relation to climate change.
• Financial planning: We recognise that
assessing the financial implications of climate
change will be an essential step and we
commit to conducting this assessment in line
with refining our approach.
How resilient is our business strategy
to different climate scenarios?
We recognise that climate change does have an
impact on our business under the two different
scenarios that have been explored, see page
63. The assessment indicated that under a
below 2°C scenario transitional risk would be
more significant whereas physical risk would be
more pertinent in the 4°C scenario. As we gain
experience in assessing climate-related risks and
opportunities we will look for opportunities to
start developing quantitative information to
illustrate these outcomes in the coming year.
Looking forward
As our approach to climate-related risks and
opportunities matures we will be refining
our climate scenarios to quantify impact on
the organisation’s business strategy, financial
planning and budgeting, as well as developing
our approach to identifying short, medium and
long-term risks.
two different climate scenarios. This was the
first step in refining our approach to climate-
related risk. We also undertook a materiality
assessment of sustainability themes which
included stakeholder feedback and assessment
of operational and reputational impact to the
business. This work, alongside our Net Zero Plan,
has helped to identify areas of climate change
risks and opportunities.
During the year, business units reviewed
these risks and opportunities. The risk review
committee identified six items to be escalated
and managed through the Group Risk
Management process, including measures to
mitigate risk, see page 63 for details on this
process. We will continue to monitor and track
other risks and opportunities through a detailed
sustainability sub-register. Several climate-
related risks and opportunities have been
highlighted to the Risk Committee as emerging,
however they are not believed to have an
impact on the business in the year ahead.
The risk scores from the business unit registers
are combined to determine our highest
considered risks across the Group which are
then presented to the Audit Committee, in
addition to the list of emerging risks.
Looking forward
We will continue to evolve how we identity and
monitor risks and opportunities and the process
by which we escalate a risk to the Group Risk
register process.
ESG-related objectives as part of the bonus
scheme for Executive Directors in 2021 and it is
anticipated that these measures will continue
to feature as part of the bonus structure
going forward.
appropriate data collection into each category.
The availability of data enabled us to measure
our impact on scope 3 greenhouse gas
emissions through business travel ahead
of schedule.
Our scope 1, 2 and 3 GHG emissions
During the year greenhouse gas scope 1 and
2 emissions from all sites were reviewed by
a consultant to allow us to improve our data
collection and reporting processes.
A top-level view on which scope 3 categories
are likely to be relevant suggests the ‘purchased
goods and services’ category as significant
and likely to be greater than our scope 1
and 2 emissions. We will be staging projects
throughout the coming years to determine
See page 49 for disclosure of our scopes 1 and
2 and a review of scope 3 emissions generated
through business travel.
Looking forward
During the year we were focused on improving
our data collection and setting a base year
which will be a platform for disclosing
additional details on targets, metrics and
scope 3 emissions relevant to net zero and our
sustainability agenda in the next disclosure.
Annual Report and Accounts 2022 Avon Protection plc
55
STRATEGIC REPORT F I N A N C I A L R E V I E W
SIGNIFICANT
LONG-TERM GROWTH
OPPORTUNITY
Full year results underpinned by a significant
step-up in H2 financial performance.
Avon Protection has seen strong revenue growth in 2022 with revenue of $271.9 million up 9.5% (9.1% on an organic constant currency basis) compared
to the prior period. However, a shift in product mix, along with operational challenges including supply chain constraints, have impacted profitability,
resulting in an adjusted operating profit of $10.1 million (2021: $22.0 million) which includes $13.3m of losses relating to the armor business, and a statutory
operating loss of $2.1 million (2021: loss of $29.0 million).
Orders received
Closing order book
Revenue
Adjusted1 EBITDA
Adjusted1 EBITDA margin
Adjusted1 operating profit
Adjusted1 net finance costs
Adjusted1 profit before tax
Adjusted1 taxation
Adjusted1 profit after tax
Adjusted1 basic earnings per share
Dividend per share
Net debt excluding lease liabilities1
Cash conversion1
Statutory results
Operating loss
Net finance costs
Loss before tax
Taxation
Loss after tax from continuing operations
Loss from discontinued operations
Loss for the period
Basic loss per share from continuing operations
Net debt1
1 October
2022
2 October
20212
Organic
change
(constant
currency)3
$280.1m
$151.3m
$282.7m
$143.1m
$271.9m
$248.3m
(1.6%)
7.8%
9.1%
$25.5m
$37.6m
(38.5%)
9.4%
$10.1m
$(4.0)m
$6.1m
$0.1m
$6.2m
20.4c
44.9c
$44.2m
142.7%
$(2.1)m
$(6.4)m
$(8.5)m
$2.9m
$(5.6)m
$(2.0)m
$(7.6)m
(18.5)c
$68.0m
15.1%
(710bps)
(61.4%)
33.3%
(74.4%)
(73.1%)
(72.9%)
0.0%
64.9%
$22.0m
$(3.1)m
$18.9m
$(0.3)m
$18.6m
60.6c
44.9c
$26.8m
83.2%
$(29.0)m
$(6.6)m
$(35.6)m
$11.1m
$(24.5)m
$(1.1)m
$(25.6)m
(79.9)c
$55.9m
1
2
The Directors believe that adjusted measures provide a useful comparison of business trends and performance. Adjusted results exclude exceptional items and discontinued operations. The term
adjusted is not defined under IFRS and may not be comparable with similarly titled measures used by other companies.
In previous periods, the Group reported financial statements to 30 September, this being the Company’s accounting reference date. Headings for the current and prior period now show the actual
dates to which the financial statements were drawn up. This has no impact on previously reported numbers.
3
Organic constant currency measures are provided in note 11 of the adjusted performance measures section.
Order intake totalled $280.1 million (2021: $282.7 million) in the year, down 0.9% (1.6% on an organic constant currency basis), with increases in head
protection, including the previously announced $42.1 million order for NG IHPS, offset by decreases in respiratory following the receipt of several large NSPA
orders in the prior year. Order intake excluding armor totalled $267.9 million (2021: $281.0 million), down 4.7% (5.4% on an organic constant currency basis).
The closing order book of $151.3 million (2021: $143.1 million) reflects an increase of 5.7% (7.8% on an organic constant currency basis) on the prior period.
Closing order book excluding armor of $120.9 million (2021: $116.5 million) reflects an increase of 3.8% (6.2% on an organic constant currency basis).
Revenue totalled $271.9 million (2021: $248.3 million), up 9.5% (9.1% on an organic constant currency basis), reflecting strong growth in respiratory notably
driven by the NSPA contract, offsetting a small decline in head protection. Revenue excluding armor totalled $263.5 million (2021: $241.8 million), up 9.0%
(8.6% on an organic constant currency basis).
56
Avon Protection plc Annual Report and Accounts 2022
STRATEGY IN ACTION
INTEGRATING ACQUISITIONS
EXPANDING OUR HEAD
PROTECTION PORTFOLIO
We recognise the importance of integrating recent
acquisitions to build a stronger business. Our priority
over the past year has been the integration of the 3M’s
ballistic protection business and Team Wendy which were
acquired in 2020.
During 2022, we launched the Cleveland IT Integration
Programme, with the objective of transitioning Team Wendy
onto the Avon Protection infrastructure and standardising IT
services under the management of the Avon Protection IT
team. Achieving this will enable our business to operate more
efficiently and puts us in an even greater position to meet the
2024 cybersecurity requirements for the militaries and first
responders we supply.
We were also pleased to incorporate our Cleveland
employees into our ADP Payroll system and ADP Mobile
App, providing all employees with 24/7 access to their
payroll information from their mobile device at any time,
from anywhere.
Progress has been made to intertwine our culture with
our acquisitions. Culture Champions have been selected
from every level of the organisation to allow for an open
communication culture within the Group. Looking forward,
Culture Champions will be recruited at the Cleveland site also.
This year’s Professional Development Programme (PDP) is
also the first to include participants from Team Wendy.
2
World-leading portfolios
WE HAVE SEEN STRONG REVENUE
GROWTH IN 2022. HOWEVER, A
SHIFT IN PRODUCT MIX, ALONG
WITH OPERATIONAL CHALLENGES
INCLUDING SUPPLY CHAIN
CONSTRAINTS, HAS IMPACTED
PROFITABILITY.
Adjusted EBITDA of $25.5 million is down 32.2% (38.5% on an organic
constant currency basis) compared to the prior period (2021: $37.6 million)
with operational challenges including supply chain disruptions and
manufacturing inefficiencies, along with shifts in product mix being the
predominant factors for the decrease. Adjusted EBITDA margin of 9.4%
represents a decline of 570bps (710bps on an organic constant currency
basis). Adjusted EBITDA losses for armor totalled $13.3 million with a large
overhead base supporting low levels of throughput prior to FAT approval,
resulting in adjusted EBITDA excluding armor of $38.8 million, down 15.7%
(21.8% on an organic constant currency basis) compared to the prior year
(2021: $46.0 million), and EBITDA margin excluding armor of 14.7%, down
430bps. Headwinds were alleviated somewhat in H2 with operational
improvements and benefits of the overhead reduction programmes.
Adjusted operating profit of $10.1 million (2021: $22.0 million) is after
adjusted depreciation, amortisation and impairment of $15.4 million (2021:
$15.6 million), a decrease of 54.1% (61.4% on an organic constant currency
basis) compared to the prior period following the decrease in EBITDA.
Statutory operating loss was $2.1 million (2021: loss of $29.0 million)
after $12.2 million adjustments (2021: $51.0 million adjustments) with
the decreased loss as a result of the large amount of armor related
impairments in the prior year. The adjusted performance section contains
further explanation for adjusting items which are summarised below.
Statutory operating loss
Amortisation of acquired intangibles
Impairments and provisions related to
armor assets
2022
$m
(2.1)
6.8
1.8
2021
$m
(29.0)
14.2
46.8
Release of contingent consideration
(3.9)
(15.7)
Impairment of non-current assets
Restructuring costs
Acquisition and transaction costs
Inventory fair value adjustments
Adjusted operating profit
3.6
3.3
0.6
—
10.1
0.7
—
2.6
2.4
22.0
Adjusted net finance costs increased to $4.0 million (2021: $3.1 million) due
to higher net debt and variable interest charges.
After an adjusted tax credit of $0.1 million (2021: charge of $0.3 million), the
Group recorded an adjusted profit for the period after tax of $6.2 million
(2021: $18.6 million).
Adjusted basic earnings per share decreased by 66.3% to 20.4 cents
(2021: 60.6 cents).
Statutory net finance costs of $6.4 million (2021: $6.6 million) include
$1.3 million (2021: $1.3 million) of discount unwind relating to the U.K.
pension scheme and a discount unwind of $1.1 million (2021: $2.2 million)
relating to the contingent consideration payable to 3M.
Annual Report and Accounts 2022 Avon Protection plc
57
STRATEGIC REPORT F I N A N C I A L R E V I E W C O N T I N U E D
Statutory loss before tax from continuing operations was $8.5 million (2021: loss of $35.6 million) and, after a tax credit of $2.9 million (2021: credit of
$11.1 million), the loss for the period from continuing operations was $5.6 million (2021: loss of $24.5 million). Basic losses per share from continuing
operations were 18.5 cents (2021: losses of 79.9 cents).
Revenue
2022
Respiratory
$m
Head
protection
$m
Armor
$m
Total
$m
Respiratory
$m
2021
Head
protection
$m
Armor
$m
U.S. DOD
Commercial Americas
U.K. & International
Total excluding Armor
Armor
Total
63.2
40.5
89.3
193.0
—
193.0
35.5
25.2
9.8
70.5
—
70.5
—
—
—
—
8.4
8.4
98.7
65.7
99.1
263.5
8.4
271.9
86.1
40.4
42.1
168.6
—
168.6
39.1
22.4
11.7
73.2
—
73.2
—
—
—
—
6.5
6.5
Total
$m
125.2
62.8
53.8
241.8
6.5
248.3
U.S. DOD
U.S. DOD revenue declined by 21.2% to $98.7 million (2021: $125.2 million).
U.S. DOD respiratory revenue declined by 26.6% to $63.2 million (2021:
$86.1 million) as a result of the M69 contract coming to an end, reduced
volumes of Powered Air Purifiers, and a strong prior year comparator for
spares and accessories. Head protection revenue declined by 9.2% to
$35.5 million (2021: $39.1 million) following the completion of the first-
generation IHPS contract. Deliveries against the follow-on NG IHPS will
commence in FY23.
U.S. DOD closing order book for 2022 of $92.3 million (2021: $62.1
million) provides excellent revenue visibility for 2023 and is comprised of
$39.0 million respiratory orders and $53.3 million head protection orders.
Commercial Americas
Commercial Americas revenue increased by 4.6% to $65.7 million
(2021: $62.8 million).
Commercial Americas respiratory revenue grew by 0.2% to $40.5 million
(2021: $40.4 million) with price increases within our commercial portfolio
throughout the period giving strong momentum in the second half after
a weaker start. Head protection revenue grew by 12.5% to $25.2 million
(2021: $22.4 million), predominantly reflecting the additional month of
Team Wendy ownership.
Commercial Americas closing order book for 2022 of $7.9 million
(2021: $5.2 million), comprises $4.5 million of respiratory orders and
$3.4 million of head protection orders.
U.K. & International
U.K. & International revenue increased by 84.2% (88.9% on an organic
constant currency basis) to $99.1 million (2021: $53.8 million).
U.K. & International respiratory revenue grew by 112.1% (120.0% on an
organic constant currency basis) to $89.3 million (2021: $42.1 million) as a
result of continued expansion of the NSPA contract, with deliveries made
to seven countries within the period, whilst head protection revenue
saw a decline of 16.2% (18.8% on an organic constant currency basis) to
$9.8 million (2021: $11.7 million) following the switch of the Australian
Defence Forces Tiered Combat Helmet (TCH) program from production
to sustainment and refurbishment.
U.K. & International closing order book for 2022 of $20.8 million
(2021: $49.3 million) follows strong deliveries to NSPA resulting in
a decreased respiratory order book of $16.7 million (2021: $48.5
million), partially offset by an increase in the head protection order
book to $4.1 million (2021: $0.9 million) after a strong launch into the
European market.
Armor
Armor revenue increased by 29.2% to $8.4 million (2021: $6.5 million)
following commencement of DLA ESAPI deliveries.
Armor closing order book of $30.4 million (2021: $26.6 million) comprises
$20.1 million of DLA ESAPI and $10.3 million of flat armor.
IN LINE WITH OUR STRATEGY
TO MAINTAIN OUR TECHNOLOGY
LEADERSHIP POSITIONS, WE
CONTINUE TO INVEST IN OUR
PORTFOLIO OF PRODUCTS. TOTAL
INVESTMENT IN RESEARCH AND
DEVELOPMENT AMOUNTED TO
$10.9 MILLION (2021: $19.1 MILLION).
58
Avon Protection plc Annual Report and Accounts 2022
STRATEGY IN ACTION
GROWING THE CORE
A RECORD-BREAKING YEAR
FOR MI-TICS
This year we celebrated a record-breaking year for our
thermal imaging camera range. Contributing to this success,
were orders from the U.S Navy, amounting to 584 Mi-TIC S
thermal imaging cameras.
The Mi-TIC S is a premium, lightweight thermal imager with
industry-leading dynamic range and large display for top
performance in the most extreme firefighting environments.
The camera provides a crystal-clear image with a dynamic
range up to 2000°F (1100°C). It allows users to clearly view
extremely high temperatures without whiteout, as well
as very low temperature objects. Proven in some of the
toughest operating environments, the Mi-TIC S is in use with
both sea and shore-based firefighters globally.
Working closely with the U.S Navy, we specifically tailored the
Mi-TIC S to meet the requirements of the U.S. Navy Damage
Controlman firefighting teams. These cameras are being
rolled-out across the fleet as part of an ongoing equipment
modernisation programme.
The growth and success of our Mi-TIC range this year not
only demonstrates our ability to successfully grow our core
business but also our ability to understand and meet our
customer’s requirements.
Research and development expenditure
In line with our strategy to maintain our technology leadership positions
we continue to invest in our portfolio of products. Total investment in
research and development (capitalised and expensed) amounted to
$10.9 million (2021: $19.1 million), of which $6.0 million (2021: $7.8 million)
related to our respiratory portfolio, and $4.9 million (2021: $5.4 million)
to the development of our head protection portfolio. Total research and
development as a percentage of revenue was 4.0% (2021: 7.7%), with
the decrease following cessation of armor related development, which
amounted to $5.9 million in FY21.
Total expenditure
Less customer funded
Group expenditure
Capitalised
Amortisation and impairment of
development expenditure
Total income statement impact
Revenue
R&D spend as a % of revenue
2022
$m
10.9
(1.4)
9.5
(5.8)
6.7
10.4
271.9
4.0%
2021
$m
19.1
(2.3)
16.8
(15.0)
12.4
14.2
248.3
7.7%
Within respiratory, investment centred around the development of the
EXOSKIN range of boots and gloves, and improvements to the supplied air
ST54 tactical self-contained breathing apparatus.
Development expenditure for the head protection portfolio has focused
on the NG IHPS and ACH GEN II programmes.
Net debt and cash flow
Adjusted EBITDA
Share-based payments and defined benefit
pension scheme costs
Working capital1
Cash flows from continuing operations
before exceptional items
Restructuring, transaction and acquisition
costs paid
Cash flows from continuing operations
Cash flows from discontinued operations
Cash flow from operations
Payments to pension plan
Finance costs from loans and leases
Repayment of lease liability
Tax received/(paid) excluding capital gains tax
paid on divestment2
Capital expenditure
Acquisitions and divestments
Purchase of own shares – LTIP and share buyback
Dividends to shareholders
Foreign exchange
Change in net debt
Opening net debt, excluding lease liabilities
Closing net debt, excluding lease liabilities
2022
$m
25.5
1.8
9.1
36.4
2021
$m
37.6
1.9
(8.2)
31.3
(1.6)
(4.4)
34.8
(1.3)
33.5
(8.5)
(3.7)
(4.1)
3.7
(8.9)
(3.2)
(12.4)
(13.4)
(0.4)
(17.4)
(26.8)
(44.2)
26.9
(3.3)
23.6
(2.9)
(2.7)
(3.7)
(4.3)
(31.6)
(137.1)
(4.3)
(12.1)
0.6
(174.5)
147.7
(26.8)
1
2
Working capital excludes $1.6 million armor inventory impairment (2021: $1.7 million) and
$2.4 million inventory acquisition accounting adjustments in 2021. These are included within
changes in inventory in the statutory reconciliation of cash flow from operations.
Cash flows from divestments in the prior period are shown net of $9.0 million capital gains tax
paid. This is included in tax paid in the Consolidated Cash Flow Statement.
Annual Report and Accounts 2022 Avon Protection plc
59
STRATEGIC REPORT F I N A N C I A L R E V I E W C O N T I N U E D
2022 adjustments
Revenue
EBITDA1
Operating profit/(loss)1
2022 total
Revenue
EBITDA
Operating profit/(loss)
Respiratory
& head
$m
Armor
$m
—
0.4
0.2
—
(1.6)
(12.4)
Respiratory
& head
$m
Armor
$m
8.4
(12.9)
(13.1)
263.5
37.2
11.0
Total
$m
—
(1.2)
(12.2)
Total
$m
271.9
24.3
(2.1)
1
Armor operating loss adjustments totalling a credit of $0.2 million comprise a gain of
$3.9 million to reduce the provision for contingent consideration payable to 3M, less
$1.6 million armor inventory provisions, $0.6 million transaction costs, $0.2 million non-current
asset impairments and $1.3 million armor specific restructuring costs.
Defined benefit pension scheme
The Group operated a contributory defined benefit plan to provide
pension and death benefits for the employees of Avon Protection plc 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 12 years. The net pension
liability for the scheme amounted to $6.3 million as at 1 October 2022
(2021: $68.3 million). The reduction is due to a higher discount rate being
applied to pension liabilities, partially offset by a fall in plan asset values.
During the period the Group made payments to the plan of $8.5 million
(2021: $2.9 million) in respect of scheme expenses and deficit recovery plan
payments, including a $4.0 million prepayment covering all contributions
due in FY23. In accordance with the deficit recovery plan agreed following
the 31 March 2019 actuarial valuation, the Group will make payments in
FY24 of $4.3 million in respect of deficit recovery and scheme expenses.
These payments are subject to review following the March 2022 actuarial
valuation which will be finalised in 2023.
Plan assets include Liability Driven Investments (LDI) of $54.4 million
(2021: $122.9 million), which are held to manage funding risk. The fall in LDI
valuation reflects increases in government bond yields through 2022.
The Group is in close contact with the trustees of the scheme to monitor
cash liquidity risk in the context of recent market volatility, including
collateral requirements for the LDI. To the date of this report, the scheme
has covered all LDI collateral requirements.
Net debt and cash flow continued
Cash flows from continuing operations before exceptional items were
$36.4 million (2021: $31.3 million). Total capital expenditure was $8.9 million
(2021: $31.6 million), with the decrease following large amounts of spend
related to one-off IT software programmes and armor development in the
prior year.
Dividends and purchase of own shares were $25.8 million (2021:
$16.4 million) reflecting the share buyback programme started in January
and paused in May.
Cash flows from continuing operations before exceptional items as a
percentage of adjusted EBITDA (cash conversion) was 142.7% (2021: 83.2%)
reflecting improved working capital management.
Net debt was $68.0 million (2021: net debt $55.9 million), which includes
lease liabilities of $23.8 million (2021: $29.1 million). Excluding lease
liabilities, net debt was $44.2 million (2021: net debt $26.8 million). The
increase in net debt is principally due to the share buyback programme
and accelerated pension plan payments to lock in benefits following the
increase in bond yields.
During the period we exercised our option to extend the maturity of
$142 million from the total $200 million revolving credit facility (RCF) to
8 September 2025. The remaining $58 million matures on 8 September
2024, subject to a one-year extension option to 8 September 2025. As at
1 October 2022 $53.7 million of the RCF was drawn.
The RCF is subject to financial covenants measured on a biannual basis.
These include a limit of 3.0 times for the ratio of net debt, excluding lease
liabilities, to adjusted EBITDA (leverage). The Group complied with all
financial covenants during the current and prior financial periods.
In addition to the RCF our U.S. operations have access to a $5.0 million
overdraft facility.
Armor update
Following January’s announcement regarding the decision to wind down
the armor business, the following tables summarise the contribution of the
armor business to the Group’s financial statements for 2022.
Armor
Orders received
Closing order book
Revenue
2022 adjusted
Orders received
Closing order book
Revenue
Adjusted EBITDA
Adjusted EBITDA margin
Adjusted operating (loss)/profit
(158.3)%
(13.3)
2022
$m
$12.2
$30.4
$8.4
Respiratory
& head
$m
Armor
$m
12.2
30.4
8.4
(13.3)
267.9
120.9
263.5
38.8
14.7%
23.4
2021
$m
$1.7
$26.6
$6.5
Total
$m
280.1
151.3
271.9
25.5
9.4%
10.1
60
Avon Protection plc Annual Report and Accounts 2022
Foreign exchange and interest rate risk management
The Group is exposed to translational foreign exchange risk arising when
the results of sterling denominated companies are consolidated into the
Group presentational currency, U.S. dollars. Group policy is not to hedge
translational foreign exchange risk. Due to the translational effect, a one-
cent increase in the value of the U.S. dollar against sterling would have
decreased revenue by approximately $0.2 million and increased operating
profit by approximately $0.2 million.
RCF borrowings are floating rate priced using the U.S. Secured Overnight
Financing Rate (SOFR). In 2022 the Group has implemented a new hedging
policy using interest rate swaps to fix a portion of SOFR floating rate
interest. The notional value of interest rate swaps at 1 October 2022 was
$30.0 million (2021: $nil), expiring on 8 September 2025 in line with the RCF.
The financial value of interest rate swaps at 1 October 2022 was a $0.5m
(2021: $nil), an asset position as hedged fixed rates are lower than current
market forecasts for SOFR.
Dividends
The Board is recommending a final dividend of 30.6 cents per share (2021:
30.6 cents) which together with the 14.3 cents per share interim dividend,
gives a total dividend of 44.9 cents (2021: 44.9 cents), consistent with last
year. The final dividend will be paid in pounds sterling on 10 March 2023
to shareholders on the register at 10 February 2023 with an ex-dividend
date of 9 February 2023. The final dividend will be converted into pounds
sterling for payment at the prevailing exchange rate which will be
announced prior to payment.
The recommended dividend results in an adjusted cover ratio of 0.5 times
(2021: 1.3 times). On a statutory continuing basis, the ratio was a deficit
of 0.4 times (2021: deficit of 1.8 times). In recommending this year’s final
dividend, the Board has taken into account its expectations that the
adjusted cover ratio will improve in the 2023 financial period.
Our policy is to grow dividends in line with adjusted earnings growth.
Given the decline in earnings over the last two years, we would not seek
to grow dividends further ahead of an increase in dividend cover.
STRATEGY IN ACTION
GROWING THE CORE
SUPPORTING REQUIREMENTS
FOR THE MILITARY DIVER
Military diving operations are a critical component of
delivering underwater assets in modern maritime forces.
Today’s military and special forces divers are required to
undertake a wider range of tasks within a single mission. This
has led to requirements from leading militaries for diving
apparatus that enables divers to complete missions that are
longer, deeper and more complicated than ever before.
The MCM100 is a configurable platform that offers a step
change in meeting underwater breathing apparatus operability
requirements. It is a fully closed circuit, electronically controlled,
mixed gas rebreather, CE tested to 100m and suitable for a large
range of tactical diving disciplines including shallow or deep
Mine Counter Measure, Explosive Ordnance Disposal, Mine
Investigation and Exploitation and Special Operations Forces
underwater vehicle use.
The system’s critical advantage lies in its advanced electronics
architecture. With multiple redundancy electronics, it features
advanced digital oxygen sensors and has a moisture tolerant
digital carbon dioxide sensor. This combined with data
acquisition facility with Bluetooth capability, and a backlit
colour handset with automated pre-dive and command-based
alarms enables missions of greater duration than traditional
systems at extreme work rates and depths.
“We are leading the world in military diving rebreathers with
the MCM100, as illustrated by its selection by major defence
forces,” said Kevin Gurr, Underwater Systems Director for
Avon Protection. “The military diving mission is evolving, and
legacy systems simply do not provide the capability required
going forward. The MCM100 is a step change in technology
and safety, and its modular design is developed to ensure
operational readiness is maintained whilst reducing the
through life cost to militaries.”
Annual Report and Accounts 2022 Avon Protection plc
61
STRATEGIC REPORT P R I N C I P A L R I S K S A N D R I S K M A N A G E M E N T
HOW WE IDENTIFY
AND MANAGE
RISK
We have completed a full year of managing risks using our enhanced
risk management process and have begun to integrate climate-related
risks and opportunities into our process for review.
RISK MANAGEMENT FRAMEWORK
y
t
i
l
i
b
i
s
n
o
p
s
e
r
e
c
n
a
i
l
p
m
o
c
d
n
a
n
o
i
t
a
t
n
e
m
e
p
m
l
I
Responsible for the Group’s risk framework and ensuring the risk management process is robust and continuously improved
BOARD OF DIRECTORS
AUDIT COMMITTEE
Responsible for monitoring and reviewing the effectiveness of the Group risk framework,
including the integration of climate-related risks
Conducts a second line of assurance assessment of those net risks highlighted by the business units (and challenges if necessary)
and maintains the Group risk register. Proposes risk management methodology
RISK COMMITTEE
Each business unit has its own risk register. Senior leaders provide an update to the Risk Committee on a six-monthly basis.
They are responsible for the implementation of Group risk management at the operational level
BUSINESS UNITS
R
i
s
k
i
d
e
n
t
i
f
i
c
a
t
i
o
n
a
n
d
r
e
p
o
r
t
i
n
g
r
e
s
p
o
n
s
i
b
i
l
i
t
i
e
s
2022 RISK RATING AND MOVEMENT
h
g
H
i
G
N
I
T
A
R
K
S
I
R
e
t
a
r
e
d
o
M
d
r
a
d
n
a
t
S
1
7
2
3
9
5
6
4
8
10
9.
1.
Project delivery
and new product
introduction risk
Market threat to
core business
3. Talent management
4.
2.
Cybersecurity and
information technology
5. Customer dependency
6. Financial management
7. Manufacturing risk
8.
Compliance and
legal matters
Political and
economic stability
10. Sustainability risk
Directional arrows indicate whether
the risk rating has increased or
decreased over the year.
62
Avon Protection plc Annual Report and Accounts 2022
APPROACH TO ASSESSING
CLIMATE-RELATED RISKS
AND OPPORTUNITIES
As part of meeting TCFD, the expectation is that companies use
scenario analysis on an iterative basis and over time to test the resilience
of the Company’s strategy by challenging the usual way of thinking,
to identify opportunities and areas where businesses may be exposed
to climate-related risks.
As a first step it was decided that a qualitative assessment was
appropriate and two possible climate scenarios were analysed:
• a below 2°C scenario outlining a rapid system transition with
significant annual GHG emission reductions required for a low
carbon economy; and
• a 4°C scenario where no additional action is taken to address
climate change.
The scenario analysis used information from various reference scenarios
such as the Representative Concentration Pathways (RCPs) and other
relevant research to better understand how climate-related risks and
opportunities could impact businesses operations. Senior leaders from
across the business were also consulted as part of this process.
Under TCFD there are two main categories of risk associated with
climate change (transitional and physical) which can also produce
some opportunities. We have identified these through the exploration
of these two climate scenarios in addition to other work undertaken
in the year, such as the review of our material sustainability themes
and progress made towards our Net Zero Plan.
Transitional
Policy & Legal
• Fossil fuel transition
• Carbon taxation
• Regulation
• Disclosure burden
• Climate change litigation
Technology
• Shift to low carbon technologies/ recyclable products
Market and Reputation
• Climate change damages the reputation of the defence sector
• Changing customer requirements
Physical
Operations
• Extreme weather events disrupt operations
• Changing equipment design requirements
Supply Chain
•
Increased disruption
•
Increased costs and price volatility
Under both scenarios we will face climate-related financial risks and
opportunities. Under the 2°C scenario, the transitional risks are likely
to be more significant with the focus on the shift to low emissions
technologies and energy efficiency projects. Under the 4°C scenario
the impact of physical risks on the business are likely to be higher.
We recognise we are just starting and that as we gain more experience
we will start to develop quantitative information to illustrate potential
pathways and outcomes.
Our approach
Having made a number of improvements to our Group risk management
process last year it was important to embed these during the year. Each
business unit has continued to provide updates to the Risk Committee
on a six-monthly basis which has allowed a full year of risk capture and
trend analysis.
The method for measuring likelihood and impact by each business
unit involves bespoke impact assessment measures based on financial
indicators and other impacts relative to the size of the business unit.
The Risk Committee conducts a second line of assurance and manages
the Group risk register which combines the results of the business unit
registers. The risks which are considered to be higher than the Group’s
tolerance level when assessed individually or as a collective are highlighted
to the Audit Committee. These most significant risks and mitigation plans
are regularly reviewed and the Risk Committee assesses whether key
controls are effective and risks mitigated to an acceptable level.
The Risk Committee has continued with the process of annually reviewing
and categorising the principal risks affecting the Group to ensure they
remain current and this year sustainability was added as a principal risk to
encapsulate climate-related risks and opportunities alongside other new
risks forming in the sustainability space.
During the year we have increased our understanding of climate-related
risks to the business having developed our first qualitative climate scenario
narrative with the help of a sustainability consultant. We have undertaken
our first review with business units and, as a consequence of viewing our
business through these two contrasting scenarios, we have identified new
risks and opportunities. This first review did not highlight any climate-
related risks or opportunities that could impact the business in the year
ahead. Our approach to identifying and managing climate-related risks will
be refined as we mature over time.
Further enhancements to the risk management process have been
identified but not yet implemented. These include aligning the process
with the detailed financial modelling of risk which will support our TCFD
disclosure. The Audit Committee has also recognised that recruiting a
dedicated risk and assurance lead role would further support a clear,
independent second line to drive the risk management and internal
audit agenda.
Principal risks
The risk rating graphic summarises the Group’s principal risks for 2022 and
going into financial year 2023 by significance and their directional trend
during the year, alongside the newly added sustainability risk. The graphic
has been populated by reference to the net risk assessment during the
year. The following pages show the categorised risk themes within the
principal risk areas and their mitigations. We have also highlighted where
risks have the potential to impact our strategy and sustainability agenda.
Annual Report and Accounts 2022 Avon Protection plc
63
STRATEGIC REPORT P R I N C I P A L R I S K S A N D R I S K M A N A G E M E N T C O N T I N U E D
Emerging risks
Emerging risks are captured at the six-monthly updates through
discussions with business unit leaders. These are included in the regular
reviews by the Audit Committee. Emerging risks are those that are
new or expected to increase through increased likelihood or impact
to the business.
Sustainability was highlighted as an emerging principal risk for the
business last year. Through our climate scenario work we have added a
number of new risks to the register. As we embed our climate scenario
process and understanding in this area we have identified some emerging
climate-related risks, but these are not expected to impact the business
in the year ahead:
The Risk Committee has identified the emerging risks expected to
generate increased risk across the Group in the coming year. The most
prominent are summarised below:
• There is growing sustainability scrutiny and requirement for a coherent
strategy, communication and action in this area which may influence
employee recruitment patterns and customer purchasing habits
• Our products are inherently oil based and we face the challenge
of specifying future materials for replacing these components
• We are reliant on investment in products, technology and processes
to deliver our Net Zero Plan and there will be other competing
demands for capex
• The Ukraine conflict has the potential to increase competition/new
market entrants due to the limited surge capacity amongst the existing
industrial supply base
• The risk around integrating the successful Team Wendy business into
the Avon Protection family without damaging the brand or causing
confusion in commercial markets
• Limited ability to address sole source dependencies for respiratory
raw material and components without re-engineering and
reapproving products
• Risk of reductions in U.S. first responder customer funding from the
Democratic Government in FY24
• Lack of clarity of U.S. Government funding routes for development of
future respiratory technology and the absence of long term U.S. DOD
respirator framework contracts
• Continued U.S. DOD customer revenue dependency/concentration
as the NG IHPS and ACH GEN II helmet programmes move into
full production
• Limited ability to flow through to customers input price increases and
maintain profit margins under long term contracts
64
Avon Protection plc Annual Report and Accounts 2022
1 PROJECT DELIVERY AND NEW
PRODUCT INTRODUCTION RISK
Overall trend
Link to strategy
Link to sustainability
Business risk
• 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
What happened in 2022
• First delivery order received for
the NG IHPS
• Continued delivering new
product programmes to meet
customer requirements within
capex budget
• Quarterly strategy review
process to embed and align
strategy across the organisation
• Wider integration of Team
Wendy and development of
Team Wendy liners with NG
IHPS helmet
Mitigation
• Board oversight of clear strategy
definition and communication
combined with effective
management
• Product development linked to
Group strategy and customer
requirements
• Well resourced product
development and programme
management teams
• Clear acquisition strategy and
alignment with divisional
structures
• Development of our
• Well-resourced acquisition
team with appropriate external
advisors retained
sustainability agenda, in
particular the environmental
initiatives that will result in
delivery of our net zero target
• Decision to wind down the
armor business following VTP
ESAPI FAT failure
Focus for 2023
• NG IHPS volume manufacturing
• ACH GEN II FAT approval and
initial production
• Continue delivering new
product programmes to meet
customer requirements within
capex budget
• Revisit strategy under new
leadership team
• Consideration of new
technology strategies for U.S.
DOD respirator products
• Continued commercial
integration of Team Wendy and
approval of Team Wendy liners
with NG IHPS helmet
• Further investment in
programme management office
to oversee programme delivery
• Define detailed sustainability
agenda, in particular the future
environmental initiatives that
will result in delivery of our net
zero target
2 MARKET THREAT TO
CORE BUSINESS
Overall trend
Link to strategy
Link to sustainability
Business risk
• Lack of sales growth/ threat
to current sales
• Loss of major bids/tenders
• Threat from competitors
Impact on
• Sales and profitability
• Strategy delivery
What happened in 2022
• Maximised NATO framework
contract opportunities and
considered technology transfer
strategy for customers who
require indigenous production
• Bid for major military
opportunities, e.g. further DOD
helmet opportunities
• Aligned helmet portfolio for
U.K. and International market
• Focused on continuing to grow
our market share with our
international and first
responder customers
Key
Trend Strategy
Sustainability
Mitigation
• Customer relationships prioritised
and managed through dedicated
leadership channels
• Product differentiation/
Focus for 2023
• Focus on continuing to grow
our market share with our
international and first
responder customers
innovation/diversification and
protection of intellectual property
• Expand international sales
presence/footprint
• NSPA boots and gloves proposal
• Pricing strategies to maximise
win rate while passing on input
cost increases where possible
• Diversified sales channels with
comprehensive distribution/
intermediary network
• Effective and up-to-date
competitor monitoring
and analysis to maintain
competitive advantage
• Long-term sole source
programmes of record
• Coherent and targeted
pricing strategies
No change
Growing the core
Environmental impact
Increasing
Selective product development
Sustainable supply chains
Decreasing
Value enhancing acquisitions
Cybersecurity and data protection
Employee-centric approach
Annual Report and Accounts 2022 Avon Protection plc
65
STRATEGIC REPORT
P R I N C I P A L R I S K S A N D R I S K M A N A G E M E N T C O N T I N U E D
3 TALENT
MANAGEMENT
Overall trend
Link to strategy
Link to sustainability
Business risk
•
Inability to recruit and
retain talent
• Poor employee competence
What happened in 2022
• Commenced implementation
of new HR system to automate/
improve processes
Mitigation
• Robust succession planning
and effective performance
management process
and failure to train and develop
• Commercial review of
• Dysfunctional organisational
structures
Impact on
• Strategy delivery
• Sales, costs and profitability
• Employee morale
indirect staff pay and benefits
to support recruitment
and retention
• Held flagship talent
development programme after
hiatus last year due to COVID-19
• Managed disruption arising
from the implementation of the
U.S. vaccine mandate
• Effective training and
development strategy
and activities
• Appropriate organisational
structure with clear lines of
authority and communication
• Maintaining positive Avon
Protection culture – Great
Place to Work
• Well invested and structured
• Continued high degree of focus
on safety practices across sites
HR team
Focus for 2023
• Complete implementation of
new HR system
• Complete pay and
benefits review
• Review annual bonus scheme
structure including production
worker incentive schemes
• Launch annual Employee
Opinion Survey following hiatus
during COVID-19 lockdown
• Heightened focus on succession
plans for key roles
• Continued focus on people,
culture and prioritisation
of actioning employee
feedback, aligned with
sustainability agenda
• Continued focus on
employee safety measures
against COVID-19
4 CYBERSECURITY AND
INFORMATION TECHNOLOGY
Overall trend
Link to strategy
Link to sustainability
Business risk
• Business interruption/cash cost
What happened in 2022
• Commenced implementation of
of cyber crime and fraud
new HR system
Mitigation
•
IT strategy anticipates
forthcoming requirements
•
IT system or communications
failure could lead to business
continuity event
• Military security requirements
result in excess cost and
management time
•
•
Improved reporting in the
ballistic protection business
•
IT sufficiently resourced with
specialists to ensure compliance
Implemented business
intelligence and master data
management strategy
• Robust network/IT controls and
security protocols/policy
• Continue to support
• Continued investment in
recovery plan and backup
• Cyber insurance and IT disaster
Focus for 2023
•
Implement standalone ERP
system for Team Wendy
• Continue investment in
cybersecurity and CMMC 2.0
compliance
the implementation of
new HR system
•
Implementation of
cybersecurity response plan and
information security policies
• Support continuous
improvement in business
systems and reporting
• Failure to comply results in loss
cybersecurity and CMMC 2.0
of contract
Impact on
• Ability to ship products
• Financial loss
• Reputational damage
•
Implementation of a new CRM
system was put on hold
• Change in ERP strategy
66
Avon Protection plc Annual Report and Accounts 2022
5 CUSTOMER DEPENDENCY
Overall trend
Link to strategy
Link to sustainability
Business risk
• Over-reliance on customers, e.g.
the U.S. DOD, and its funding
and contract process
What happened in 2022
• Continued to manage the
challenge of having the U.S.
DOD as our main customer
• Failure to diversify
customer base
Impact on
• Sales and profitability
• Focused on executing first
responder and military
strategy in EMEA and major
contract wins
• U.S. DOD M50 stocking
programme/technology
insertion strategy
• Consolidated relationship/future
bids with U.K. MOD
• Maximised opportunity to
engage with NATO countries
under NATO framework contract
Mitigation
• 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 with particular focus
on Rest of World and first
responder customers
Focus for 2023
•
Improved engagement with the
U.S. DOD on helmet supply
• Expand position with NATO
through further proposals
•
Implement international
strategies including the
Middle East through in-
country resource
• Deliver international sales of
MCM100 underwater rebreather
• Revisit strategy for
diversification under
new leadership
6 FINANCIAL MANAGEMENT
Overall trend
Link to strategy
Link to sustainability
Business risk
•
Insufficient management
of risks related to tax, cash
flows, interest 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
impact decision making
Impact on
• Costs and profitability
• Reputational damage
What happened in 2022
•
Improved business information
and decision making
(capex, opex, inventory and
working capital)
• New investment committee
established to review and
approve capital investments
aligned with strategic priorities
•
Implementation of a new
hedging policy using interest
rate swaps to fix a portion of
floating rate interest
Mitigation
• Robust and professional
corporate finance function
sufficiently well resourced
and supported by network
of professional advisors
Focus for 2023
• Continuous improvement in
business information recording
and reporting, and decision
making (manufacturing
variances, capex)
• Full compliance with bank
• Launch revised approval
process for capital expenditure
and tracking
• Review and continue to improve
internal control procedures
facility covenant requirements
•
Improving internal financial
control and reporting
procedures supported by
the external and internal
audit process
• Effective foreign exchange and
interest rate risk monitoring
and management
Key
Trend Strategy
Sustainability
No change
Growing the core
Environmental impact
Increasing
Selective product development
Sustainable supply chains
Decreasing
Value enhancing acquisitions
Cybersecurity and data protection
Employee-centric approach
Annual Report and Accounts 2022 Avon Protection plc
67
STRATEGIC REPORT
P R I N C I P A L R I S K S A N D R I S K M A N A G E M E N T C O N T I N U E D
7 MANUFACTURING RISK
Overall trend
Link to strategy
Link to sustainability
Business risk
• Shocks to the global supply
chain impact our ability to
source key materials and the
cost of manufacturing
• Quality control process failure
leads to product failures or recall
• Environmental or health and
safety incident results in plant
closure and prosecution/fines
• Poorly managed distribution
or logistics network impacts
delivery and reputation
What happened in 2022
• Leveraged U.K. facility
Manufacturing Licence
Agreement to increase 50 series
production and reduce reliance
on Cadillac facility
• Reviewed supply chain risk
mitigation plan robustness,
defined additional sources for key
raw materials and components,
increased sourcing resource, and
addressed areas of supply chain
weakness that have developed
through the COVID-19 pandemic
Mitigation
• 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
• Delays in new product
introductions
• Launched integrated business
planning process project
•
Insurance and effective business
continuity planning
• First delivery order received for
• Prioritisation of workforce safety
Impact on
• Sales, costs and profitability
and wellbeing through the
COVID-19 pandemic
the NG IHPS
• Renewed focus on business
continuity planning for our
facilities, including focus on
environmental/climate risks
• Created sustainability agenda
across all sites to bring the U.S.
sites up to the same standard
as the U.K.
• DLA ESAPI FAT approval and
managed exit plan from
armor business
Focus for 2023
• Continuation and delivery of
integrated business planning
tool under SIOP project
launched in 2022
• Development of sustainability
strategy at site level
•
•
•
Implementation of managed
exit from the armor business
including closure of the
Lexington site
Implement standalone ERP
system for Team Wendy
Investment in helmet
and respirator production
capacity/flexibility
• Continued focus on recording
supply chain risk and sole
source dependencies
8 COMPLIANCE AND LEGAL MATTERS
Overall trend
Link to strategy
Link to sustainability
Business risk
• Failure to comply with export
What happened in 2022
• Deloitte FY22 internal audit
Mitigation
• Effective export control policy
Focus for 2023
• Deloitte FY23 internal audit
work programme
supported by training
work programme
• Programme of compliance
• Effective anti-bribery and
• Revised and updated internal
training under new compliance
brand with a relaunch of our
Code of Conduct, redefined
Information Classification Policy
and cybersecurity training
• Clean U.K. export control audit
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
control policies
•
Implement 2023 internal
compliance training programme
controls slows or removes ability
to ship abroad
• Prosecution, fines and negative
publicity resulting from bribery
and corruption
• Litigation increases 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
68
Avon Protection plc Annual Report and Accounts 2022
9 POLITICAL AND ECONOMIC STABILITY
Overall trend
Link to strategy
Link to sustainability
Business risk
• Unpredictable timing/amount
of federal funding for first
responder customers
• U.S. DOD budgets/
funding withdrawn
• Macro events trigger negative
impacts on: trade, regulation,
people, contracts and
intellectual property
Impact on
• Sales and profitability
• Ability to ship products
• Financial loss
• Reputational damage
What happened in 2022
• Managed ongoing impact of
COVID-19 on U.S. DOD processes
Mitigation
• Close monitoring of federal
funding and budget position
• Lobbyist/government advisors
and key influencers aligned to
Avon Protection’s interests
• Recruited additional supply
chain/sourcing resource
to manage disruption to
supply chain
• Focused on mitigating potential
labour shortage risk due to U.S.
vaccine mandate and tight U.S.
labour market
• Monitored and managed
impact of U.S. Federal
Government Continuing
Resolution on U.S. DOD budget
and order flow
Focus for 2023
• Vaccine mandate dropped for
U.S. sites to support recruitment
to fill vacancies
• Continued efforts to reduce sole
source supplier risk on key raw
materials and components
• Continued monitoring and
management of impact of U.S.
Federal Government Continuing
Resolution on U.S. budget and
order flow
•
Increase stock and surge
capacity to improve ability
to supply urgent demand
requirements from ongoing
and new conflicts
10 SUSTAINABILITY
Overall trend
Link to strategy
Link to sustainability
New
Mitigation
• Monitor climate-related
regulations
• Maintain strong relationships
with customers and
technology partners
• Sufficient focus on sustainability
at all levels of the business
and all sites
• Agreed and deliverable
Net Zero Plan
Focus for 2023
• Continue to define our
sustainability agenda in
particular environmental
initiatives that will result in
delivery of our medium-term
carbon net zero targets
• Embed the sustainability
agenda into the business and
Sustainability Committee
operating cadence
• Roll out KPIs aligned to our
sustainability agenda
• Review scope 3 categories to
determine the most relevant
for future reporting
Business risk
• Failure to make progress
towards net zero target
• Changing customer
requirements and technology
innovation impact demand for
our products
• Extreme weather causes
disruption to our operations
and supply chain
Impact on
• Reputational damage
• Sales, cost and profitability
What happened in 2022
• Engaged with employees,
customers and investors
to determine sustainability
areas most material to our
stakeholders
• Established a governance
structure for overseeing
sustainability matters including
but not limited to climate-
related risks and opportunities
• Developed our
sustainability agenda
• Developed our first qualitative
climate scenarios and reviewed
this with senior leaders to
identify climate-related risks
and opportunities. This did not
highlight any material risks that
would impact the business in
the year ahead or significantly
impact assumptions used in
forward looking forecasts in
supporting the carrying value
of assets on the balance sheet.
Key
Trend Strategy
Sustainability
No change
Growing the core
Environmental impact
Increasing
Selective product development
Sustainable supply chains
Decreasing
Value enhancing acquisitions
Cybersecurity and data protection
Employee-centric approach
Annual Report and Accounts 2022 Avon Protection plc
69
STRATEGIC REPORT
70
Avon Protection plc Annual Report and Accounts 2022
OUR PRODUCTS ARE LIFE-SAVING DEVICES; THERE
IS NO ROOM FOR ERROR. THAT IS ONE OF MY
FAVORITE THINGS ABOUT BEING A PART OF THE
AVON PROTECTION TEAM; WE PRODUCE LIFE-SAVING
EQUIPMENT FOR THOSE THAT PROTECT US AND I GET
TO MAKE SURE THAT IT MEETS THEIR REQUIREMENTS
BEFORE IT LEAVES THIS BUILDING.
Dariane Dushane
Quality Auditor
GOVERNANCE
CONTENTS
Chair’s Introduction
Board of Directors
Corporate Governance Report
Nomination Committee Report
Audit Committee Report
Remuneration Report
72
74
76
80
82
86
106 Directors’ Report
Annual Report and Accounts 2022 Avon Protection plc
71
GOVERNANCE C H A I R ’ S I N T R O D U C T I O N T O G O V E R N A N C E
A STRONG
TEAM
The Board is committed to achieving high standards of governance designed
to protect the long-term interests of all other stakeholders, while promoting
the highest standards of integrity, transparency and accountability.
Bruce Thompson
Executive Chair
Dear Shareholder,
I am pleased to present our Corporate Governance Report. This report
describes our governance structures and procedures, and summarises
the work of the Board and its Committees and how the Board evaluated
its effectiveness in 2022. As a Board we recognise the fundamental
importance of ensuring robust governance practices are implemented
and followed in order to promote the long-term sustainable success of the
Company, generate value for shareholders and contribute to wider society.
Stakeholder engagement
The Board recognises its obligation to ensure effective engagement
with its stakeholders, to understand their different perspectives and to
ensure their interests are considered in Board discussions and decision
making. While we understand the importance of balancing all stakeholder
views, this year we have sought to increase the mechanisms under
which we engage with and receive feedback from our employees,
including additional in-person townhall meetings and site visits. Details
of stakeholder engagement activities during the year are outlined on
pages 38-41.
Purpose and culture
At Avon Protection, our purpose is clear – to provide trusted and
innovative solutions to enable those at risk to perform their mission safely
and with confidence. This underpins everything we do, including our
culture and values. The Board understands the importance of its role in
setting the right tone from the top and embedding it throughout the
Group. In addition to the Board, the Executive Board has responsibility to
ensure that the policies and behaviours set at Board level are effectively
communicated and implemented throughout the Group.
Our refreshed Code of Conduct, which was approved by the Board during
the year, reflects our purpose and our values, and sets out the standards of
behaviour and business conduct expected from anyone working for or on
behalf of the Group.
Board and Committee evaluation
During the year we completed an evaluation of the Board and its
Committees. The 2022 evaluation was internally facilitated using
questionnaires, led by me and the Company Secretary. It concluded
that the Board, its Committees, the individual Directors and the Chair
performed effectively during 2022, both individually and as a collective
unit. It was noted that following the relaxation of COVID-19 restrictions,
relationships between the Board and wider management team had
improved significantly over the prior year. In addition, the following areas
of focus were identified for 2023 and beyond: the need to review the
strategy process, further development of the risk process, succession
planning and the need for increased interactions between the Board and
management teams. Further details can be found on page 78.
Sustainability
Given its significance, the Board decided to retain responsibility for
development and oversight of our sustainability agenda directly, rather
than establishing a specific Board-level committee. At the management
level, we have established a Sustainability Steering Committee, chaired by
Rich Cashin, our Chief Financial Officer, to lead the implementation of our
agenda and impact plan. This Committee will regularly report to the Board
on progress. Further details on the remit of the Sustainability Steering
Committee can be found on page 43.
72
Avon Protection plc Annual Report and Accounts 2022
AS A BOARD WE RECOGNISE THE FUNDAMENTAL IMPORTANCE OF ENSURING
ROBUST GOVERNANCE PRACTICES ARE IMPLEMENTED AND FOLLOWED IN
ORDER TO PROMOTE THE LONG-TERM SUSTAINABLE SUCCESS OF THE COMPANY,
GENERATE VALUE FOR SHAREHOLDERS AND CONTRIBUTE TO WIDER SOCIETY.
Annual General Meeting
The 2023 AGM of Avon Protection plc will be held at Hampton Park West,
Semington Road, Melksham, Wiltshire SN12 6NB, at 10.30am on Friday 27
January 2023. Further details, including the resolutions to be proposed
to our shareholders, can be found in the Notice of Meeting on pages 172
to 176. The result of the votes on the resolutions put forward at the AGM
will be publicly announced to the stock exchange and published on our
website as soon as possible following the conclusion of the meeting. I will
be in attendance at the AGM and will be very happy to take any questions
you may have regarding the operation of the Board during the year. We
look forward to seeing you there.
Compliance with the U.K. Corporate Governance Code
The Company reports against the Financial Reporting Council’s (FRC)
U.K. Corporate Governance Code 2018 (‘the Code’), which is available
at www.frc.org.uk. The Board has applied all Principles and complied
with all Provisions in the Code for the year ended 30 September 2022,
with the exception of Provision 38 in relation to alignment of Executive
Directors’ pensions with those of the wider workforce. As explained
on page 74, we were in full compliance with this provision as from
1 April 2022, when Executive Director pensions were aligned with the
wider workforce. Further details on how the Company applied the
principles of the Code during the year can be found as follows:
See page
Bruce Thompson
Executive Chair
22 November 2022
BOARD LEADERSHIP AND
COMPANY PURPOSE
Long-term value and sustainability
Culture
Shareholder engagement
Employee engagement
Other stakeholder engagement
Conflicts of interest
DIVISION OF RESPONSIBILITIES
Role of the Chair
Division of responsibilities
Non-Executive Directors
COMPOSITION, SUCCESSION AND
EVALUATION
Appointments and succession planning
Skills, experience and knowledge
Length of service
Evaluation
Diversity
AUDIT, RISK AND INTERNAL CONTROL
Audit Committee
Integrity of financial statements
Fair, balanced and understandable
Internal controls and risk management
External auditor
Principal and emerging risks
REMUNERATION
Policies and practices
Alignment with purpose, values and long-term strategy
Independent judgement and discretion
2, 42
76
40
38
38
107
76
76
76
77
75
75
78
80
82
83
90
84
82
62
89
86
95
Annual Report and Accounts 2022 Avon Protection plc
73
GOVERNANCE B O A R D O F D I R E C T O R S
A BOARD WITH
EXPERIENCE
Our business is led by our experienced Board of Directors,
which focuses on developing the Group’s strategy and supporting
management to execute against it.
Bruce Thompson
Executive Chair
Rich Cashin
Chief Financial Officer
Chloe Ponsonby
Non-Executive Director
Senior Independent Director
Bindi Foyle
Non-Executive Director
Victor Chavez CBE
Non-Executive Director
Board membership key
Audit Committee
Nomination Committee
Remuneration Committee
Chair
Independent Director
Miles Ingrey-Counter
Group Counsel and
Company Secretary
74
Avon Protection plc Annual Report and Accounts 2022
3
2
Male
Female
Board gender diversity (%)
4040+
4040+
Executive (including CFO and
Executive Chair)
Independence (%)
3
2
Non-Executive (excluding Chair)
Bruce Thompson
Executive Chair
First appointed: March 2020
Appointed Chair: December 2020
Skills and experience: Bruce joined the Board
in March 2020. During his executive career,
Bruce was Chief Executive Officer of Diploma
PLC, the FTSE 250 specialised technical products
and services business, for over 20 years. Prior to
joining Diploma, Bruce was a Director with the
technology and management consulting firm
Arthur D. Little Inc., both in the U.K. and the U.S.
He is currently the Senior Independent Non-
Executive Director of discoverIE Group plc.
Victor Chavez CBE
Non-Executive Director
First appointed: December 2020
Skills and experience: Victor has over
30 years of experience in the defence and
security sectors. His early career focused on
telecommunications and software before
joining Thales U.K. in 1999. He was appointed
Chief Executive in 2011, retiring in 2020 having
successfully integrated and grown the business
during this period. In recognition of his services
to defence and security for the U.K. and France,
Victor was appointed a CBE in 2015 and a
Chevalier of the Légion d’Honneur in 2020.
Miles Ingrey-Counter
Group Counsel and
Company Secretary
First appointed: October 2007
Skills and experience: Miles is a qualified
solicitor; he joined the Group in January 2004
and has been a member of the Executive Board
since 2008. Miles also has responsibility for all
Group HR matters and is Chair of the Retirement
and Death Benefits Plan. Prior to joining Avon
Protection, Miles was a solicitor with Osborne
Clarke LLP.
Rich Cashin
Chief Financial Officer
First appointed: April 2022
Skills and experience: Before joining Avon
Protection, Rich was President, Strategy and
Corporate Development for Ultra Electronics
Holdings plc from June 2019. Prior to this, he
was Group Head of Investor Relations and,
subsequently, a divisional Finance Director for
Meggitt PLC and held a number of investment
and finance roles at Rolls-Royce plc and UBS AG.
Chloe Ponsonby
Non-Executive Director
Senior Independent Director
First appointed: March 2016
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 and Oriel Securities
(now owned by Stifel) and currently at Panmure
Gordon where she is a Managing Director in
investment banking. She is a Chartered Financial
Analyst and has a first class Economics degree
from the University of Manchester.
Bindi Foyle
Non-Executive Director
First appointed: May 2020
Skills and experience: Bindi has been Group
Finance Director of Senior plc, a manufacturer
for the aerospace, defence, land vehicle and
power and energy markets, since July 2017,
having served as an Executive Director since
May 2017. Bindi joined Senior in 2006 as
Group Financial Controller before becoming
Director of Investor Relations and Corporate
Communications in 2014. Prior to joining Senior,
she held senior finance roles at Amersham plc
and General Electric, having previously worked
with BDO Stoy Hayward.
Annual Report and Accounts 2022 Avon Protection plc
75
GOVERNANCE+
60
60
+
+
G
G
+
60
60
+
+
G
G
C O R P O R A T E G O V E R N A N C E
CORPORATE
GOVERNANCE
REPORT
Introduction
This Corporate Governance Report, along with information in the Strategic
and Remuneration Reports, explains how the principles and provisions of
the U.K. Corporate Governance Code 2018 (‘the Code’) have been applied.
A copy of the Code can be found on www.frc.org.uk.
Statement of compliance with the Code
We are pleased to confirm that the Board has complied with all provisions
of the Code throughout 2022, with the exception of the following:
• Provision 38: The Code stipulates that pension contribution rates for
Executive Directors should be aligned with those available to the
workforce. Pension contributions for new Executive Directors are
aligned with the rate available to the workforce. Paul McDonald’s
pension was aligned with that available to the workforce from 1 April
2022 when it was reduced from 15% to 7.5%, to coincide with the
appointment of Rich Cashin as Chief Financial Officer.
Board leadership
Bruce Thompson, who was previously the Non-Executive Chair, was
appointed Executive Chair with effect from 1 October 2022 until our new
Chief Executive Officer is in place. The Board therefore currently comprises
the Executive Chair, the Chief Financial Officer, who is an Executive
Director, and three Non-Executive Directors. On 17 October it was
announced that Jos Sclater would join the Board as Chief Executive Officer,
with effect from 16 January 2023, following which Bruce will step down as
Executive Chair and resume his role as Chair of the Board. Further details
about the appointment of the new Chief Executive Officer are disclosed
on page 81. The Board regularly reviews its composition to ensure it has
the necessary breadth and depth of skills to support the development of
the Group. We believe that the Board continues to have a strong mix of
experienced individuals who provide a unique perspective on Company
matters and bring specific skills to the Board.
Biographical details for each member of the Board can be found on pages
74 and 75 of this Annual Report. All Directors will stand for re-appointment
by shareholders at the 2023 AGM.
Company purpose
The Company purpose is stated on page 2. The Board recognises its role in
establishing the purpose, values and strategy of the Group and ensuring
that these are embedded throughout the business. Our purpose unites us,
guides our decisions and inspires us wherever we operate.
Our culture
The Board clearly recognises the importance of culture and its link to
delivering our purpose and strategy. Assessing and monitoring our
culture is important to ensure we retain a successful culture as we grow.
Through our employee engagement initiatives, explained in more detail
on page 38, the Board has sought to achieve greater engagement with
76
Avon Protection plc Annual Report and Accounts 2022
the workforce. The Board considers the most effective way of achieving
this engagement is via a Global Employee Advisory Forum, which was
established last year.
Division of responsibilities
Throughout the financial year until 30 September 2022, there was a clear
division of responsibility between the running of the Board by the Chair
and the running of the Group’s business by the Chief Executive Officer. For
an interim period from 1 October 2022 until Jos Sclater joins the Board as
Chief Executive Officer on 16 January 2023, the Chair has been appointed
Executive Chair.
The Chair 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 primary role, with the assistance of the Board, of
developing and implementing business strategy. The Chair ensures that
meetings of Non-Executive Directors take place without the Executive
Directors present. Whilst the Chair is performing the role of Executive
Chair, the Senior Independent Director assists with these responsibilities.
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. One of
the roles of the Non-Executive Directors, under the leadership of the Chair,
is to undertake detailed examination and discussion of strategies proposed
by the Executive Directors, so as to ensure that decisions are made in the
best long-term interests of shareholders and take proper account of the
interests of the Group’s other stakeholders.
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.
How the Board operates
The Chair ensures, through the Company Secretary, that the Board agenda
and all relevant information are provided 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
Chair 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 Chair 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, which include:
• approval of the annual operating budget and the three-year
strategic plan;
• the extension of the Group’s activities into new areas of business and/or
geographical 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;
• the approval of quotations and sales contracts where the sales
commission payable to an intermediary exceeds 10% of the net invoice
price; and
• consideration and approval of all proposed acquisitions and mergers.
Each Director has full and timely access to all relevant information and
the Board meets regularly with appropriate contact between meetings.
All Directors receive 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. Details of the operation of each Committee are provided
within the relevant Committee report.
Bindi Foyle is Chair of the Audit Committee. The Board is satisfied that
Bindi has recent relevant financial experience and her profile appears
on page 75.
Bruce Thompson is Chair 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 86 to 105.
Composition, succession and evaluation
The Nomination Committee is responsible for leading the process
for Board appointments and making recommendations to the Board,
putting in place plans for succession and regularly reviewing the Board’s
structure, size and composition. The Committee takes into account the
challenges and opportunities facing the Group and the skills, knowledge
and experience needed by the Board and makes recommendations to the
Board with regard to any changes. Further information and the activities of
the Nomination Committee during the year are detailed on page 81.
Attendance at meetings
All Committee and Board meetings held in the year were quorate. Directors’ attendance during the year ended 30 September 2022 was as follows:
Board
(7 scheduled and 2 ad
hoc meetings)
Audit Committee
(4 scheduled meetings)
Remuneration Committee
(4 scheduled)
Nomination Committee
(2 scheduled)
Bruce Thompson
Bindi Foyle
Chloe Ponsonby
Victor Chavez
Paul McDonald
Nick Keveth1
Rich Cashin2
9 (9)
9 (9)
9 (9)
9 (9)
9 (9)
5 (5)
4 (4)
4 (4)
4 (4)
4 (4)
4 (4)
–
–
–
The maximum number of meetings which each Director could have attended is shown in brackets.
1 Nick Keveth stepped down from the Board on 31 March 2022.
2 Rich Cashin was appointed to the Board on 31 March 2022.
4 (4)
4 (4)
4 (4)
4 (4)
–
–
–
2 (2)
2 (2)
2 (2)
2 (2)
–
–
–
Annual Report and Accounts 2022 Avon Protection plc
77
GOVERNANCE C O R P O R A T E G O V E R N A N C E C O N T I N U E D
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 and emerging
business risks and to evaluate their potential impact on the Group. These
risks are described within the Strategic Report on pages 62 to 69.
Risk management
Risk is managed by the Executive Board during the year, led by the Risk
Committee, which is led by the Company Secretary. Various enhancements
to the risk management process were implemented during the year and
these are set out in more detail in the Principal Risks and Risk Management
section on pages 62 to 69.
The Audit Committee carried out quarterly reviews of the key risks facing
the Group and risk management activities undertaken during the year,
following the risk reviews conducted by the Risk Committee with the
business leadership. The Audit Committee also carried out a robust annual
assessment of the major business risks and emerging risks affecting the
Group, including macro risks.
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 financial managers
throughout the Group, who have responsibility for providing information
in keeping with the policies, procedures and internal best practices
as documented in the internal control manual and are accountable
under these.
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 Chair
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 four
times a year with management and the external auditor 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, re-appointment and removal of the external auditor.
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. Given the
number of changes to the Board during the year, with the appointment
of Rich Cashin as Chief Financial Officer on 31 March 2022 and the
announcement that Paul McDonald would step down from the Board on
30 September 2022, it was agreed that the 2022 Board evaluation process
would be conducted internally using questionnaires and interviews led by
the Company Secretary. Consideration will be given to the 2023 evaluation
being externally facilitated.
The Board evaluation 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
took place at the September 2022 Board meeting. Overall, the evaluation
concluded that the Board, its Committees, the individual Directors and
the Chair performed effectively during 2022, both individually and as
a collective unit. It was noted that following the relaxation of COVID-19
restrictions, relationships between the Board and wider management
team had improved significantly over the prior year.
The following areas were identified by the Board as areas of focus for 2023
and beyond:
•
•
review of the strategy process to maximise efficiency and effectiveness;
further development of the risk management process to ensure
sufficient integration into the operational side of the business;
• continuing focus of the Nomination Committee on succession
planning; and
•
increased interactions between the Board and management teams
outside of scheduled monthly meetings.
Audit, risk and internal control
The Board has an established framework of internal controls covering
both financial and non-financial controls. In addition, there is a process for
identifying, evaluating and managing significant business risks, including
emerging risks, faced by the Group. This process was in place throughout
the 2022 financial year.
The Code requires that Directors establish procedures to manage risk,
oversee the internal control framework and determine the nature and
extent of the principal risks the Company is willing to take in order to
achieve its long-term strategic objectives.
The Board, through the Audit Committee, reviews 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 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 page 84 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.
78
Avon Protection plc Annual Report and Accounts 2022
On this basis, the Directors are confident that the Group and Company
will have sufficient funds to continue to meet their liabilities as they fall
due for at least 12 months from the approval of these financial statements.
Accordingly the Group and Company continue to adopt the going
concern basis in preparing their financial statements.
Viability Statement
The Directors have assessed the viability of the Group over a three-year
period to September 2025, taking account of the Group’s current position,
and the potential impact of the 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 2025.
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 plausible downside 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 RCF facility
which provides financing until September 2025. The Directors have a
reasonable expectation that similar financing could be obtained at the end
of the current RCF facility, should this be required for continued operation
or otherwise considered in the Group’s best interest. During the period
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 long-term incentive schemes.
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 via regulatory news announcements, press releases, 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. The AGM includes a presentation by the Chief
Executive Officer on aspects of the Group’s business and shareholders
have the opportunity to both ask questions and to leave written questions
with the Company Secretary for the response of the Directors. Directors
also make themselves available after the AGM to talk informally to
shareholders, should they wish to do so, and respond throughout the year
to any correspondence from individual shareholders.
Special Security Agreement
On 8 December 2020, our U.S. subsidiary Avon Protection Ceradyne, LLC
(APC) and the Company entered into a Special Security Agreement with
the U.S. Department of Defense. The SSA was entered into in support
of the U.S. DOD contracting and product development elements of the
ballistic protection business and permits APC to perform classified U.S.
defence contracts. There are a number of specific protocols that the
Company and APC are required to comply with under the SSA, including
the appointment to the APC Board of two independent outside U.S.
Directors approved by the U.S. Government. The SSA imposes certain
restrictions on the degree of influence the Company can exert over
APC and it is therefore important that the Company maintains a strong
relationship with the APC Board, in order to ensure that we are fulfilling our
own governance obligations. A member of our Executive Board is an inside
Director on the APC Board. We anticipate increased engagement with APC
and the outside Directors in the coming year under the governance of the
SSA to support synergy opportunities across APC’s product portfolio for
the benefit of our Head Protection business.
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 106 to 109 and have been included
by reference.
Going concern
The financial statements have been prepared on a going concern basis,
which the Directors believe to be appropriate for the following reasons:
The Directors have prepared a going concern assessment covering the
12-month period from the date of approval of these financial statements.
The assessment indicates that the Group will have sufficient funds to meet
its liabilities as they fall due for that period.
As part of their assessment, the Directors considered a base case and a
severe downside scenario involving a 27% decline in bank-determined
adjusted EBITDA against the base case. Even in this severe downside
scenario, the assessment indicates that the Group will have sufficient funds
to meet its liabilities as they fall due, and will continue to comply with its
loan covenants throughout the forecast period. The Group has committed
RCF facilities of $200 million (see note 5.1) and related loan covenants
include a limit of 3.0 times for the ratio of net debt, excluding lease
liabilities, to bank-determined adjusted EBITDA (leverage).
Annual Report and Accounts 2022 Avon Protection plc
79
GOVERNANCE N O M I N A T I O N C O M M I T T E E R E P O R T
LETTER FROM THE
CHAIR
The Nomination Committee comprises all the Non-Executive Directors.
Main responsibilities
The main responsibilities of the Committee are as follows:
• 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 to make
recommendations to the Board with regard to any change;
• to put in place and periodically review succession plans for Directors
and, more generally, senior executives; and
• to lead the process for Board appointments and make
recommendations to the Board.
The Committee’s terms of reference are available within the Corporate
Governance section of the Company’s website and are reviewed annually.
All Directors are appointed by the Board following a rigorous selection
process and subsequent recommendation by the Committee.
Diversity
The Board recognises the benefits of diversity and believes the Board’s
perspective and approach are greatly enhanced by gender, age and
cultural diversity. The Nomination Committee is responsible for the Board’s
policy in this area. 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.
The Balance@Avon initiative, supported by the Committee, aims to help
develop and promote our female leadership, create a forum where we can
identify, nurture and develop the female leaders of the future and ensure
that all women at Avon Protection thrive in their careers. The initiative
is driven by a steering group which collaborates on long-term ideas to
help shape the future face of Avon Protection and create an agenda and
platform to help build our future female talent pipeline.
During 2022 we have supported a number of Balance@Avon initiatives,
including International Women’s Day and the launch of a female
mentoring programme. We have achieved our minimum target of 33%
female representation on the Board and continue to work to achieve the
same minimum target representation for the Group Executive team and its
direct reports.
Further information, including the number of women in senior
management and within the organisation, is shown in the Sustainability
Report on page 52.
Bruce Thompson
Chair of the Nomination Committee
Attendance at Nomination
Committee meetings
During the year the Nomination Committee held two
scheduled meetings. Attendance of the members of
the Committee is recorded in the table below:
Scheduled meetings
Attended
Eligible
to attend
Bruce Thompson
Chloe Ponsonby
Bindi Foyle
Victor Chavez
2
2
2
2
2
2
2
2
80
Avon Protection plc Annual Report and Accounts 2022
THE COMMITTEE REGULARLY REVIEWS THE BOARD’S STRUCTURE 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.
Succession planning
The Committee reviews succession planning for the Board formally at
least once a year in order to ensure the Board is adequately prepared for
potential changes to key Board positions. In addition, the Committee
reviewed the executive leadership needs of the Group during the year
and progress was made on the longer-term succession planning of the
Group Executive management team and its direct reports and this will
remain a priority for the coming year.
Alongside this, the Committee also retains oversight of the programmes
in place to assess and facilitate talent development amongst the
management teams to ensure there is a structured approach to
growing, developing and retaining the Company’s future leaders. This
year the Committee oversaw the running of the Group’s Professional
Development Programme.
Committee evaluation
The evaluation of the effectiveness of the Committee was conducted
as part of this year’s Board performance evaluation. The outcome of the
2022 Committee review was positive and highlighted the need for the
Committee to retain focus on the Group strategy and risk management
process. Further detail on the result of the Board evaluation exercise is
included on page 78 of the Corporate Governance Report.
Bruce Thompson
Chair of the Nomination Committee
22 November 2022
Activities during 2022
During the year, the Committee:
• commenced the search for a new Chief Executive Officer to replace Paul
McDonald, who stepped down from the Board on 30 September 2022;
• considered and confirmed the appointment of Rich Cashin as
Chief Financial Officer following the departure of Nick Keveth on
31 March 2022;
•
reviewed the composition of the Board and its succession plan;
• carried out an annual review of the Committee’s terms of reference;
•
recommended re-election of the Board at the forthcoming
Annual General Meeting; and
•
reviewed the Board performance evaluation process.
Board changes
Nick Keveth retired as Chief Financial Officer and stood down from the
Board on 31 March 2022. Rich Cashin joined the Group as Chief Financial
Officer designate on 7 March 2022 and was appointed to the Board as
an Executive Director on 31 March 2022. The process followed for Rich’s
appointment was disclosed in last year’s report. Rich’s biography, together
with those of all Board Directors, is included on page 75.
As announced to shareholders on 24 May 2022, after five years as Chief
Executive Officer and 19 years with the Company, Paul McDonald stepped
down from the Board as Chief Executive Officer on 30 September 2022.
The recruitment process to find Paul’s replacement commenced in May,
led by me as Chair of the Committee. Independent executive search
consultants Korn Ferry were retained and provided with a detailed
description of the role and associated skills and experience required.
Korn Ferry compiled a longlist of potential candidates based on initial
interviews, from which a shortlist of candidates was selected by
the Committee.
Following an extensive interview and assessment process involving
all Directors, the Committee recommended Jos Sclater to the Board
as its preferred candidate. The Board considered and accepted the
recommendation and Jos Sclater was appointed to the Board as Chief
Executive Officer with effect from 16 January 2023. When Paul stepped
down from the Board as Chief Executive Officer, I was appointed interim
Executive Chair while the recruitment process for his replacement. I will
resume my role as Chair when Jos joins the Board on 16 January 2023.
The Committee has previously agreed that all Directors should be put
forward for re-appointment by shareholders each year at the AGM. Taking
into account the performance and value that each Director has brought
to the Board, the Committee has considered whether the appointment
of each Non-Executive and Executive Director 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 AGM.
Annual Report and Accounts 2022 Avon Protection plc
81
GOVERNANCE A U D I T C O M M I T T E E R E P O R T
LETTER FROM THE
CHAIR
The Committee monitors the integrity of the Group’s financial statements
and supports the Board with its ongoing monitoring of the effectiveness
of the Group’s risk management and internal control systems.
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 2022 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 accordance with the Code, the Committee continued to have oversight
of the Group’s whistleblowing function, known as ‘Speak Up’, together
with the associated policies and procedures. The Committee received
regular updates on the number and types of Speak Up reports and agreed
follow-up actions throughout the year from the General Counsel.
During 2022 the Audit Committee undertook a full evaluation exercise of
KPMG’s audit approach, to ensure the effectiveness of the external audit
function. Reviewing the results of the evaluation of the external audit process,
we are satisfied with both the auditor’s independence and audit approach.
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 Company’s registered office and on
our website.
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 and make
recommendations to the Board in relation to the re-appointment of
the external auditor and monitor the external auditor’s objectivity
and independence;
• to review the adequacy of the Company’s whistleblowing arrangements
and the provision of appropriate investigation of any matters raised; and
• to advise 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 position and performance,
business model and strategy.
Bindi Foyle
Chair of the Audit Committee
Attendance at Audit
Committee meetings
During the year the Audit Committee held four
scheduled meetings. Attendance of the members of
the Committee is recorded in the table below:
Scheduled meetings
Attended
Eligible
to attend
Bruce Thompson
Chloe Ponsonby
Bindi Foyle
Victor Chavez
4
4
4
4
4
4
4
4
82
Avon Protection plc Annual Report and Accounts 2022
THE COMMITTEE MONITORS THE INTEGRITY OF THE GROUP’S
FINANCIAL STATEMENTS AND SUPPORTS THE BOARD WITH ITS
ONGOING MONITORING OF THE EFFECTIVENESS OF THE GROUP’S
RISK MANAGEMENT AND INTERNAL CONTROL SYSTEMS.
Composition of the Audit Committee
The members of the Committee are set out on page 77 of the Corporate
Governance Report. The Committee members are all independent
Non-Executive Directors 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 serving Group Finance Director
of a U.K. listed company, I have both the current and relevant financial
experience required to chair this Committee.
The Committee typically invites the Board Chair to attend all Committee
meetings together with the Executive Directors and the Group
Financial Controller.
Development costs
The Group capitalises the development costs of new products and
processes as intangible assets or property, plant and equipment.
Initial capitalisation and any subsequent impairment are based on
management’s judgement of technological and commercial viability,
including regulatory approvals required and forecast customer demand. 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. If either
technological or commercial viability is not demonstrated then the
capitalised costs will be written off to the income statement.
2022 Annual Report
The main areas of focus considered by the Committee during 2022 were
as follows:
• The presentation of the financial statements and the quality and
acceptability of accounting policies and practices including the
presentation of adjusted performance measures and the adjusting
items. The Committee reviewed papers prepared by management,
challenged management’s judgements and estimates, 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 are discussed separately in more detail below.
• At the request of the Board, the Committee considered whether the
2022 Annual Report was fair, balanced and understandable and whether
it provided the necessary information for shareholders to assess the
Company’s position and 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 results announcement.
Significant judgements and estimates considered
by the Audit Committee
After discussions with management and the external auditor, the
Committee determined that the key risk of material misstatement of the
Group’s 2022 financial statements arose in the following areas:
• development costs and ongoing valuation in the financial
statements; and
• estimation of the defined benefit pension obligation.
The key issues reviewed in the financial year included the ongoing
valuation of assets in relation to the General Service Respirator supplied
to the U.K. MoD, the MCM100 underwater rebreather and the category
of escape hoods. The Committee concurred with management that
the carrying values as included in the 30 September 2022 balance sheet
were appropriate.
The external auditor explained its audit procedures to test development
costs and, based on the work undertaken, KPMG concluded the carrying
values were acceptable. Further analysis and detail on the Group’s
development costs are set out in note 3.1 of the financial statements.
Estimation of the defined benefit pension assets
and obligations
The Group operated a contributory defined benefit plan to provide
pension and death benefits for the employees of its U.K. Group companies
employed before 31 January 2003. The plan was closed to future accrual of
benefits on 1 October 2009.
The investments held by the pension scheme include both quoted and
unquoted securities, the latter of which by their nature involve assumptions
and estimates to determine their fair value. Where there is no active market
for the unquoted securities, the fair value of these assets is estimated by the
pension trustees based on advice received from the investment manager
whilst also using any available market evidence of any recent transactions for
an identical asset. The assumptions used in valuing unquoted investments
are affected by current market conditions and trends which could result in
changes in fair value after the measurement date.
Estimation of the defined benefit pension obligation involves significant
judgements concerning future changes in inflation, mortality rates, and
the selection of a suitable discount rate, as well as the future performance
and valuation of the scheme’s assets. Changes to these actuarial judgements
could have a significant impact on the estimated pension obligation.
An independent actuary is engaged to estimate the defined benefit
pension obligation, undertaking a valuation of the scheme’s assets and
assessment of current and future pension liabilities. The Committee
reviewed 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 the defined benefit pension obligation was being
estimated appropriately with reasonable judgements being applied.
Annual Report and Accounts 2022 Avon Protection plc
83
GOVERNANCE A U D I T C O M M I T T E E R E P O R T C O N T I N U E D
Estimation of the defined benefit pension assets
and obligations continued
The external auditor applied its audit procedures to test the carrying value
of the net pension obligation and, based on the work undertaken and
assessment of the actuarial judgements used, 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 pension scheme is set out in note 6.2 of the financial statements.
External auditor
The Audit Committee considers the appointment of the external auditor
each year. KPMG LLP (KPMG) was appointed as the Group’s external auditor
for the 2019 audit following a tender process in 2018. 2022 is KPMG’s fourth
year as the Group’s external auditor and Andrew Campbell-Orde has acted
as audit partner since KPMG’s appointment.
The Committee oversees the relationship with the external auditor, and
monitors all services provided by, and fees payable to it, 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 auditor and the effectiveness of the audit
process. At the outset of the annual audit process, the Committee receives
a detailed audit plan from the auditor, identifying its assessment of the key
risks and its intended areas of focus. This is agreed with the Committee to
ensure coverage is appropriately focused.
The Committee also holds separate discussions with the external auditor
without Executive management being present. In addition, I held separate
meetings with the external auditor during the course of the year.
Review of the effectiveness of the external auditor
The Committee evaluates the effectiveness of the external auditor
annually. This evaluation includes a review of the effectiveness of the
external audit process, consideration of whether management had been
adequately challenged, interaction with the Committee and quality of the
audit work. The 2021 review included reports from the external auditor
and management incorporating feedback against a formal assessment
framework from key members of the Group’s finance team and those
employees who had interacted with KPMG during the audit. This report
was reviewed at the Committee’s meeting in March 2022. Overall feedback
was positive and where opportunities for improvement were identified in
respect of earlier discussion with management regarding developments
and changes during the year, KPMG was asked to take account of that
feedback in the planning for future audit activity. KPMG and management
also undertook to work together to more clearly define the information
required from management during the audit to aid increased audit
efficiency. This review concluded that the audit was conducted to a good
standard with appropriate focus and challenge on the key audit risks.
KPMG has discussed more generally the firm’s process for enhancing audit
quality which includes internal quality reviews.
AQR of the Avon Protection 2021 audit by KPMG
During the year, the 2021 audit of Avon Protection plc by KPMG was
reviewed by the FRC’s Audit Quality Review (AQR) team.
The AQR highlighted specific areas for improvement related to how
KPMG evaluated or challenged the required disclosures in relation to the
Company’s financial reporting period. The Committee considered the
findings, discussed them with management and KPMG and is satisfied that
the Company’s financial reporting period for 2022 and the comparative
period is appropriately disclosed in the 2022 half year results and Annual
Report and Accounts. The AQR raised no concerns on the audit challenge
over the significant risks referenced in the Auditor’s Report.
No changes were required to the accounting applied in the Annual Report
and Accounts 2021.
Audit fees and auditor re-appointment
During 2022, the Committee reviewed and approved the proposed audit
fees and terms of engagement for the 2022 audit and recommended to
the Board that it proposes to shareholders that KPMG be re-appointed
as the Group’s external auditor for 2023 at the AGM to be held on
27 January 2023.
Auditor independence
To ensure the independence and objectivity of the external auditor 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 follows the ethical guidance on auditor
independence issued by the FRC in December 2019 and was reviewed
during the year to ensure it remained appropriate. Under the policy all
non-audit services permitted by the FRC require 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; this
included consideration 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 is included in note
2.5 of the financial statements. KPMG also conducted a half year review on
the interim financial results of the Group. No other non-audit services were
provided by KPMG during the year.
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 including the recommendations arising,
management’s responses and actions to address recommendations and
approving the internal audit programme and resourcing for 2023.
The internal audit programme is comprised of risk-based audits
undertaken by Deloitte. Deloitte reports directly to the Audit Committee,
which considered and approved the scope of the 2022 internal audit
programme to be undertaken. The Chair of the Committee also holds
separate meetings with Deloitte, without Executive management being
present. During the year, Deloitte focused its internal audit work on the
purchase to pay process and management, business continuity and IT
resilience, supply chain and procurement, and capital management –
intangible spend.
84
Avon Protection plc Annual Report and Accounts 2022
Several improvements were identified in respect of developing and
enhancing the Group’s risk management processes, better documenting
the operation of controls, further integration of purchasing processes
and further enhancing processes around management and timeliness of
reviews of capitalised expenditure.
As part of the internal control framework, site controllers and plant
managers are obliged to positively confirm, on a biannual 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.
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. In 2022, the Group further strengthened
its risk management procedures and these have been reviewed by the
Committee. Risk management activities are dealt with in more detail in the
Principal Risks and Risk Management section on pages 62 to 69 and the
Corporate Governance Report on page 78.
Audit Committee effectiveness review
The evaluation of the effectiveness of the Audit Committee was
conducted alongside the Board effectiveness review, information on
which is provided in the Corporate Governance Report on page 78.
The review concluded that the Audit Committee continued to operate
effectively during the year.
Bindi Foyle
Chair of the Audit Committee
22 November 2022
Annual Report and Accounts 2022 Avon Protection plc
85
GOVERNANCE R E M U N E R A T I O N C O M M I T T E E R E P O R T
LETTER FROM THE
CHAIR
a challenging first half. We have successfully navigated the retirement
and replacement of the Chief Financial Officer back in March and the
subsequent departure of the Chief Executive Officer, and the Group has
made solid progress in 2022. We are now well positioned going into 2023
under a new Executive team.
The Committee has been particularly mindful of the challenging
economic environment and the impact this has had on all our employees.
The Committee has had good visibility of pay practices across the Group
and in particular the significantly higher than normal annual pay increase
for the wider workforce which was implemented on 1 October 2022. This
was between 5% and 8%, with our hourly paid workforce receiving 8%.
The annual increases made to senior executive pay this year were at the
lower end of those made for the wider workforce at c.5% for the Executive
Board and 2.5% for the Chief Financial Officer. It is pleasing to see the
Group’s financial performance triggering an annual bonus payment after
the miss last year, but disappointing that the performance over the last 3
years has not been sufficient to permit the Long Term Incentive Plan (LTIP)
award to vest.
Remuneration outcomes for FY22
The annual bonus for 2022 was dependent on a scorecard of measures
which included adjusted operating profit (40%), cash conversion (20%),
revenue (20%) and the delivery of strategic objectives (20%).
Based on the Company’s financial performance for the year and
achievement against the strategic objectives, the Committee determined
the bonus outcome to be 44.3% of maximum for Paul McDonald and Nick
Keveth and 48.3% of maximum for Rich Cashin. Full details can be found
on page 98.
Vesting of the Long Term Incentive Plan awards made on 17 March 2020
was based on two measures – relative TSR and EPS growth – over the
three-year performance period. The Group did not meet the threshold
targets and therefore the awards will lapse in full.
No discretion was applied in determining the annual bonus and LTIP
vesting outcomes. The Committee agreed the final remuneration
outcomes reflected Group performance over the respective performance
periods and was satisfied the Policy had operated as intended.
Updates on the terms of the 2022 LTIP award
At the time of signing off last year’s Remuneration Report, the Board
was undertaking a strategic review of the armor business and the
Remuneration Committee wished to see the outcome of the review before
setting the three-year targets for the 2021/22 award. The measures and
targets, which remain relative TSR and EPS growth, were set out in the
RNS at the time the award was made on 1 February 2022. Reflecting the
fall in the Company’s share price and the impact this had on the number
of awards being granted, the Committee agreed to make a reduced LTIP
grant of 125% of salary to Paul McDonald instead of a 175% of salary grant
as permitted under the Directors’ Remuneration Policy. Full details of the
award granted are set out in the Annual Report on Remuneration.
Board changes
As set out in the prior period report, Nick Keveth retired from the Group as
Chief Financial Officer and ceased to be an employee on 31 March 2022.
Nick received salary and contractual benefits until the date of cessation
and received no payment in lieu of notice or payment for loss of office.
As a good leaver and having worked for the first six months of the financial
Chloe Ponsonby
Chair of the Remuneration Committee
Attendance at Remuneration
Committee meetings
During the year the Remuneration Committee held
four scheduled meetings. Attendance of the members
of the Committee is recorded in the table below:
Scheduled meetings
Attended
Eligible
to attend
Chloe Ponsonby
Bruce Thompson
Bindi Foyle
Victor Chavez
4
4
4
4
4
4
4
4
On behalf of the Board, I am pleased to present the
Directors’ Remuneration Report for the 52 weeks ended
1 October 2022. This includes the following three sections:
•
•
•
This Annual Statement which summarises the work of the
Remuneration Committee (‘the Committee’) in 2022 and
sets out the context in which pay decisions were made.
The Directors’ Remuneration Policy (‘the Policy’) which was
approved by shareholders at the 2021 AGM and sets the
parameters within which Directors are remunerated.
The Annual Report on Remuneration which provides
(i) details of the remuneration earned by Directors and
the link between Company performance and pay in the
52 weeks ended 1 October 2022 and (ii) how we intend
to implement the Policy in 2023.
The Annual Statement and the Annual Report on Remuneration
will, together, be subject to the usual advisory shareholder
vote at the AGM on 27 January 2023. The Policy, which was
approved in January 2021, will continue to apply for the 2023
financial period, the third year of the three-year Policy.
Business context
As referred to in the Chair’s Statement and the Strategic
Report, 2022 has presented both challenges and
opportunities for the Group. It is pleasing to see results
which reflect solid order intake and a much improved
operational performance in the second half of the year, after
86
Avon Protection plc Annual Report and Accounts 2022
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 MANAGEMENT.
year, Nick was eligible to receive a pro rata bonus for the 2021/22 financial
year and will receive a bonus of 44.3% of maximum. Nick also retained
an interest in the LTIP awards that were granted to him in 2019/20 and
2020/21. The performance conditions for the 2019/20 LTIP award were
not achieved (see above) and his 2020/21 awards will vest subject to the
achievement of performance criteria and will be subject to a pro rata
reduction for time served. Nick did not receive an LTIP award in 2021/22.
In May 2022, the Board announced that, after 5 years as Chief Executive
Officer and 19 years with the Company, Paul McDonald would step down
as Chief Executive Officer on 30 September 2022. For the remaining term
of his 12-month notice period and in line with his service agreement, Paul
remains available to carry out certain duties of his employment and during
this time will receive his salary and contractual benefits. Reflecting his
long service with the Company, Paul has been treated as a good leaver
for incentive purposes and will receive a bonus for the 2021/22 financial
year of 44.3% of maximum. Paul’s 2019/20 LTIP award did not vest as the
performance criteria were not achieved. His 2020/21 and 2021/22 awards
will vest subject to performance on their normal vesting dates. These
awards will be reduced pro rata to reflect time served and will be subject
to a two-year holding period.
Rich Cashin joined the Group as Chief Financial Officer designate on
7 March 2022 and after a brief handover period was appointed Chief
Financial Officer on 31 March 2022 with an annual base salary of £350,000
p.a. Consistent with our policy, Rich has an annual bonus opportunity
of 125% of salary and a maximum annual LTIP grant of 150% of salary.
For 2022, Rich’s bonus opportunity has been pro-rated for his time in
employment and he received a reduced LTIP award upon joining with a
face value of 100% of base salary to reflect his joining part way through
the financial year. His pension provision is aligned with the standard
U.K. pension arrangement for the wider workforce in the U.K., being an
employer contribution of 7.5% of salary.
After the year end, on 17 October 2022, we were pleased to announce
the appointment of Jos Sclater as Chief Executive Officer with effect
from 16 January 2023. Jos’ base salary has been set at £526,594 p.a. and
he will receive a U.K. workforce aligned pension contribution of 7.5%
of base salary. In line with the shareholder approved policy, Jos’ bonus
opportunity will be 125% of base salary (pro-rated for time served in
2022/23) and he will be eligible for an LTIP grant of 175% of salary upon
joining. Jos has not forfeited any remuneration upon joining the Company
and therefore there has been no need to make a one-off buyout award.
Jos’ base salary has been set based on the market rate for the role following
a comprehensive internal and external search. It reflects what was
required to recruit someone of Jos’ calibre and in setting his base salary,
the Remuneration Committee took into account his salary at his previous
employer and an appropriate premium for taking the role of Chief Executive
Officer. The Committee also took into account Paul McDonald’s base salary
(£513,750) which took effect from 1 October 2021 and has set Jos’ base
salary by applying a 2.5% increase for 2022 which is a modest assessment of
current salary inflation. A 2.5% increase compares with a workforce increase
of between 5% and 8% of salary depending on position in the Company
from 1 October 2022.
During the period between Paul McDonald stepping off the Board on
30 September 2022 and Jos Sclater joining in January 2023, Bruce Thompson
has taken the role of Executive Chair. Bruce agreed with the Remuneration
Committee that he would not receive any additional fees for acting as
Executive Chair and would continue to receive his Chair’s fee only. Bruce
will revert to his position as Chair of the Board following Jos Sclater’s arrival.
During the period of Bruce’s appointment as Executive Chair, it was agreed
that he would step down as a member of the Remuneration Committee.
How the policy will be applied in 2022/23
The Committee will seek to implement the Policy as follows:
Base salaries
Reflecting the inflationary environment, a range of salary increases will
apply across the business with the general workforce increase for 2022/23
being between 5% and 8% of salary, depending on position in the
Company. The Committee determined that Rich Cashin’s increase would
be 2.5%, therefore increasing his salary from £350,000 to £358,750. As set
out above, Jos Sclater’s base salary will be £526,594 p.a. when he joins the
business in January 2023, which is 2.5% higher than his predecessor’s salary
which was last reviewed in October 2021.
Annual bonus
Consistent with the approved Policy, the maximum annual bonus
opportunity will be 125% of salary, with 25% of any bonus earned deferred
into shares for two years. The bonuses will be based on operating profit
(40%), a metric based on cash generated by the business (20%), revenue
(20%) and strategic objectives (20%). The targets are commercially sensitive
but will be disclosed in full on a retrospective basis in next year’s report.
Long-Term Incentive Plan (LTIP)
The Committee intends to grant LTIP awards to senior executives in
2023. As evidenced with the approach taken to last year’s LTIP grant,
the Remuneration Committee considers the prevailing share price and
changes over time when determining the LTIP grant. Both Rich Cashin and
Jos Sclater are new recruits to the business and were not in office when
the Company experienced significant market volatility. Recognising this,
the Committee has determined that their LTIP grants will be set at 150%
and 175% of base salary respectively, which is in line with our policy. The
LTIP will be subject to two metrics – relative TSR and EPS growth.
Shareholder and employee views
Under the U.K. Corporate Governance Code, we are required to establish
a mechanism for gathering the views of the workforce on all matters,
including pay. Last year the Board agreed that the most effective way
of achieving this in our business with employees across six sites (five of
which are in the U.S.) was to create a Global Employee Advisory Forum.
Topics of discussion this year have focused on the challenges of the cost of
living crisis and the plans we have developed to address it for our people.
In addition, we are conducting a remuneration review to ensure that our
pay practices are fair for all and competitive in the market. As part of this
work, our bonus schemes are being evaluated and the Global Employee
Advisory Forum will be consulted on the outcomes of this work.
We have entered the final year of our Directors’ Remuneration Policy
and later this year the Remuneration Committee will consider the design
of a new policy to apply from the 2023/24 financial year. In this regard, I am
always happy to hear from the Company’s shareholders and if you would
like to provide feedback on our pay arrangements, or if you have any
questions on this report or more generally in relation to the Company’s
remuneration, you can contact me via the Company Secretary.
Chloe Ponsonby
Chair of the Remuneration Committee
22 November 2022
Annual Report and Accounts 2022 Avon Protection plc
87
GOVERNANCE R E M U N E R A T I O N C O M M I T T E E R E P O R T C O N T I N U E D
REMUNERATION AT A GLANCE
The key elements of Executive Directors’ remuneration packages and our approach to implementation in 2023 are summarised below:
Remuneration 2022
Remuneration 2023
FIXED PAY
Salary
(annual base)
CEO (Paul McDonald): £513,750
CFO (Nick Keveth): £359,625
CFO (Rich Cashin): £350,000
CEO: £526,594 (upon joining in
January 2023)
CFO: £358,750
Pension
Benefits
CEO reduced to 7.5% of salary from 1 April 2022
CFO 7.5% of salary from the appointment of Rich
Cashin as CFO (effective from 1 April 2022)
A 7.5% of salary employer contribution
rate applies. This is aligned with the U.K.
workforce contribution rate
Includes car allowance, private health insurance
and life insurance
Includes car allowance, private health
insurance and life insurance
ANNUAL BONUS
Maximum
opportunity
Operation
Award level
Operation
LONG-TERM
INCENTIVES
CEO: 125% of salary
CFO: 62.5% of salary each, reflecting Nick Keveth’s
retirement from the Board on 31 March 2022
and Rich Cashin’s appointment on 1 April 2022
•
•
Performance measures: revenue (20%),
operating profit (40%), cash conversion (20%)
and strategic objectives (20%)
25% of the overall amount deferred into
shares which vest after two years
•
Malus and clawback provisions apply
125% of salary
CEO’s bonus pro rated for period as
a Director
•
Performance measures: revenue (20%),
operating profit (40%), a metric based
on cash generated by the business
(20%) and strategic objectives (20%)
•
25% of the overall amount deferred into
shares which vest after two years
• Malus and clawback provisions apply
CEO: 125% of salary
CFO (Nick Keveth): no award was granted
CFO: 100% of salary, reflecting Rich Cashin
joining partway through the financial year
CEO: 175% of salary grant on appointment
CFO: 150% of salary
•
•
•
Performance measures: relative TSR (50% of
award) and EPS with a ROCE underpin (50% of
award)
Performance measured over three years
Two-year additional holding period applies to
vested awards
•
•
•
Performance measures: relative TSR
(50% of award) and EPS with a ROCE
underpin (50% of award)
Performance measured over three years
Two-year additional holding period
applies to vested awards
•
Malus and clawback provisions apply
• Malus and clawback provisions apply
SHAREHOLDING
GUIDELINES
In employment
200% of salary
200% of salary
Post-employment
200% of salary to be held for two years
post-employment
200% of salary to be held for two years
post-employment
88
Avon Protection plc Annual Report and Accounts 2022
DIRECTORS’ REMUNERATION POLICY
This section of the report sets out our Directors’ Remuneration Policy
which was approved by shareholders at the AGM on 29 January 2021 and
took formal effect from that date.
Guiding policy
The Company’s guiding policy on executive remuneration is that:
• executive remuneration packages should be clear and simple, taking
into account the linkage between pay and performance by both
rewarding effective management and making the enhancement of
shareholder value a critical success factor in the setting of incentives,
both in the short and the long term;
• the overall level of salary, incentives, pension and other benefits
should be competitive (but not excessive) when compared with other
companies of a similar size and global spread and should be sufficient
to attract, retain and motivate Executive Directors of superior calibre in
order to deliver long-term success; and
• performance-related components should form a significant proportion
of the overall remuneration package, with maximum total potential
rewards being earned through the achievement of challenging
performance targets based on measures that are linked to the
Company’s KPIs and to the best interests of shareholders.
Considerations when determining remuneration policy
The Committee undertook a comprehensive review of the current
Directors’ Remuneration Policy during 2020 to ensure, primarily, that
it continues to: (i) support the strategy and promote the long-term
sustainable success of the Group; (ii) align executive remuneration with
Company culture, purpose and values and clearly provide linkage to
the successful delivery of the Company’s long-term strategy; (iii) attract,
retain and motivate executive management of the quality required to
run the Company successfully (without paying more than is necessary);
and (iv) have regard to the views of our shareholders and other
stakeholders and appropriately reflect the best practice expectations of
institutional investors.
The U.K. Corporate Governance Code has been a key touchstone and
we have been careful to take full account of the remuneration-related
provisions in our design considerations. With regard to how we have
sought to comply with the six factors outlined in Provision 40 of the Code,
for example, we believe the following are worth noting in particular:
• Clarity – Our remuneration framework is structured to support financial
delivery and the achievement of strategic objectives, aligning the
interests of Executive Directors with those of our shareholders. Our
Policy is transparent and well understood by our senior executive team.
It has been clearly articulated to our shareholders and representative
bodies (both on an ongoing basis and during consultation when
changes are being made).
• Simplicity – Our remuneration framework is straightforward to
communicate and operate. We have operated the same simple and
transparent overarching structure for many years and applied it on a
consistent basis across all employees.
• Risk – Our incentives have been structured to ensure that they are
aligned with the Board’s system of risk management and risk appetite.
Inappropriate risk taking is discouraged and mitigated through, for
example: (i) the operation of arrangements that provide an appropriate
balance of fixed pay to short and long-term incentive pay and through
multiple performance measures based on a blend of financial, non-
financial and shareholder return targets; (ii) the deferral of a proportion
of annual bonus into shares and the operation of a post-vesting holding
period for the LTIP; (iii) the operation of significant in-employment and
post-employment shareholding guidelines; and (iv) the operation of
robust recovery and withholding provisions.
• Predictability – Our incentive plans are subject to individual caps,
with our share plans also subject to market standard dilution limits.
The Committee has full discretion to alter the pay-out level or vesting
outcome to ensure payments are appropriately aligned with the
underlying performance of the Company.
• Proportionality – Ensuring Executive Directors are not rewarded for
failure underscores our approach to remuneration (e.g. the significant
proportion of our packages is based on long-term performance targets
linked to the KPIs of the Company, through our ability and openness
to the use of discretion to ensure appropriate outcomes, and through
the structure of our Executive Directors’ contracts). There is a clear link
between individual awards, delivery of strategy and our long-term
performance. As mentioned above, formulaic incentive outcomes are
reviewed by the Committee and may be adjusted having consideration
to overall Group performance and wider workforce remuneration
policies and practices.
• Alignment to culture – Our Policy is aligned to Avon Protection’s
culture and values. The Committee strives to instil a sustainable
performance and continuous improvement culture at the management
level that can cascade down throughout the Company. The Board sets
the framework of KPIs against which we monitor the performance of
the Company and the Committee links the performance metrics of
our incentive arrangements to those KPIs. We are also keen to foster a
culture of share ownership throughout the Company and operate all-
employee share arrangements in pursuit of this objective.
Further details of the role of the Committee and its decision-making
process can be found in the Annual Report on Remuneration on page 97.
Annual Report and Accounts 2022 Avon Protection plc
89
GOVERNANCE R E M U N E R A T I O N C O M M I T T E E R E P O R T C O N T I N U E D
DIRECTORS’ REMUNERATION POLICY CONTINUED
Policy table
The table below sets out the main components of the current Remuneration Policy for Directors, together with further information on how these aspects
of remuneration operate. The Remuneration Committee has discretion to amend remuneration and benefits to the extent described in the table and the
written sections that follow it.
Element of
remuneration
Purpose and link
to strategy
Basic salary
To provide competitive fixed
remuneration.
To attract and retain
Executive Directors of
superior calibre in order
to deliver long-term
business success.
Reflects individual
experience and role.
The Committee’s aim is to
position salaries around
the mid-market level of
companies of a similar size,
scale and complexity.
Benefits
To provide competitive
fixed remuneration.
To attract and retain
Executive Directors of
superior calibre in order
to deliver long-term
business success.
Operation
Maximum potential value
Performance targets
Although there are no
formal performance
conditions, any increase
in base salary is only
implemented after
careful consideration of
individual contribution
and performance and
having due regard to
the factors set out in the
‘Operation’ column of
this table.
Not applicable.
No prescribed maximum or
maximum increase.
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,
such as those 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.
Normally reviewed annually by
the Remuneration Committee
with increases typically effective
1 October.
Individual salary adjustments
take into account each Executive
Director’s role, competence
and performance. Significant
adjustments are 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.
Other factors which will be taken
into account will include pay
and conditions elsewhere in the
Group, progression within the
role, and competitive salary levels
in companies of a broadly similar
size and complexity.
Executive Directors are entitled
to benefits such as travel-
related benefits including a
car or car allowance, medical
assessments every two years,
private health insurance and life
assurance. Executives will be
eligible for any other benefits
which are introduced for the
wider workforce on broadly
similar terms.
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.
90
Avon Protection plc Annual Report and Accounts 2022
Element of
remuneration
Purpose and link
to strategy
Pension
To reward sustained
contributions by providing
retirement benefits.
Annual bonus Rewards the achievement of
annual financial and business
targets aligned with the
Group’s KPIs.
Maximum bonus only
payable for achieving
demanding targets.
Deferred element
encourages long-term
shareholdings and
discourages excessive
risk taking.
Operation
Maximum potential value
Performance targets
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
or a combination of these.
Bonus is based on performance in
the relevant financial period. Any
payment is discretionary and will
be subject to the achievement of
stretching performance targets.
Bonus is normally paid in cash,
except 25% of any bonus which is
deferred into shares for two years.
Bonuses are not contractual
and are not eligible for
inclusion in the calculation of
pension arrangements.
Recovery and withholding
provisions apply in cases of
misconduct, corporate failure,
reputational damage, error
in calculation of a bonus and
material misstatement of
financial results.
Dividends or dividend equivalents
may accrue on deferred shares.
Company contribution up
to 7.5% of salary from 1 April 2022.
Not applicable.
Future appointments to the
Board will receive contributions
in line with the prevailing rate
offered to the general workforce
(currently 7.5% of salary in the U.K.)
in the country where they are
based at the time.
Policy amendment post approval
– The maximum employer
contribution level for all Executive
Directors from 1 October 2022 is
the workforce contribution level.
Capped at 125% of salary.
The Committee sets
performance measures
and targets that are
appropriately stretching
each year, taking into
account key strategic
and financial priorities
and ensuring there is
an appropriate balance
between incentivising
Executive Directors
to meet targets, while
ensuring they do not
drive unacceptable
levels of risk or
inappropriate behaviours.
Financial measures will
normally determine at
least 75% of the bonus
opportunity and the
balance may be based on
non-financial, strategic,
personal and/or ESG-
related objectives.
A graduated scale of
targets is normally set for
each measure, with no
pay-out for performance
below a threshold level
of performance.
The Committee has
discretion to amend
the pay-out should any
formulaic outcome not
reflect the Committee’s
assessment of overall
business performance.
Annual Report and Accounts 2022 Avon Protection plc
91
GOVERNANCE R E M U N E R A T I O N C O M M I T T E E R E P O R T C O N T I N U E D
DIRECTORS’ REMUNERATION POLICY CONTINUED
Policy table continued
Element of
remuneration
Purpose and link
to strategy
Long Term
Incentive
Plan
Designed to align Executive
Directors’ interests with
those of shareholders and
to incentivise the delivery
of sustainable earnings
growth and superior
shareholder returns.
Operation
Maximum potential value
Performance targets
Awards of conditional shares or nil
cost option awards which normally
vest after three years subject to
the 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 misconduct, corporate
failure, reputational damage, error
in calculation of award and material
misstatement of financial results.
Dividend equivalents may be paid
for awards to the extent they vest.
The Committee retains discretion
to adjust vesting levels in
exceptional circumstances,
including but not limited to
regard of the overall performance
of the Company or the grantee’s
personal performance.
Executive Directors may receive
an award of up to 175% of basic
salary per annum.
The Committee will consider
the prevailing share price when
deciding on the number of shares
to be awarded as part of any
LTIP grant.
A 10% in ten years dilution limit
governing the issue of new
shares to satisfy all share schemes
operated by the Company
will apply.
Performance measures
may include, and are not
limited to, relative TSR,
EPS, strategic measures
and ESG-related
objectives.
The Committee retains
discretion to set
alternative weightings or
performance measures
for awards over the life of
the policy.
100% of awards vest for
stretch performance,
up to 20% of an award
vests for threshold
performance and no
awards vest below this.
Underpins may apply.
Share
ownership
guidelines
To increase alignment
between Executives and
shareholders.
Executive Directors are required
to retain at least 50% of their net
of tax vested awards until the
in-employment shareholding
guideline is met.
Executive Directors are required
to build up and maintain an in-
employment shareholding worth
200% of salary (100% for other
senior management).
Not applicable.
Nil cost options which have
vested but are yet to be exercised
and deferred bonus awards
subject to a time condition only
may be considered to count
towards the in-employment
shareholding on a notional
post-tax basis.
Executive Directors are normally
required to hold shares at a
level equal to the lower of their
shareholding at cessation and
200% of salary for two years post-
employment (excluding shares
purchased with own funds and
any shares from share plan awards
made before the approval of
this policy).
92
Avon Protection plc Annual Report and Accounts 2022
Element of
remuneration
Purpose and link
to strategy
Operation
Maximum potential value
Performance targets
No prescribed maximum fee or
maximum fee increase.
Not applicable.
Increases will be informed by
taking into account internal
benchmarks such as the salary
increase for the general workforce
and will have due regard to the
factors set out in the ‘Operation’
column of this table.
Chair
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.
Fees are normally reviewed
annually taking into account
factors such as the time
commitment and contribution
of the role and market levels in
companies of comparable size
and complexity.
The Chair is paid an all-inclusive
fee for all Board responsibilities.
Fees for the other Non-Executive
Directors may include a base fee
and additional fees for further
responsibilities (for example,
chairship of Board Committees
or holding the office of Senior
Independent Director).
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.
Annual Report and Accounts 2022 Avon Protection plc
93
GOVERNANCE R E M U N E R A T I O N C O M M I T T E E R E P O R T C O N T I N U E D
DIRECTORS’ REMUNERATION POLICY CONTINUED
Illustration of the application of the Policy
The balance between fixed and variable ‘at risk’ elements of remuneration changes with performance. Our policy results in a significant proportion of
remuneration received by Executive Directors being dependent on performance. The charts below illustrate how the Policy would function for minimum,
on target and maximum performance in 2022/23.
Total fixed remuneration
Annual bonus
LTIP
Share price growth
£’000
£2,500
£2,000
£1,500
£1,000
£500
£0
CEO
CFO
2,262
20%
41%
1,801
51%
1,107
42%
21%
37%
413
100%
26%
21%
23%
18%
891
30%
25%
45%
398
100%
1,653
16%
33%
1,384
39%
32%
27%
29%
24%
Min
Target
Max
Max with
growth
Min
Target
Max
Max with
growth
Assumptions for the chart above
• Minimum: comprises fixed pay for the year made up of base salary levels
(applying from 1 October 2022 for Rich Cashin and from appointment in
January 2023 for Jos Sclater), the value of pension at 7.5% of annual basic
salary and the estimated value of benefits.
• On-target: bonus achieved at 50% of the maximum opportunity, i.e.
62.5% of salary and with the on-target level of vesting under the LTIP
taken to be 50% of the face value of the award at grant, i.e. 75% of salary.
• Maximum: full bonus achieved and LTIP vesting in full, i.e. 125% of salary
bonus pay-out and LTIP awards to the value of 150% of salary.
• Share price appreciation of 50% has been assumed for the LTIP awards
under the final ‘Max with growth’ scenario.
• Amounts relating to all-employee share schemes have, for simplicity,
been excluded from the charts.
Long-Term Incentive Plan
The aim of the LTIP 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 LTIP’s performance conditions which are based on relative
TSR and EPS growth.
The Committee will review the choice of performance measures and the
appropriateness of the performance targets prior to each LTIP grant.
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.
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, with financial measures selected to closely align the
performance of the Executive Directors with the strategy of the business
and with shareholder value creation. Where non-financial objectives are
set, these are chosen to support the delivery of the longer-term strategic
milestones and which link to those KPIs of most relevance to each
Director’s individual responsibilities.
Details of the measures used for the annual bonus are given in this
Remuneration Report.
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. The Committee will also assess the Group’s ROCE
performance when approving the vesting outcome under the EPS
element of awards.
94
Avon Protection plc Annual Report and Accounts 2022
Flexibility, discretion and judgement
The Remuneration Committee operates the annual bonus and LTIP
according to the rules of each respective plan which, consistent with
market practice, include discretion in a number of respects in relation to
the operation of each plan. Discretions include:
• who participates in the plan, the quantum of an award and/or payment
and the timing of awards and/or payments;
• determining the extent of vesting;
• treatment of awards and/or payments on a change of control or
restructuring of the Group;
• whether an Executive Director or a senior manager is a good/bad leaver
for incentive plan purposes and whether the proportion of awards that
vest do so at the time of leaving or at the normal vesting date(s);
• how and whether an award may be adjusted in certain circumstances
(e.g. for a rights issue, a corporate restructuring or special dividends);
• what the weighting, measures and targets should be for the annual
bonus plan and LTIP awards from year to year;
• the Committee also retains the ability, within the policy, if events occur
that cause it to determine that the conditions set in relation to an
annual bonus plan or a granted LTIP award are no longer appropriate
or unable to fulfil their original intended purpose, to adjust targets and/
or set different measures or weightings for the applicable annual bonus
plan and LTIP awards with, in the case of LTIP awards held by Executive
Directors, adjusted performance conditions being not materially less
difficult to satisfy than the original conditions would have been but for
the relevant event(s); and
• the ability to override formulaic outcomes in line with policy.
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.
Legacy arrangements
For the avoidance of doubt, in approving this Remuneration Policy,
authority was 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 or
historical share awards granted before the approval of this policy) that
remain outstanding.
Approach to recruitment remuneration
New Executive Directors will be offered a basic salary in line with the
Policy. This will take into consideration a number of factors including
external market forces, the expertise, experience and calibre of the
individual and current level of pay. Where the Committee has set the
salary of a new appointment at a discount to the market level initially until
proven, it may receive an uplift or a series of planned increases to bring
the salary to the appropriate market position over time. For external and
internal appointments, the Committee may agree that the Company will
meet appropriate relocation and/or incidental expenses as appropriate.
Annual bonus awards, LTIP awards and pension contributions would not
be in excess of the 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
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.
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 forgone and would
reflect, as far as possible, 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 and/or in the next published Annual Report.
For the appointment of a new Chair 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 no more than 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.
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 may 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, any outstanding awards will ordinarily lapse; however, in
‘good leaver’ cases the default treatment is that awards will vest subject to
the original performance condition and time pro-ration and the holding
period will normally continue to apply.
For added flexibility, the rules allow for the Committee to decide not to
pro-rate (or pro-rate to a lesser extent) if it decides it is appropriate to do
so, and to allow vesting to be triggered at the point of leaving by reference
to performance to that date, rather than waiting until the end of the
performance period. On a change of control, any vesting of awards will be
subject to assessment of performance against the performance conditions
and normally be pro-rated.
Where a buy-out award is made under the Listing Rules then the leaver
provisions would be determined at the time of the award.
Annual Report and Accounts 2022 Avon Protection plc
95
GOVERNANCE R E M U N E R A T I O N C O M M I T T E E R E P O R T C O N T I N U E D
DIRECTORS’ REMUNERATION POLICY
CONTINUED
Service contracts, letters of appointment and policy on
payments for loss of office continued
Chair and Non-Executive Directors
All Non-Executive Directors have letters of appointment rather than
service contracts and are appointed on a rolling annual basis, which may
be terminated on giving three months’ notice at any time by either party.
Chair 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.
External 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 Protection. 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.
Consideration of shareholder views
The Committee is committed to an ongoing dialogue with shareholders
and welcomes feedback on Directors’ remuneration. The Committee seeks
to engage directly with major shareholders and their representative bodies
on changes to the Policy. The Committee also considers shareholder
feedback received in relation to the remuneration-related resolutions
each year following the AGM. This, plus any additional feedback received
from time to time (including any updates to shareholders’ remuneration
guidelines), is then considered as part of the Committee’s annual review of
remuneration policy and its implementation.
The policy approved by shareholders was subject to a comprehensive
consultation which elicited feedback from shareholders holding over 65%
of shares in issue, as well as from the main shareholder representative
bodies. This feedback helped shaped the policy which was approved by
shareholders in January 2021.
Consideration of employment conditions elsewhere
in the Group
The Committee closely monitors the pay and conditions of the wider
workforce and the design of the Directors’ Remuneration Policy is
informed by the policy for employees across the Group.
While employees are not formally consulted on the design of the Directors’
Remuneration Policy, the Board receives views through a Global Employee
Advisory Forum comprising representatives from our Culture Champion
network. Another way in which the Board engages with employees across
the Group on remuneration is through the Employee Opinion Survey,
which includes a section dedicated to pay and benefits. The results of this
are shared with the Board.
Differences in pay policy for Executive Directors
compared to employees more generally
As for the Executive Directors, general practice across the Group is
to recruit employees at competitive market levels of remuneration,
incentives and benefits to attract and retain employees, accounting for
national and regional talent pools. When considering salary increases
for Directors, the Committee will take into account salary increases
and pay and employment conditions across the wider workforce. The
pension contribution for Executive Directors is consistent with that for the
general workforce. 36% of employees are able to earn annual bonuses
for delivering exceptional performance, with corporate performance
measures aligned to those set for the Executive Directors. All employees,
including the Executive Directors, have the opportunity to participate in
the tax-approved share incentive plans.
There are some differences in the structure of the Remuneration Policy
for the Executive Directors compared to that for other employees
within the organisation, which the Committee believes are necessary to
reflect the differing levels of seniority and responsibility. At senior levels,
remuneration is increasingly long term, and ‘at risk’ with an increased
emphasis on performance-related pay and share-based remuneration. This
ensures the remuneration of the Executives is aligned with both the long-
term performance of the Company and the interests of shareholders.
96
Avon Protection plc Annual Report and Accounts 2022
The Committee is authorised to take such internal and external advice as it
considers appropriate in connection with carrying out its duties, including
the appointment of its own external remuneration advisors. During the
period, the Committee was assisted in its work by FIT Remuneration
Consultants LLP. FIT was appointed in December 2019 and has provided
advice in relation to general remuneration matters and the review of the
remuneration policy. Fees paid to FIT in relation to advice provided to
the Committee during the current period were £51,170 (excluding VAT),
charged on a time/cost basis. FIT also provided advice to the Company
on technical share plan implementation matters but other than this did
not provide any other services to the Company. FIT is a member of the
Remuneration Consultants Group and, as such, voluntarily operates under
the Code of Conduct in relation to executive remuneration consulting in
the U.K. The Committee is satisfied that the advice it received from FIT was
objective and independent.
The Committee addressed the following main topics during the
financial period:
•
•
reviewed guidance from investor bodies and institutional shareholders;
reviewed and approved the remuneration packages for our current
Executive Directors;
• determined the termination arrangements for the departing Chief
Executive Officer and the terms of the incoming Chief Financial
Officer’s package;
• approved the annual bonus outcome for the 2021/22 financial period;
•
•
reviewed and confirmed the vesting of the LTIP awards granted in
March 2019; and
reviewed and approved the terms of the 2022 LTIP awards and
monitored the performance of the outstanding awards against their
performance targets.
Since the end of the 2022 financial period, the Committee has:
• determined the package for the incoming Chief Executive Officer;
• approved annual bonus outcomes to the Executive Directors and
the Executive Board, following completion of the external audit in
November 2022 and undertaken a final assessment of the TSR and EPS
performance conditions attached to the March 2020 LTIP awards (based
on performance to 1 October 2022); and
• agreed the annual bonus structure for the 52 weeks ended
30 September 2023.
ANNUAL REPORT ON REMUNERATION
Role and composition of the Remuneration Committee
The Board is ultimately accountable for executive remuneration and
delegates this responsibility to the Remuneration Committee. The
Remuneration Committee is responsible for developing and implementing
a remuneration policy that supports the Group’s strategy 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 terms for
Executive Directors, the Committee reviews and has regard to workforce
remuneration and related policies and takes close account of the U.K.
Corporate Governance Code requirements for clarity, simplicity, risk
mitigation, predictability, proportionality and alignment to culture.
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, Chair and 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;
• putting in place a remuneration structure that supports strategy and
promotes long-term sustainable success – with executive remuneration
aligned to Company purpose and values and clearly linked to the
successful delivery of the Company’s long-term strategy – and
which attracts, retains and motivates executive management of the
quality required to run the Company successfully without paying
more than is necessary, having regard to views of shareholders and
other stakeholders;
•
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;
• 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; and
• agreeing termination arrangements for senior executives.
The Committee currently comprises Chloe Ponsonby (Chair), Bindi Foyle
and Victor Chavez. Bruce Thompson has stepped down from his role on
the Remuneration Committee during the period of his appointment as
Executive Chair from 1 October 2022.
By invitation of the Committee, meetings are also attended by the Chief
Executive Officer, Chief Financial Officer and 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.
Annual Report and Accounts 2022 Avon Protection plc
97
GOVERNANCE R E M U N E R A T I O N C O M M I T T E E R E P O R T C O N T I N U E D
ANNUAL REPORT ON REMUNERATION CONTINUED
Single total figure of remuneration for Directors for the 52 weeks ended 1 October 2022 (audited)
Directors’ single total figure of remuneration for the 52 weeks ended 1 October 2022 was as follows:
Basic
salary
and fees
£’000
Other
benefits 4
£’000
Fixed
remuneration
sub-total
£’000
Annual
bonus
£’000
Variable
remuneration
sub-total
£’000
LTIP2
£’000
Total
remuneration
£’000
Pension3
£’000
Current Executive Directors
Rich Cashin1
2022
Former Executive Directors
Paul McDonald
Nick Keveth
2022
2021
2022
2021
Non-Executive Directors
Bruce Thompson
2022
Chloe Ponsonby
Bindi Foyle
Victor Chavez
Pim Vervaat5
David Evans5
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
199
513
500
180
350
175
154
65
67
60
57
50
42
–
23
–
24
15
58
75
27
51
–
–
–
–
–
–
–
–
–
–
–
–
5
17
16
10
16
–
–
–
–
–
–
–
–
–
–
–
–
219
106
588
591
217
417
175
154
65
67
60
57
50
42
–
23
–
24
285
–
99
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
228
–
158
–
–
–
–
–
–
–
–
–
–
–
–
106
285
228
99
158
–
–
–
–
–
–
–
–
–
–
–
–
325
873
819
316
575
175
154
65
67
60
57
50
42
–
23
–
24
Notes to total figure of remuneration table
1
2
3
Rich Cashin joined the Board on 31 March 2022.
The LTIP amounts for 2021 relate to the long-term incentive award which was granted in 2019. These figures have been updated from the prior period Remuneration Report to reflect the actual value
of vested shares using the share price achieved on the vesting date on 20 December 2021 (£11.57), rather than the estimated value provided previously.
Paul McDonald and Rich Cashin were members of the Group’s money purchase scheme. Contributions to the scheme were £4k for Rich and £4k for Paul. Remaining pension contributions were paid as
a salary supplement. Nick Keveth’s contributions were paid entirely as a salary supplement.
4
Benefits for 2022 include a car allowance, the cost of private health insurance, critical illness cover and executive medical.
5 Pim Vervaat and David Evans stepped off the Board on 29 January 2021 and 2 December 2020 respectively.
Annual bonus for the 52 weeks ended 1 October 2022 (audited)
The annual bonus opportunity for Executive Directors for 2022 was 125% of salary and this was based on targets relating to respiratory and head
protection revenue (20%), respiratory and head protection adjusted operating profit (40%), Group cash conversion (20%) and the achievement of strategic
objectives (20%).
The targets applying to each measure and performance against them are set out in the table below:
Revenue (20%)
Adjusted operating profit (40%)
Cash conversion (20%)
Strategic objectives (20%)
Threshold
(0% payable)
Stretch
(100% payable)
Actual/
reported
%
achievement
Bonus payable
(% of maximum)
$250.0m
$31.0m
80.0%
$275.0m
$37.2m
100.0%
$263.5m
$23.4m
140.4%
Set out in more detail below
61.6%
0.0%
100.0%
12.3%
0.0%
20.0%
Revenue for the year was $263.5 million which resulted in a partial pay out under this measure. Operating profit was below the threshold while the cash
conversion measure was achieved in full.
98
Avon Protection plc Annual Report and Accounts 2022
Rich Cashin’s objectives were half based on the scorecard of measures applying to Paul McDonald and Nick Keveth and half based on objectives relating
to settling into the role to reflect his joining partway through the year.
The strategic element of the bonus for 2022 was based on six broad categories with objectives assigned to each. The categories and achievements are set
out in the table below:
Head protection: Establish leading position
in head protection by securing contracts and
approvals to support short and medium-term
growth of business
Respiratory protection: Maintain leading global
position in respiratory protection
Partially met: Orders secured for some but not all contracts tendered.
Outstanding orders for first generation Integrated Head Protection System (IHPS) were completed.
IHPS approvals were mostly completed and the first order was received. ACH GEN II programme
tender completed and contract awarded but submission of FAT samples were delayed.
Partially met: Second year of order fulfilment under the NSPA contract, some of which went to Ukraine.
U.S. DOD requirements met but long term M50 procurement strategy yet to be clarified.
Body and flat armor: Manage the orderly wind-
down of the armor business
Partially met: Wind down plan agreed and final order quantities are being manufactured.
Sale options have been explored.
Operations: Upgrade operational capability to
significantly improve conversion of orders into
revenue on a consistent basis
Partially met: Progress in sales, inventory and operational planning and towards plans for
enhancing the helmet production footprint.
Organisation/overheads: Streamline organisation
to better reflect strategic priorities and to establish a
sustainable level of overhead cost
Partially met: Overhead reductions well advanced but will not be delivered in full until body and
flat armor business is closed. Organisational structure review underway as part of strategy review
for consideration by new CEO.
ESG: Finalise the ESG policy, strategy and
implementation plan, agree with Board and
communicate to shareholders
Partially met: Good progress made on defining the ESG policy but implementation plan requires
further development and not yet communicated to shareholders.
Objectives within each of the categories were partially met which has resulted in a 60% pay out against the strategic scorecard.
50% of Rich Cashin’s strategic objectives related to his overall performance since joining in March 2022 (with the other 50% based on delivery of the
objectives in the above 6 categories). The Committee determined that Rich’s performance and contribution since joining has been strong, in particular the
leadership of the Executive Board and the wider business shown after it was announced that Paul McDonald would be standing down as CEO . Therefore,
Rich was adjudged to have achieved an overall score of 80% against his strategic objectives (based on 60% achievement of the objectives set out above
and 100% achievement relating to his performance since joining).
The Committee believes bonus pay outs of 44.3% of maximum for both Paul McDonald and Nick Keveth and 48.3% of maximum for Rich Cashin are
reflective of the performance of the business over the 12 month period. They are also considered appropriate in context of the nil bonus pay out in the
prior period, and the nil vesting of the 2020 incentive award set out below.
Incentive awards vesting (audited)
Awards were granted on 17 March 2020 under the LTIP to the Chief Executive Officer and Chief Financial Officer and these are based on three-year
performance targets. Half of the award was subject to a relative TSR condition (measuring performance against the constituents of the FTSE All-Share
excluding investment trusts) and the other half was subject to EPS growth targets.
The TSR measurement period ended on 1 October 2022. The Company’s TSR over this period was confirmed as (35.7)% which ranked the Company below
the median of the peer group and therefore this part of the award will lapse in the 2023 financial period. The Company delivered an adjusted basic EPS of
20.4c, which was below the threshold growth target. Therefore, this element of the award will also lapse.
TSR
Adjusted basic EPS
50%
50%
Weighting
Threshold
Maximum
Median
Upper quartile
Actual
performance
Below median
% TSR
% Vesting
0%
0%
133.5c
162.1c
20.4c
LTIP awards granted in the 52 weeks ended 1 October 2022 (audited)
The table below provides details of share awards made to Paul McDonald on 1 February 2022 and Rich Cashin on 8 March 2022:
Type of award
Basis of award
Number of shares
under award 1
Face value of
award (£’000)
% vesting
at threshold
End of
performance period
Paul McDonald2
Nil cost option
125% of salary
Rich Cashin3
Nil cost option
100% of salary
59,973
32,686
642
350
20% (TSR)
0% (EPS)
20% (TSR)
0% (EPS)
31 January 2025 (TSR)
30 September 2024 (EPS)
31 January 2025 (TSR)
30 September 2024 (EPS)
1 The number of awards was based on a share price of £10.71 which was the Company’s five-day average share price over 25 January 2022 to 31 January 2022.
2 Paul McDonald’s award was pro-rated down to 19,991 when he stepped down from the Board on 30 September 2022. The grant date face value of the remaining 19,991 shares was £214k.
3 Rich Cashin’s award upon joining was reduced to 100% of salary to reflect his joining date of 7 March 2022.
The Committee took into account the prevailing share price at the time of grant and decided to reduce the Chief Executive Officer’s grant level from 175%
of salary to 125% of salary to reflect the year-on-year fall in share price. The Chief Financial Officer’s grant level was set at 100% of salary which reflected his
joining part way through the financial year.
Annual Report and Accounts 2022 Avon Protection plc
99
GOVERNANCE R E M U N E R A T I O N C O M M I T T E E R E P O R T C O N T I N U E D
ANNUAL REPORT ON REMUNERATION CONTINUED
LTIP awards granted in the 52 weeks ended 1 October 2022 (audited) continued
The performance conditions for this award will be measured over a three-year performance period and are as follows:
The first performance condition for 50% of the award compares the Company’s total shareholder return (TSR) performance over the performance period
relative to a comparator group. The comparator group for the TSR element is the constituents of the FTSE 250 Index (excluding investment trusts) as at the
start of the performance period. No portion of the TSR element may vest unless the Company’s TSR performance over the performance period at least
equals the median TSR performance within the comparator group, for which 20% of the TSR element may vest, rising on a straight-line basis to full vesting
of the TSR element for upper quintile or better relative TSR performance.
The second performance condition for the other 50% of the award is based on the Company’s adjusted basic earnings per share (EPS) over the three-year
performance period commencing on 1 October 2021. No portion of the EPS element may vest unless the adjusted EPS for the 2024 financial period is
at least 100 U.S. cents, for which 0% of the EPS element may vest, rising on a straight-line basis to full vesting of the EPS element for EPS of 140 U.S. cents
or better. The EPS element of the awards is subject to a return on capital employed underpin in respect of which the Remuneration Committee retains
discretion to reduce the extent of vesting of the EPS element by regard to the Company’s ROCE performance over the performance period.
The Remuneration Committee also retains a general discretion to reduce the extent of vesting of the awards generally if it considers that the underlying
business performance of the Company does not justify vesting.
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 at 1 October 2022 were:
Paul McDonald
Rich Cashin
Nick Keveth
Bruce Thompson
Chloe Ponsonby
Bindi Foyle
Victor Chavez
Number of
shares owned
outright (including
connected persons)
Unvested shares
subject to
performance
conditions 2
Shareholding as a
% of salary as at
1 October 2022
Shareholding
guidelines
(200% of salary) met?
62,654 1
0
30,4683
11,000
4,550
500
1,015
70,494
32,686
28,237
–
–
–
–
137%
0%
N/A
N/A
N/A
N/A
N/A
No
No
N/A
N/A
N/A
N/A
N/A
1 This figure includes 883 deferred bonus shares.
2 Unvested LTIP shares.
3 Number of shares owned outright by Nick Keveth are stated as at the date of his retirement.
Outstanding LTIP awards (audited)
Award date
Award held at
2 October 2021
Granted
in the period
Vested
in the period
Lapsed
in the period
Outstanding
awards at
1 October 2022
Paul McDonald
Nick Keveth
Rich Cashin
01.02.22
02.02.21
17.03.20
20.03.19
02.02.21
17.03.20
20.03.19
08.03.22
–
28,153
31,734
38,599
19,707
22,059
26,722
–
59,973
–
–
–
–
–
–
32,686
–
–
–
(19,299)
–
–
(13,361)
–
(39,982)
(9,384)
–
(19,300)
(9,853)
(3,676)
(13,361)
–
19,991
18,769
31,734
–
9,854
18,383
–
32,686
The outstanding awards are subject to two performance criteria. Half the awards are subject to a relative TSR measure and the other half are subject to an
EPS growth condition.
Total Directors’ remuneration for the 52 weeks ended 1 October 2022 under Schedule 5 (audited)
Aggregate remuneration, excluding gains on exercise of share options
Aggregate gains on the exercise of share options1
Aggregate contribution to defined contribution pension scheme
1 Gains on exercise of share options are shown at the actual value of vested shares using the vesting date share price.
During the period pension contributions were paid to defined contribution schemes for two Directors (2021: one Director).
100
Avon Protection plc Annual Report and Accounts 2022
2022
£’000
1,864
386
8
2021
£’000
1,375
1,640
6
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, in the period of 10 years ending on 1 October 2022, we
issued 300,000 shares in 2013 to satisfy awards under all our share plans, which represents 0.99% of our issued ordinary share capital at 1 October 2022.
It remains the Company’s practice to use an Employee Share Ownership Trust (ESOT) in order to meet its liability for shares awarded under the LTIP.
At 1 October 2022 there were 261,714 shares held in the ESOT which will either be used to satisfy awards granted under the LTIP to date, or in connection
with future awards. A hedging committee ensures that the ESOT holds sufficient shares to satisfy existing and future awards made under the LTIP by
buying shares in the market or recommending the Company issues new shares. Shares held in the ESOT do not receive dividends.
As at 1 October 2022, the market price of Avon Protection plc shares was £11.24 (2021: £19.42). During the 52 weeks ended 1 October 2022 the highest and
lowest daily closing market prices were £20.74 and £7.39 respectively.
Share Incentive Plan
The Company currently operates the Avon Rubber p.l.c. Share Incentive Plan (SIP), approved by shareholders at the AGM 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 and Rich Cashin were not members of the SIP in 2022. Nick Keveth was a member and as at
30 September 2022 had purchased 534 shares through this scheme. On Nick’s retirement from the Company he removed his SIP shares from the scheme.
The maximum contribution each month under the SIP is currently £150, a sum which is set by the Government.
Payments to past Directors, including payments for loss of office (audited)
Nick Keveth
Nick Keveth retired from the Board and stepped down from his role as Chief Financial Officer on 31 March 2022. Nick received his salary and contractual
benefits (including pension allowance/contributions) up to the date he ceased employment, 31 March 2022. He did not receive a payment in lieu of notice
and he did not receive any payments by way of compensation for loss of office.
Nick will receive a pro rata bonus for 6 months worked at 44.3% of maximum and his cycle L LTIP award granted in 2020 will lapse based on performance
to 30 September 2022. As a good leaver, Nick’s deferred bonus awards will be released on the announcement of the Company’s 2022 annual results
subject to the rules of the plan. His outstanding unvested LTIP awards will vest on their normal vesting dates subject to achievement of performance
criteria and a time pro rata reduction. Any LTIP awards that do vest will have a two-year holding period.
Nick Keveth was a participant in the Avon Rubber Share Incentive Plan (SIP). On his retirement from the Company he was permitted to remove/sell all
shares from the SIP in accordance with the SIP rules and in line with all other employees, which follow legislation and HMRC guidance for tax advantaged
plans in the U.K.
Paul McDonald
Paul McDonald stepped down from the Board and Avon Protection on 30 September 2022. Paul will continue to receive his salary and contractual benefits
(including pension allowance/contributions) up until the end of the contractual notice period on 31 May 2023. These payments in lieu of notice remain
subject to mitigation in the event Paul finds alternative employment.
Paul will receive a full bonus at 44.3% of maximum and his cycle L LTIP award granted in 2020 will lapse based on performance to 30 September 2022. As a
good leaver, Paul’s deferred bonus awards will be released on the announcement of the Company’s 2022 annual results subject to the rules of the plan. His
outstanding unvested LTIP awards will vest on their normal vesting dates subject to achievement of performance criteria and a time pro rata reduction.
Any LTIP awards that do vest will have a two-year holding period.
Service contracts and letters of appointment
The table below summarises key details in respect of each Executive Director’s contract.
Paul McDonald
Nick Keveth
Rich Cashin
Contract date
14 February 2017
9 May 2017
6 January 2022
Company
notice period
Executive
notice period
12 months
12 months
12 months
12 months
12 months
12 months
Bruce Thompson was appointed as Executive Chair on 1 October 2022. Given this was an interim appointment only, he was not given an Executive
contract of employment.
The date of each Non-Executive appointment is set out below, together with the date of their last re-election by shareholders.
Chloe Ponsonby
Bruce Thompson
Bindi Foyle
Victor Chavez
All service contracts and letters of appointment are available for inspection at the Company’s registered office.
Date of initial
appointment
Date of
last re-election
1 March 2016
29 January 2021
1 March 2020
29 January 2021
1 May 2020
29 January 2021
1 December 2020
29 January 2021
Annual Report and Accounts 2022 Avon Protection plc
101
GOVERNANCE R E M U N E R A T I O N C O M M I T T E E R E P O R T C O N T I N U E D
ANNUAL REPORT ON REMUNERATION CONTINUED
Other appointments
Rich Cashin is not currently appointed as a Non-Executive Director of any company outside the Group.
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 250 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 U.K. market performance for companies of a broadly similar size.
Total shareholder return performance graph
1,600
1,400
1,200
1,000
800
600
400
200
0
September
2012
September
2013
September
2014
September
2015
September
2016
September
2017
September
2018
September
2019
September
2020
September
2021
September
2022
Avon Protection plc
FTSE 250 Index excluding investment trusts
FTSE All-Share excluding investment trusts
Chief Executive Officer’s remuneration
The total remuneration figures, including annual bonus and vested LTIP 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 periods are shown in the table below.
Peter Slabbert retired on 30 September 2015. Rob Rennie stood down from the Board and was replaced by Paul McDonald on 15 February 2017. Paul
McDonald stepped down as Chief Executive Officer on 30 September 2022.
Financial period
CEO
2022
2021
2020
2019
2018
2017
2017
2016
2015
2014
2013
Paul McDonald
Paul McDonald
Paul McDonald
Paul McDonald
Paul McDonald
Paul McDonald1
Rob Rennie
Rob Rennie
Peter Slabbert
Peter Slabbert
Peter Slabbert
1
Includes remuneration received in the period prior to his appointment as Director in 2017.
CEO single figure
of total
remuneration
£’000
Annual bonus
pay-out against
maximum
opportunity
Long-term
incentive
vesting
873
819
1,686
928
734
663
213
484
1,676
1,529
1,269
44%
0%
66%
55%
80%
81%
57%
52%
91%
91%
86%
0%
50%
100%
80%
84%
99%
–
–
100%
96%
100%
102
Avon Protection plc Annual Report and Accounts 2022
Percentage change in remuneration of Directors compared with other employees
The following table shows the percentage change in each Executive and Non-Executive Director’s remuneration compared with the average change for
all employees of the Company for the 52 weeks ended 1 October 2022. Changes for prior periods are also shown which are building up over time to cover
a rolling five-year period.
Salary/fee
Pension and other benefits
Annual bonus
2020
2022
2022 6
2021
Paul McDonald
Nick Keveth
Rich Cashin
Bruce Thompson1
Chloe Ponsonby
Bindi Foyle2
Victor Chavez3
Pim Vervaat4
David Evans4
All employees5
2022
2.8%
(48.6)%
N/A
13.6%
(3.0)%
5.3%
19.0%
N/A
N/A
3.2%
2021
22.0%
22.8%
N/A
541.7%
19.6%
235.3%
N/A
(58.9)%
(82.9)%
4.7%
(17.6)%
(44.8)%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
5.1%
5.6%
N/A
N/A
8.8%
N/A
N/A
0.0%
0.0%
6.0%
2021
15.2%
13.6%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
2020
54.9%
37.2%
N/A
N/A
N/A
N/A
N/A
N/A
(100.0)%
6.9%
(100.0)%
(100.0)%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
2020
25.7%
26.4%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
3.9%
6.8%
(100.0)%
38.2%
1
2
3
Bruce Thompson was appointed as Chair on 2 December 2020.
Bindi Foyle was appointed to the Board as Non-Executive Director with effect from 1 May 2020 and took over as Chair of the Audit Committee on 29 January 2021.
Victor Chavez was appointed to the Board with effect from 1 December 2020.
4 Pim Vervaat and David Evans stepped off the Board on 29 January 2021 and 2 December 2020 respectively.
5
As the only Avon Protection plc employees are the Chief Executive Officer and the Chief Financial Officer, comparative figures for all U.K. employees of the Group have been set out on a voluntary
basis. To aid comparison, the group of employees selected are those full time U.K. employees who were employed over the complete two-year period.
6
In 2021 no bonuses were payable to Directors or employees, meaning percentage changes are not applicable for 2022.
Chief Executive Officer to employee pay ratio
The table below sets out the ratio between the total pay of the Chief Executive Officer and the total pay of the employees at the 25th, 50th (median) and
75th percentiles of the U.K. workforce.
Financial period
Method
25th percentile
Median
75th percentile
2022
2021*
A
A
36:1
36:1
28:1
29:1
19:1
20:1
*
The 2021 figure has been updated from the figure shown last year to reflect the actual value of vested shares, rather than the estimated value used to calculate the figures last year.
The 25th, 50th and 75th percentile ranked individuals have been identified using Option A in accordance with the reporting regulations, selected on the
basis that this provides the most robust and statistically accurate means of identifying the relevant employees. The day by reference to which the 25th,
50th and 75th percentile employees were determined was 1 October 2022. The Chief Executive Officer pay figure is the total remuneration figure as set
out in the single figure table and equivalent figures (on a full-time equivalent basis) have been calculated for the relevant 25th, 50th and 75th percentile
employees.
The total pay and benefits figures used to calculate the ratios for each of the 25th percentile, median and 75th percentile employees are set out below:
Financial period
2022
25th percentile
Median
75th percentile
£24,460
£30,919
£46,882
The salary element for each of these figures is set out below:
Financial period
2022
25th percentile
£22,896
Median
£28,828
75th percentile
£42,590
The Committee is satisfied that Chief Executive Officer remuneration is reasonable and consistent with the Company’s wider policies on employee pay,
reward and progression; see page 96 for further details.
Annual Report and Accounts 2022 Avon Protection plc
103
GOVERNANCE R E M U N E R A T I O N C O M M I T T E E R E P O R T C O N T I N U E D
ANNUAL REPORT ON REMUNERATION CONTINUED
Relative importance of spend on pay
The following table shows the change in Group expenditure between the current and previous financial periods on remuneration and associated costs
for all employees globally, set against distributions to shareholders and other uses of profit or cash flow, being profits retained within the business,
investments in research and development and other capital expenditure.
Overall expenditure on pay (note 6.1)
Dividends
Loss retained (loss for the period less dividends and share buyback)
R&D expenditure (including capitalised development costs)
Other capital expenditure (excluding capitalised development costs)
2022
$m
82.7
13.4
(33.4)
10.9
3.1
2021
$m
78.0
12.1
(37.7)
19.1
16.6
% change
6.0%
10.7%
11.4%
(42.9)%
(81.3)%
Implementation of policy for the 52 weeks ended 30 September 2023
Basic salary
Rich Cashin’s base salary will be £358,750, an increase of 2.5%. The wider workforce increase was between 5% and 8%, with the hourly paid workforce
receiving 8%.
Jos Sclater
Rich Cashin
Jos Sclater will join the Board as Chief Executive Officer on 16 January 2023.
Non-Executive Director fees
There are no changes to Non-Executive Director fees.
Chair
Non-Executive Director
Committee Chair
Senior Independent Director
2022
£
–
350,000
2022
£
175,000
50,000
10,000
10,000 *
2023
£
526,594
358,750
2023
£
175,000
50,000
10,000
10,000 *
* There is a maximum additional fee of £15,000 if the Senior Independent Director also chairs a Committee.
Benefits
Benefits remain unchanged and include a car allowance, the cost of private health insurance, life insurance, critical illness insurance and executive medical.
Pension
The Executive Directors receive a contribution towards pension of 7.5% of basic salary, paid either as a non-pensionable salary supplement or delivered
through the Group’s money purchase scheme. This contribution rate is in line with the U.K. workforce rate.
Annual bonus
For the 2023 financial period, the maximum opportunity under the annual bonus plan will be 125% 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 (20%), Group operating profit (40%), a metric based on cash generated by the business (20%) and the
achievement of strategic objectives (20%). The actual targets are commercially sensitive and will be disclosed on a retrospective basis.
2023 LTIP awards
The Committee expects to make LTIP awards to senior executives in 2023.
It is expected that the Chief Executive Officer and the Chief Financial Officer will receive awards of 175% and 150% of salary each, respectively. 50% of the
awards will be subject to a relative TSR condition versus the constituent of the FTSE 250 excluding Investment Trusts and 50% will be subject to an EPS
measure for financial period 2025. The details of the targets and measures to be applied will be communicated in the accompanying RNS when the LTIP
awards are made. The EPS element of the award is subject to a ROCE underpin in which the Remuneration Committee retains discretion to reduce the
extent of vesting of the EPS element by regard to the Company’s ROCE performance or progress over the performance period.
104
Avon Protection plc Annual Report and Accounts 2022
Statement of shareholder voting on the Remuneration Report
The shareholder vote on the Remuneration Report for the 53 weeks ended 2 October 2021 at the AGM which took place on 28 January 2022 was
as follows:
Resolution
Approval of the Directors’
Remuneration Report
Votes for
(including
discretionary)
Votes against
% for
(excluding withheld) % against
Total (excluding
withheld and third
party discretionary
Withheld
22,486,438
99.16%
189,361
0.84%
22,675,799
8,058
This Remuneration Report has been approved by the Board of Directors and signed on its behalf by:
Chloe Ponsonby
Chair of the Remuneration Committee
22 November 2022
Annual Report and Accounts 2022 Avon Protection plc
105
GOVERNANCE D I R E C T O R S ’ R E P O R T
The Directors submit the Annual Report and audited financial statements
of Avon Protection plc (‘the Company’) and the Avon Protection group of
companies (‘the Group’) for the year ended 1 October 2022. 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
7.3 of the financial statements.
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 2022 AGM and resolutions to renew
these authorities will be proposed at the 2023 AGM; see explanatory
notes on pages 173 to 174. No shares were allotted under this authority
during the year.
Substantial shareholdings
As at 1 October 2022 the following shareholders held 3% or more of the
Company’s issued share capital:
Alantra EQMC Asset Management SGIIC SA
Kempen Capital Management Nv
Fidelity Management & Research Company
Royal London Asset Management Limited
The Vanguard Group, Inc.
Hargreaves Lansdown Stockbrokers
Schroder Investment Management Limited
Martin Currie Investment Management Limited
Ancora Advisors LLC
10.43%
9.67%
6.37%
3.83%
3.65%
3.58%
3.38%
3.25%
3.25%
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
• Long-Term Incentive Plan (‘the Plan’)
The unsecured revolving credit facility of $200 million provided by Barclays
Bank PLC, Comerica Bank Inc., Fifth Third Bank NA, National Westminster
Bank plc, CIC and Bank of Ireland contains a provision which, in the event
of a change of control of the Company, gives each lending bank the
right to cancel its commitments to the Company and to declare all the
outstanding amounts and accrued interest owed to such lending bank
immediately due and payable. If a lending bank does not exercise this right
within 15 business days of being notified of the change of control, it shall
not be able to cancel its commitments or require repayment of its share
of the amounts outstanding under the facility in respect of such change
of control.
A change of control will be deemed to have occurred if any person
or group of 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 Plan, on a takeover a proportion of each
outstanding grant will vest. The number of shares that vest is to be
determined by the Remuneration Committee, including by reference to
the extent to which the performance condition has been satisfied and the
number of months that have passed since the award was made.
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 Long Term
Incentive Plan as described above.
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 10 to 69 and is incorporated
into this Directors’ Report by reference.
Financial results and dividend
The Group statutory loss for the period after taxation amounts to $7.6
million (2021: loss $25.6 million). Full details are set out in the Consolidated
Statement of Comprehensive Income on page 127.
An interim dividend of 14.3 U.S. cents per share (converted to 11.88p) was
paid in respect of the year ended 30 September 2022 (2021: 10.34p).
The Directors recommend a final dividend of 30.6 U.S. cents per share,
which will be converted into GBP prior to payment to shareholders (2021:
22.51p) resulting in a total dividend distribution per share for the year to
30 September 2022 of 44.9 U.S. cents per share (2021: 44.9c).
Share capital
The Company only has one class of share capital, which comprises
ordinary shares of £1 each. On 28 January 2022, the Company announced
a Share Buyback Programme, which concluded on 13 April 2022 following
the purchase of 765,098 shares. The Board has no present intention of
purchasing further shares under the share Buyback Programme. As at 22
November 2022 the Company has 30,258,194 shares in issue, with 765,098
held in treasury, and no shares were issued during the year. All shares
forming part of the ordinary share capital have the same rights and carry
one vote each. There are no unusual restrictions on the transfer of a share.
Further details of the shares in issue during the financial year are set out in
note 5.5 of the financial statements.
The full rights and obligations attaching to the Company’s shares as
well as the powers of Directors 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 261,714 shares held in the name of the Employee Share Ownership
Trust are held as a hedge against awards previously made or to be made
pursuant to the Long-Term Incentive Plan and are held on terms which
provide voting rights to the Trustee.
The Company is 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 that the Trustees of the two
Employee Share Ownership Trusts have waived their rights to dividends.
At the Company’s last AGM held on 28 January 2022, shareholders
authorised the Company to make market purchases of up to 3,102,329
of the Company’s issued ordinary shares. 765,098 shares were purchased
under this authority during the year. A resolution will be put to
shareholders at the forthcoming AGM to renew this authority.
106
Avon Protection plc Annual Report and Accounts 2022
Directors
The current Directors as at 22 November 2022 and their biographies are
shown on pages 74 and 75. Nick Keveth and Paul McDonald stepped down
from the Board on 31 March 2022 and 30 September 2022 respectively.
Rich Cashin was appointed Chief Financial Officer on 31 March 2022. Jos
Sclater will join the Board as Chief Executive Officer with effect from 16
January 2023.
According to the Articles of Association, all Directors are subject to
election by shareholders at the first AGM 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, all
current Directors will be standing for re-appointment at the forthcoming
AGM to be held on 27 January 2023.
The remuneration of the Directors including their respective shareholdings
in the Company is set out in the Remuneration Report on pages 86 to 105.
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.
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,
Directors’ and Officers’ 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
remain at the forefront of innovative technology and produce specialist
products and services to maximise the performance and capabilities
of its customers. 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 $10.9 million
(2021: $19.1 million), further details of which are contained in the Strategic
Report on page 59.
Employee share schemes and plans
The Group encourages its employees to share in the future success of the
Group and operates three share-based incentive plans. The Avon Rubber
Share Incentive Plan (SIP) is open to all eligible U.K. employees. Under
the SIP participants are able to purchase shares in the Company monthly
using deductions from their pre-tax pay. The Avon Rubber Employee
Stock Purchase Plan (ESPP) is open to all eligible U.S. employees. Under
the ESPP, participants are able to purchase shares in the Company at a
discounted rate from payroll deductions. The Avon Rubber Long-Term
Incentive Plan (LTIP) is designed to align Executive Directors’ and senior
employees’ interests with those of shareholders and to incentivise the
delivery of sustainable earnings growth and superior shareholder returns.
Discretionary awards are granted under the LTIP over a fixed number of
shares by reference to salary, with awards ordinarily vesting, subject to
meeting performance criteria, on the third anniversary of the grant date.
Environmental and corporate social responsibility
Matters relating to environmental and corporate social responsibility
including reference to our policy on diversity are set out in the new
Sustainability Report on pages 42 to 55.
Greenhouse gas emissions
The disclosures concerning greenhouse gas emissions required by law are
included in the new Sustainability Report on page 49.
Political and charitable contributions
No political contributions were made during the year or the prior year.
Contributions for charitable purposes amounted to $108,403 (2021:
$45,132) consisting of numerous small donations to various community
charities in Wiltshire, Maryland, Michigan, New Hampshire, California,
Ohio and Kentucky, along with sponsorship of Bath Rugby’s community
programmes.
Policy on employee disability
Avon Protection provides support, training and development
opportunities to all our employees irrespective of any disabilities they may
have. We give full and fair consideration to disabled applicants, and where
an existing employee becomes disabled during their employment, we
will make every effort to enable them to continue their employment with
Avon Protection in their original or an alternative role.
Financial instruments
An explanation of the Group policies on the use of financial instruments
and financial risk management objectives is contained in note 5.4 of the
financial statements.
Independent auditor
The Directors who held office at the date of approval of this Directors’
Report confirm that, so far as they are each aware, there is no relevant
audit information of which the Company’s auditor is unaware, and each
Director has taken all the steps that they ought to have taken as a Director
to make themselves aware of any relevant audit information and to
establish that the Company’s auditor is aware of that information.
Corporate governance
The Company’s statement on corporate governance can be found in
the Corporate Governance Report on pages 76 to 79. The Corporate
Governance Report forms part of this Directors’ Report and is incorporated
into it by cross-reference.
Auditor
KPMG LLP has expressed its willingness to continue in office as
independent auditor and a resolution to re-appoint it and authorising the
Board to agree its remuneration will be proposed at the AGM.
Stakeholder engagement
The Board factors stakeholder opinions and feedback into its decisions to
ensure the impact on key stakeholders’ needs and concerns is considered.
More information on how the Board engages with stakeholders can be
found in the Section 172 Statement on pages 38 to 41.
Annual General Meeting
The Company’s AGM will be held at our Hampton Park West facility,
Semington Road, Melksham, Wiltshire SN12 6NB, on 27 January 2023 at
10.30am. Registration will be from 10.00am. The Notice of the AGM 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 172 to 176.
Annual Report and Accounts 2022 Avon Protection plc
107
GOVERNANCE D I R E C T O R S ’ R E P O R T C O N T I N U E D
Directors’ confirmations
Each of the Directors, whose names and functions are listed on pages 74
and 75, 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 and 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, is fair, balanced
and understandable, and provides the information necessary for
shareholders to assess the Company’s position and performance,
business model and strategy.
The Directors’ Report and Responsibilities Statement were approved
by the Board of Directors on 22 November 2022 and are signed on its
behalf by:
Bruce Thompson
Executive Chair
22 November 2022
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
are required to prepare the Group financial statements in [accordance with
U.K. adopted International Accounting Standards.
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
and reliable;
•
•
for the Group financial statements, state whether they have
been prepared in accordance with U.K. adopted International
Accounting Standards;
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.
In accordance with Disclosure Guidance and Transparency Rule 4.1.14R, the
financial statements will form part of the annual financial report prepared
using the single electronic reporting format under the TD ESEF Regulation.
The Auditor’s Report on these financial statements provides no assurance
over the ESEF format.
108
Avon Protection plc Annual Report and Accounts 2022
Annual Report and Accounts 2022 Avon Protection plc
109
GOVERNANCE 110
Avon Protection plc Annual Report and Accounts 2022
WHAT HAS ENCOURAGED ME TO WORK FOR AVON
PROTECTION FOR OVER 15 YEARS? IT WOULD HAVE
TO BE THE PEOPLE THAT SURROUND ME, I ENJOY
WORKING WITH AND HELPING OTHERS TO MEET
OUR TARGETS. I AM PROUD OF THE LIFE-SAVING
PRODUCTS WE MANUFACTURE, AND I STRIVE
TO ACHIEVE ZERO REJECTS.
Adam Freeland
Production Operator
ADJUSTED
PERFORMANCE
MEASURES
CONTENTS
112 Adjusted Performance Measures
Annual Report and Accounts 2022 Avon Protection plc
111
ALTERNATIVE PERFORMANCE MEASURES A D J U S T E D P E R F O R M A N C E M E A S U R E S
PERFORMANCE MEASUREMENT
The Directors assess the operating performance of the Group based on adjusted measures of EBITDA, operating profit, net finance costs, taxation and
earnings per share, as well as other measures not defined under IFRS including orders received, closing order book, EBITDA margin, cash conversion,
return on capital employed, net debt excluding lease liabilities, and organic constant currency equivalents for relevant metrics. These measures are
collectively described as Adjusted Performance Measures (APMs) in this Annual Report.
The Directors believe that the APMs provide a useful comparison of business trends and performance. The APMs exclude exceptional items considered
unrelated to the underlying trading performance of the Group. The term adjusted is not defined under IFRS and may not be comparable with similarly
titled measures used by other companies.
The Group uses these measures for planning, budgeting and reporting purposes and for its internal assessment of the operational performance.
ADJUSTED PERFORMANCE MEASURES
The following table summarises the statutory and adjusted profit and loss account measures for the period together with the adjustments made to each
line item.
52 weeks ended 1 October 2022
53 weeks ended 2 October 2021
Adjusted
$m
Adjustments
$m
Total
$m
Adjusted
$m
Adjustments
$m
Continuing operations
Revenue
Cost of sales
Gross profit
Selling and distribution costs
General and administrative expenses
Operating profit/(loss)
EBITDA
Depreciation, amortisation and impairment
Operating profit/(loss) (note 1)
Net finance costs (note 2)
Profit/(loss) before taxation
Taxation (note 3)
Profit/(loss) for the period from
continuing operations
Discontinued operations – loss
from discontinued operations (note 4)
Profit/(loss) for the period (note 5)
Basic (loss)/earnings per share
Diluted (loss)/earnings per share
271.9
(192.1)
79.8
(26.0)
(43.7)
10.1
25.5
(15.4)
10.1
(4.0)
6.1
0.1
6.2
–
6.2
20.4c
20.4c
–
(1.6)
(1.6)
–
(10.6)
(12.2)
(1.2)
(11.0)
(12.2)
(2.4)
(14.6)
2.8
(11.8)
(2.0)
(13.8)
(45.5c)
(45.5c)
271.9
(193.7)
78.2
(26.0)
(54.3)
(2.1)
24.3
(26.4)
(2.1)
(6.4)
(8.5)
2.9
(5.6)
(2.0)
(7.6)
(25.1c)
(25.1c)
248.3
(165.4)
82.9
(22.2)
(38.7)
22.0
37.6
(15.6)
22.0
(3.1)
18.9
(0.3)
18.6
–
18.6
60.6c
60.6c
–
(4.1)
(4.1)
–
(46.9)
(51.0)
9.0
(60.0)
(51.0)
(3.5)
(54.5)
11.4
(43.1)
(1.1)
(44.2)
(144.1c)
(144.1c)
Total
$m
248.3
(169.5)
78.8
(22.2)
(85.6)
(29.0)
46.6
(75.6)
(29.0)
(6.6)
(35.6)
11.1
(24.5)
(1.1)
(25.6)
(83.5c)
(83.5c)
112
Avon Protection plc Annual Report and Accounts 2022
1 Adjustments to operating loss
Adjusted operating profit excludes exceptional items considered unrelated to the underlying trading performance of the Group. Transactions are classified
as exceptional where they relate to an event that falls outside of the underlying trading activities of the business and where individually, or in aggregate,
they have a material impact on the financial statements.
Operating loss
Amortisation of acquired intangibles1
Items related to armor
Impairment of acquired intangibles
Impairment of development expenditure
Impairment of right of use assets
Impairment of plant and machinery
Impairment of leasehold improvements
Inventory provisions
Release of contingent consideration
Transaction costs
Restructuring costs
Net (credit)/charge related to armor
Restructuring costs (including $0.4m right of use asset impairment)
Impairment of non-current assets (excluding $0.4m right of use asset impairment)
Inventory fair value acquisition accounting adjustment
Acquisition costs
Write down of brought forward capitalised cloud computing costs
Other adjusting items
Adjusted operating profit
Depreciation
Other impairment charges
Other amortisation charges
Adjusted EBITDA
2022
$m
(2.1)
6.8
–
0.2
–
–
–
1.6
(3.9)
0.6
1.3
(0.2)
2.0
3.6
–
–
–
5.6
10.1
9.1
0.4
5.9
25.5
2021
$m
(29.0)
14.2
11.3
8.1
11.7
13.9
0.1
1.7
(15.7)
–
31.1
–
–
2.4
2.6
0.7
5.7
22.0
10.4
0.4
4.8
37.6
1 None of the amortisation charges for acquired intangible assets relate to the armor business following the prior period impairments (2021: $7.3 million).
Amortisation of acquired intangibles
Amortisation charges for acquired intangible assets of $6.8 million (2021: $14.2 million) are considered exceptional as they do not change each period
based on underlying business trading and performance.
Items related to armor
On 12 November 2021 the Group announced the next generation VTP ESAPI body armor product had failed first article testing. This followed a similar
result in December 2020 for the legacy DLA ESAPI body armor product. It was also announced that the Group was experiencing further delays to
achieving final product approval for the DLA ESAPI product.
The failure of the VTP ESAPI body armor product was considered an adjusting event that provided evidence of conditions that existed at the end of the
reporting period. As such the Group performed an impairment review of assets at 2 October 2021 removing all future revenue for VTP ESAPI body armor.
The review also incorporated reduced revenue expectations for DLA ESAPI.
The review resulted in total non-current asset impairments of $45.1 million in respect of assets relating to the armor business acquired from 3M as part of
the ballistic protection acquisition. In addition, inventory provisions of $1.7 million were recognised against VTP ESAPI armor materials.
Offsetting these charges, a gain of $15.7 million was recognised to reduce the net present value of the contingent consideration payable to 3M as a result
of the reduced revenue expectations from the DLA ESAPI body armor contract.
In 2022 revenue expectations from the DLA ESAPI body armor contract have further reduced, resulting in an additional gain of $3.9 million on release of
the remaining net present value of the contingent consideration payable. Offsetting this credit, inventory provisions of $1.6 million were recognised in
respect of raw materials held for the DLA ESAPI body armor contract. In addition, armor-specific development expenditure was impaired by $0.2 million
for a small number of reclassified assets (note 3.1).
The impairment charges, provisions and related release of contingent consideration resulted from changes in recoverable amounts and expected future
payments arising from assumptions of forecast trading. As such they are considered unrelated to trading performance.
Annual Report and Accounts 2022 Avon Protection plc
113
ALTERNATIVE PERFORMANCE MEASURES A D J U S T E D P E R F O R M A N C E M E A S U R E S C O N T I N U E D
1 Adjustments to operating profit continued
Armor transaction costs
Transaction costs of $0.6 million (2021: $nil) related to a potential sale of the armor business in the first half of 2022. This opportunity is no longer
considered to be in the best interest of shareholders. These costs are considered exceptional as they are specific to the wind-down of the armor business
and do not form part of the underlying business trading and performance.
Restructuring costs
Restructuring costs related to the overhead reduction programme were $3.3 million (2021: $nil). These costs include a $0.4 million right of use
asset impairment relating to the closure of one of our U.S. offices and $0.2 million of professional fees relating to the strategic review of the armor
business. These costs are considered exceptional as they relate to a specific programme which does not form part of the underlying business trading
and performance.
Impairment of non-current assets
Impairment reviews for the Group’s non-current assets resulted in $3.6 million exceptional impairment losses (2021: $nil) as the carrying value of certain
cash-generating units exceeded estimated recoverable amounts. Further details are provided in note 3.1. The impairment losses are significant items
resulting from changes in assumptions for future recoverable amounts. As such they are considered unrelated to 2022 trading performance.
In the period the Group also recognised $0.4m other non-current asset impairments that were not considered exceptional on the basis of materiality
(note 3.1).
Acquisition costs and accounting adjustments
These charges resulted from two significant acquisitions by the Group, which are considered exceptional items as they are material and unrelated to the
underlying trading activities of the business:
• 2021 acquisition costs of $2.6 million relating to the acquisitions of Team Wendy and the 3M ballistic protection business.
• Acquisition accounting adjustment of $2.4 million to account for acquired inventory at the underlying historical cost before the fair value adjustments
arising on acquisition.
Write down of brought forward capitalised cloud computing costs
In 2021 $0.7 million brought forward capitalised costs relating to cloud computing arrangements were written down. This followed updated guidance
from the IFRS Interpretations Committee. The change in guidance was unrelated to the underlying trading performance of the Group; hence, the write
down was treated as exceptional. Costs associated with configuration and customisation of cloud computing arrangements after 26 September 2020 have
been expensed as incurred and included within adjusted performance measures.
2 Adjustments to net finance costs
Adjusted net finance costs exclude exceptional items considered unrelated to the underlying trading performance of the Group.
Net finance costs
Defined benefit pension unwind discount
Contingent consideration unwind discount
Adjusted net finance costs
2022
$m
6.4
(1.3)
(1.1)
4.0
2021
$m
6.6
(1.3)
(2.2)
3.1
• $1.3 million (2021: $1.3 million) unwind of discounting on the U.K. defined benefit pension scheme liability is treated as exceptional given the scheme
relates to employees employed prior to 31 January 2003 and was closed to future accrual of benefits on 1 October 2009 (note 6.2).
• $1.1 million (2021: $2.2 million) unwind of discounting on contingent consideration related to the acquisition of the 3M ballistic protection business.
3 Adjustments to taxation
Adjustments to taxation represent the tax effects of the adjustments to operating profit and net finance costs. Adjusting items do not have significantly
different effective tax rates, with the overall effective rate of 19% (2021: 21%) approximating statutory rates applicable.
4 Loss from discontinued operations
The adjusted profit measures exclude the result from discontinued operations relating to the divestment of milkrite | InterPuls.
During the period, the Group incurred a loss after tax of $2.0 million on these discontinued operations (2021: loss after tax of $1.1 million).
114
Avon Protection plc Annual Report and Accounts 2022
5 Adjustments to loss for the period
Loss for the period
Amortisation of acquired intangible assets
Impairments related to armor assets
Armor inventory provisions
Release of contingent consideration
Defined benefit pension unwind discount
Contingent consideration unwind discount
Restructuring costs
Impairment of non-current assets
Transaction costs
Acquisition costs
Inventory fair value acquisition accounting adjustment
Write down of brought forward capitalised cloud computing costs
Tax on exceptional items
Loss from discontinued operations
Adjusted profit for the period
6 Adjusted earnings per share
Weighted average number of shares
Weighted average number of ordinary shares in issue used in basic calculation (thousands)
Potentially dilutive shares (weighted average) (thousands)
Diluted number of ordinary shares (weighted average) (thousands)
Adjusted continuing earnings per share
Basic
Diluted
7 Net debt
Cash and cash equivalents
Bank loans
Net debt excluding lease liabilities
Lease liabilities
Net debt including lease liabilities
8 Adjusted dividend cover ratio
Interim dividend
Final dividend
Total dividend
Adjusted basic earnings per share
Adjusted dividend cover ratio
2022
$m
(7.6)
6.8
0.2
1.6
(3.9)
1.3
1.1
3.3
3.6
0.6
–
–
–
(2.8)
2.0
6.2
2022
30,308
221
30,529
2022
$ cents
20.4c
20.4c
2022
$m
9.5
(53.7)
(44.2)
(23.8)
(68.0)
2022
$ cents
14.3
30.6
44.9
20.4
2021
$m
(25.6)
14.2
45.1
1.7
(15.7)
1.3
2.2
–
–
–
2.6
2.4
0.7
(11.4)
1.1
18.6
2021
30,669
189
30,858
2021
$ cents
60.6
60.6
2021
$m
14.1
(40.9)
(26.8)
(29.1)
(55.9)
2021
$ cents
14.3
30.6
44.9
60.6
0.5 times
1.3 times
Annual Report and Accounts 2022 Avon Protection plc
115
ALTERNATIVE PERFORMANCE MEASURES A D J U S T E D P E R F O R M A N C E M E A S U R E S C O N T I N U E D
9 Cash conversion
Cash conversion excludes the impact of exceptional items from operating cash flows and EBITDA.
Cash flows from continuing operations before exceptional items
Adjusted EBITDA
Cash conversion
Cash flows from continuing operations before exceptional items
Cash flows from continuing operations
Restructuring costs paid
Transaction costs paid
Acquisition and integration costs paid
Cash flows from continuing operations before exceptional items
2022
$m
36.4
25.5
142.7%
2022
$m
34.8
1.0
0.6
–
36.4
2021
$m
31.3
37.6
83.2%
2021
$m
26.9
–
–
4.4
31.3
10 Return on capital employed (ROCE)
Return on capital employed (ROCE) is calculated as adjusted operating profit over average capital employed. The following shows the ROCE calculations
and reconciling tables:
2022
$m
210.5
4.8
90.4
305.7
332.2
10.1
3.0%
2022
$m
305.7
358.7
332.2
2022
$m
4.1
0.7
4.8
2021
$m
205.4
7.5
145.8
358.7
382.1
22.0
5.8%
2021
$m
358.7
405.4
382.1
2021
$m
4.0
3.5
7.5
Shareholders’ funds
Current borrowings
Non-current liabilities
Capital employed
Average capital employed
Adjusted operating profit
Return on capital employed
Average capital employed
Current period capital employed
Prior period capital employed
Average capital employed
Current borrowings
Current borrowings
Current provisions for liabilities and charges
Current borrowings for ROCE
116
Avon Protection plc Annual Report and Accounts 2022
11 Organic constant currency reporting
Organic constant currency measures remove the impact of acquisitions and changes in exchange rates. Constant currency measures are calculated by
translating the prior period at current period exchange rates.
The armor business transacts entirely in USD meaning there is no currency impact for this operating segment.
Group
Orders received
Closing order book
Revenue
Adjusted EBITDA
Adjusted operating profit
Adjusted profit before tax
Adjusted basic earnings per share
Respiratory and head protection
Orders received
Closing order book
Revenue
Adjusted EBITDA
Adjusted operating profit
Adjusted profit before tax
Adjusted basic earnings per share
U.K. & International
Revenue
2022
$m
(excluding
acquisitions)
2021
$m
(constant
currency)
277.2
151.3
269.3
24.8
9.6
5.6
19.1c
281.7
140.4
246.8
40.3
24.9
21.9
70.5c
2022
$m
(excluding
acquisitions)
2021
$m
(constant
currency)
265.0
151.3
260.9
38.1
22.9
19.1
53.4c
280.0
113.8
240.3
48.7
35.4
32.7
99.8c
2022
$m
(excluding
acquisitions)
98.8
2021
$m
(constant
currency)
52.3
Annual Report and Accounts 2022 Avon Protection plc
117
ALTERNATIVE PERFORMANCE MEASURES 118
Avon Protection plc Annual Report and Accounts 2022
IT IS A GREAT POINT OF PRIDE TO KNOW OUR
PRODUCT IS THE LAST LINE OF DEFENSE FOR OUR
WORLD’S MILITARIES AND FIRST RESPONDERS. AT
THE END OF THE DAY, WE HAVE TWO KEY STRENGTHS,
A PRODUCT EVERYONE BELIEVES IN AND A TEAM
THAT BELIEVES IN OUR PRODUCT.
Chandlar Gabara
Continuous Improvement Leader
FINANCIAL
STATEMENTS
CONTENTS
Independent Auditor’s Report
120
127 Consolidated Statement of Comprehensive Income
128 Consolidated Balance Sheet
129 Consolidated Cash Flow Statement
130 Consolidated Statement
of Changes in Equity
131 Accounting Policies and Critical Accounting Judgements
136 Notes to the Group Financial Statements
164 Parent Company Balance Sheet
165 Parent Company Statement
of Changes in Equity
166 Parent Company Accounting Policies
168 Notes to the Parent Company Financial Statements
172 Notice of Annual General Meeting
177 Glossary of Financial Terms
and Abbreviations
179 Shareholder Information
Annual Report and Accounts 2022 Avon Protection plc
119
FINANCIAL STATEMENTS I N D E P E N D E N T A U D I T O R ’ S R E P O R T
T O T H E M E M B E R S O F A V O N P R O T E C T I O N P L C
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 4 financial
periods ended 1 October 2022. 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.
1. Our opinion is unmodified
We have audited the financial statements of Avon Protection plc (“the
Company”) for the period ended 1 October 2022 which comprise the
Consolidated Statement of Comprehensive Income, the Consolidated and
Parent Company Balance Sheets, the Consolidated Cash Flow Statement,
and the Consolidated and Parent Company Statements of Changes in
Equity, and the related notes, including the accounting policies sections in
both the Group and Parent Company financial statements.
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 1 October 2022 and of
the Group’s loss for the period then ended;
• the Group financial statements have been properly prepared in
accordance with international accounting standards in conformity with
U.K.-adopted international accounting standards;
• 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.
Overview
Materiality: Group financial
statements as a whole
$1.8 million (2021: $1.5 million)
0.66% (2021: 0.6%) of revenue
Coverage
Key audit matters
Recurring risks
100% (2021: 100%) of Group revenue
2022 vs 2021
Recoverability of capitalised development expenditure
Parent Company
Recoverability of Parent Company’s investment in subsidiaries
120
Avon Protection plc Annual Report and Accounts 2022
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.
Recoverability of
capitalised development
expenditure
Included within capitalised
development expenditure
of $21.1 million (2021:
$23.2 million)
Impairment charges of $2.0
million (2021: $0.3 million)
Risk vs 2021:
Refer to page 83 (Audit
Committee Report), pages 133
and 135 (accounting policy)
and page 142, 143, 144, and
145 (financial disclosures).
The risk
Subjective estimate:
• Within the capitalised development
expenditure we identified a number of
products with a higher degree of risk around
recoverability, including those which have
no prior track record of revenue and margin
generation, have low headroom, and those
awaiting regulatory approval.
• The estimated recoverable amount of these
intangible assets is supported by forecasting
and discounting future cash flows (based
on assumptions such as discount rates and
revenue growth rates), which are inherently
highly judgemental. These uncertainties,
combined with the quantum of the
development costs balance for the higher risk
products, means that the recoverable amount
of these 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 whether the
product will meet the requirements of the
customer or required regulatory approval and
the timing of this approval, 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, and possibly many
times that amount. The financial statements
(page 143) disclose the sensitivity estimated
by the Group.
Our response
Our procedures included:
• Historical comparison: We assessed the accuracy of the group’s
forecasting by comparing actual cash flows for products in the period
to the prior period forecasts.
• For a risk-based selection of products whereby judgements were made
by the audit team in respect of said risk-rating, our procedures included:
– Our sector knowledge: We challenged the detailed forecasts
which support the estimated recoverable amount by reference to
discussions with project managers on the likelihood and timing of
when new products are expected to receive customer or regulatory
clearance as compared to what was assumed in the forecasts and the
size of the potential market.
– Benchmarking assumptions: We compared the Group’s
assumptions to externally derived data in relation to key inputs such
as revenue growth rates and discount rates.
– Sensitivity analysis: We performed sensitivity analysis to
determine if reasonably possible changes in discount rates, product
margins, and growth rates would result in additional impairments
being recognised.
• Assess transparency: We assessed 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.
We performed the tests above rather than seeking to rely on any of
the Group’s controls because the nature of the balance is such that we
would expect to obtain audit evidence primarily through the detailed
procedures described. We performed an assessment of whether an
over/understatement of the recoverability of capitalised development
expenditure identified through these procedures was material.
Our results
• We found the development costs balance, and the related impairment
charge to be acceptable (2021: We found the development costs
excluding armor business related costs balance, and the related
impairment charge to be acceptable).
Annual Report and Accounts 2022 Avon Protection plc
121
FINANCIAL STATEMENTS I N D E P E N D E N T A U D I T O R ’ S R E P O R T
T O T H E M E M B E R S O F A V O N P R O T E C T I O N P L C C O N T I N U E D
2. Key audit matters: our assessment of risks of material misstatement continued
The risk
Recoverability of Parent
Company’s investments
in subsidiaries
(£191.0 million;
2021: £191.0 million)
Risk vs 2021:
Refer to page 167 (accounting
policy) and page 168 (financial
disclosures).
Low risk, high value
The carrying amount of the Parent Company’s
investments in subsidiaries represents 95%
(2021: 93%) 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.
Our response
Our procedures included:
• Tests of detail: Comparing the carrying amount of 100% of investments
with the relevant subsidiaries’ draft 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 team and the group team on all of those subsidiaries
and considering the results of that work, on those subsidiaries’ profits
and net assets.
We performed the tests above rather than seeking to rely on any of the
Company’s controls because the nature of the balance is such that we
would expect to obtain audit evidence primarily through the detailed
procedures described.
Our results
We found the Company’s conclusion that there is no impairment of its
investments in subsidiaries to be acceptable (2021: acceptable).
Impairment of armor business related assets and Business Combinations were identified as event-driven key audit matters in 2021. There has not been any
equivalent activity of similar magnitude in the current period and therefore we have not separately identified these areas in our report this period.
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 $1.8
million (2021: $1.5 million), determined with reference to a benchmark
of total revenue, of which it represents 0.66% (2021: 0.6% of revenue).
We consider total revenue to be the most appropriate benchmark as
it provides a more stable measure period on period than group loss
before tax.
Materiality for the Parent Company financial statements as a whole was set
at £1.0 million (2021: £0.8 million), which is the component materiality for
the Parent Company determined by the group audit engagement team.
This is lower than the materiality we would otherwise have determined
with reference to a benchmark of Parent Company total assets, of which it
represents 0.5% (2021: 0.4%).
In line with our audit methodology, our procedures on individual
account balances and disclosures were performed to a lower threshold,
performance materiality, so as to reduce to an acceptable level the risk that
individually immaterial misstatements in individual account balances add
up to a material amount across the financial statements as a whole.
Performance materiality was set at 65% (2021: 65%) of materiality for the
Group financial statements as a whole, which equates to $1.17 million
(2021: $0.975 million). We applied this percentage in our determination of
performance materiality based on the level of identified misstatements
and control deficiencies during the prior period.
Performance materiality was set at 75% (2021: 75%) of materiality for
the Parent Company financial statements as a whole which equates
to £0.75 million (2021: £0.6 million). We applied this percentage in our
determination of performance materiality because we did not identify any
factors indicating an elevated level of risk.
We agreed to report to the Audit Committee any corrected or uncorrected
identified misstatements exceeding $90,000 (2021: $75,000), in addition
to other identified misstatements that warranted reporting on
qualitative grounds.
Of the Group’s eight (2021: eight) reporting components, we subjected
five (2021: five) to full scope audits for group purposes and one (2021: one)
to specified risk-focused audit procedures over cash & cash equivalents
(2021: cash & cash equivalents). The latter was not individually financially
significant enough to require a full scope audit for group purposes, but did
present specific individual risks that needed to be addressed.
The components within the scope of our work accounted for the
percentages illustrated below. For the residual two components, we
performed analysis at an aggregated group level to re-examine our
assessment that there were no significant risks of material misstatement.
122
Avon Protection plc Annual Report and Accounts 2022
3. Our application of materiality and an overview of the
scope of our audit continued
The Group team instructed component auditors as to the significant
areas to be covered, including the relevant risks detailed above and
the information to be reported back. The Group team approved the
component materialities, which ranged from $0.15 million to $1.35 million
(2021: $0.15 million to $1.1 million), having regard to the mix of size and
risk profile of the Group across the components. The work on one of
the components (2021: one of the components) included procedures
performed by component auditors and the rest, including the audit of the
Parent Company, was performed solely by the Group team. The Group
team visited 5 (2021: 5 virtually visited) component locations in the U.K.
and U.S., to assess the audit risk and strategy. In the prior year in person
visits to component locations were prevented by movement restrictions
relating to the COVID-19 pandemic. Video and telephone conference
meetings were also held with the component auditors during which the
findings reported to the Group team were discussed in more detail, and
any further work required by the Group team was then performed by the
component auditor.
The scope of the audit work performed was predominately substantive
as we placed limited reliance upon the Group’s internal control over
financial reporting.
4. The impact of climate change on our audit
In planning our audit we have considered the potential
impacts of climate change on the Group’s business and
its financial statements. With the support of our climate
professionals we performed a risk assessment of the
impact of climate change on the financial statements
and our audit approach.
Climate change impacts the Group in a variety of ways including the
impact of climate risk on manufacturing and procurement, potential
reputational risk associated with the Group’s delivery of its climate related
initiatives, and greater emphasis on climate related narrative and disclosure
in the annual report. The Group’s exposure to climate change is primarily
through the acquisition of materials in its supply chain and increased costs
in relation to manufacturing end products.
Revenue
$271.9m (2021: $248m revenue)
Group materiality
$1.8m (2021: $1.5m)
Total
revenue
Revenue
$271.9m
Group
materiality
$1.8m
Whole financial statements materiality
(2021: £1.5m)
$1.17m
Whole financial statements performance
materiality (2021: $0.975m)
$1.35m
Range of materiality at six components
($0.15m–$1.25m) (2021: $0.15m to $1.1m)
$0.09m
Misstatements reported to the Audit Committee
(2021: $0.75m)
Group revenue
Group loss (2021: loss) before tax
Group total assets
3
2
8
10
100%
R9090+
O100100+
O9292+
R100100+
R9797+
9898+
In 2022 and 2021, audit coverage is calculated on the above measures to include all operations classed as
continuing or discontinued.
100%
100%
(2021: 100%*)
(2021: 100%*)
(2021: 100%*)
Full scope for Group audit purposes 2022
Specified risk-focused audit procedures 2022
Full scope for Group audit purposes 2021
Specified risk-focused audit procedures 2021
Residual components
100
100
90
98
92
97
*
Annual Report and Accounts 2022 Avon Protection plc
123
FINANCIAL STATEMENTS2
2
+
+
R
3
3
+
+
O
0
0
+
+
R
0
0
+
+
O
8
8
+
+
R
10
10
+
+
O
O
I N D E P E N D E N T A U D I T O R ’ S R E P O R T
T O T H E M E M B E R S O F A V O N P R O T E C T I O N P L C C O N T I N U E D
4. The impact of climate change on our audit continued
As part of our audit we have made enquiries of
management to understand the extent of the potential
impact of climate change risk on the Group’s financial
statements and the Group’s preparedness for this.
We have also read the Group’s and the Parent Company’s disclosure of
climate related information in the front half of the annual report as set out
on pages 54 to 55. On the basis of the procedures performed above, we
concluded that the risk of climate change was not significant when we
considered the nature of the assets and relevant contractual terms. As a
result, there was no material impact from this on our key audit matters.
We have not been engaged to provide assurance over the accuracy of
these disclosures.
5. Going concern
The Directors have prepared the financial statements on the going
concern basis as they do not intend to liquidate the Group or the Company
or to cease their operations, and as they have concluded that the Group’s
and the Company’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”).
We used our knowledge of the Group, its industry, and the general
economic environment to identify the inherent risks to its business model
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. The risks that we considered most likely to adversely
affect the Group’s and Company’s available financial resources and metrics
relevant to debt covenants over this period were:
•
inflationary pressures on the Group’s cost base;
• the managed exit from the armor business;
• dependence on a large customer or market; and
• disruption to the Group’s supply chain;
We considered whether these risks could plausibly affect the liquidity or
covenant compliance in the going concern period by assessing the degree
of downside assumption that, individually and collectively, could result in a
liquidity issue, taking into account the Group’s current and projected cash
and facilities (a reverse stress test).
Our procedures also included:
• Comparing past budgets to actual results to assess the Directors’ track
record of budgeting accurately.
•
Inspecting the confirmation from the lender of the level of committed
financing including re-financing of existing facilities, and the associated
covenant requirements.
• We assessed the completeness of the going concern disclosure.
Our conclusions based on this work:
• We consider that the Directors’ use of the going concern basis of
accounting in the preparation of the financial statements is appropriate;
• We have not identified, and concur with the Directors’ assessment that
there is not, a material uncertainty related to events or conditions that,
individually or collectively, may cast significant doubt on the Group’s
or Company’s ability to continue as a going concern for the going
concern period;
• We have nothing material to add or draw attention to in relation to the
Directors’ statement on page 131 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 the going concern period, and we found the going
concern disclosure on page 131 to be acceptable; and
124
Avon Protection plc Annual Report and Accounts 2022
• The related statement under the Listing Rules set out on page
79 is materially consistent with the financial statements and our
audit knowledge.
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 above
conclusions are not a guarantee that the Group or the Company will
continue in operation.
6. Fraud and breaches of laws and regulations –
ability to detect
Identifying and responding to risks of material misstatement
due to fraud
To identify risks of material misstatement due to fraud (“fraud risks”) we
assessed events or conditions that could indicate an incentive or pressure
to commit fraud or provide an opportunity to commit fraud. Our risk
assessment procedures included:
• Enquiring of Directors, the Audit Committee, internal audit and
inspection of policy documentation as to the Group’s high-level policies
and procedures to prevent and detect fraud, including the internal
audit function, and the Group’s channel for “whistleblowing”, as well as
whether they have knowledge of any actual, suspected or alleged fraud.
• Reading Board and Audit Committee minutes.
• Considering remuneration incentive schemes (annual bonus scheme &
performance share plan) and performance targets for management and
directors including the total shareholder return target and EPS target for
management remuneration.
• Using analytical procedures to identify any unusual or
unexpected relationships.
We communicated identified fraud risks throughout the audit team and
remained alert to any indications of fraud throughout the audit. This
included communication from the group to the component audit team of
relevant fraud risks identified at the Group level and request to component
audit teams to report to the Group audit team any instances of fraud that
could give rise to a material misstatement at the Group level.
As required by auditing standards, and taking into account possible
pressures to meet profit targets and our overall knowledge of the control
environment, we perform procedures to address the risk of management
override of controls and the risk of fraudulent revenue recognition, in
particular the risk that revenue is recorded in the wrong period and the risk
that Group and component management may be in a position to make
inappropriate accounting entries.
We also identified a fraud risk related to inappropriate capitalisation
of development costs in response to possible pressures to meet
profit targets.
We also performed procedures including:
•
Identifying journal entries and other adjustments to test for all full scope
components based on risk criteria and comparing the identified entries
to supporting documentation. These included those posted to unusual
or unexpected accounts.
• For a sample of capitalised development costs, assessing whether
the costs had been capitalised against the correct project, measured
correctly, and were eligible for capitalisation.
• For a sample of invoices raised around the period end date, assessing
whether revenue had been recognised in the appropriate period by
comparing to dispatch notes or terms of specific sale agreements.
• Assessing significant accounting estimates for bias.
Identifying and responding to risks of material misstatement
due to non-compliance with laws and regulations
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 (as required by auditing standards), and from inspection of
the Group’s regulatory and legal correspondence and discussed with the
Directors the policies and procedures regarding compliance with laws
and regulations.
As the Group is regulated, our assessment of risks involved gaining
an understanding of the control environment including the entity’s
procedures for complying with regulatory requirements. 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. This included communication
from the Group audit team to component audit teams of relevant
laws and regulations identified at the Group level, and a request for
component auditors to report to the Group audit team any instances
of non-compliance with laws and regulations that could give rise to a
material misstatement at the Group level.
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, taxation
legislation, and pensions regulation 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: export control legislation
recognising the Governmental nature of many of the group’s customers,
product regulation, health and safety, employment law, environmental
legislation, recognising the nature of the Group’s activities. Auditing
standards limit the required audit procedures to identify non-compliance
with these laws and regulations to enquiry of the directors and inspection
of regulatory and legal correspondence, if any. Therefore if a breach of
operational regulations is not disclosed to us or evident from relevant
correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches
of law or regulation
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 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 fraud, as these may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal controls. Our
audit procedures are designed to detect material misstatement. We are
not responsible for preventing non-compliance or fraud and cannot be
expected to detect non-compliance with all laws and regulations.
7. 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
period 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.
Disclosures of emerging and principal risks and
longer-term viability
We are required to perform procedures to identify whether there is a
material inconsistency between the Directors’ disclosures in respect of
emerging and principal risks and the viability statement, and the financial
statements and our audit knowledge.
Based on those procedures, we have nothing material to add or draw
attention to in relation to:
• the Directors’ confirmation within the Viability Statement on page 79
that they have carried out a robust assessment of the emerging and
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 how emerging
risks are identified, 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.
We are also required to review Viability Statement, set out on page
79 under the Listing Rules. Based on the above procedures, we have
concluded that the above disclosures are materially consistent with the
financial statements and our audit knowledge.
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 perform procedures to identify whether there is a
material inconsistency between the directors’ corporate governance
disclosures and the financial statements and our audit knowledge.
Annual Report and Accounts 2022 Avon Protection plc
125
FINANCIAL STATEMENTS I N D E P E N D E N T A U D I T O R ’ S R E P O R T
T O T H E M E M B E R S O F A V O N P R O T E C T I O N P L C C O N T I N U E D
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 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 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.
The Company is required to include these financial statements in an
annual financial report prepared using the single electronic reporting
format specified in the TD ESEF Regulation. This auditor’s report provides
no assurance over whether the annual financial report has been prepared
in accordance with that format.
10. 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
22 November 2022
7. We have nothing to report on the other information
in the Annual Report continued
Corporate governance disclosures continued
Based on those procedures, we have concluded that each of the
following is materially consistent with the financial statements and our
audit knowledge:
• 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;
• the section of the annual report describing the work of the Audit
Committee, including the significant issues that the audit committee
considered in relation to the financial statements, and how these issues
were addressed; and
• the section of the annual report that describes the review of
the effectiveness of the Group’s risk management and internal
control systems.
We are required to review the part of the Corporate Governance Statement
relating to the Group’s compliance with the provisions of the U.K.
Corporate Governance Code specified by the Listing Rules for our review.
We have nothing to report in this respect.
8. 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.
9. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 108, 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.
126
Avon Protection plc Annual Report and Accounts 2022
C O N S O L I D A T E D S T A T E M E N T O F C O M P R E H E N S I V E I N C O M E
F O R T H E 5 2 W E E K S E N D E D 1 O C T O B E R 2 0 2 2
Continuing operations
Revenue
Cost of sales
Gross profit
Selling and distribution costs
General and administrative expenses
Operating loss
Net finance costs
Loss before taxation
Taxation
Loss for the period from continuing operations
Discontinued operations
Loss from discontinued operations
Loss for the period
Other comprehensive income/(expense)
Items that are not subsequently reclassified to the income statement
Remeasurement gain recognised on retirement benefit scheme
Deferred tax relating to retirement benefit scheme
Deferred tax relating to change in tax rates
Deferred tax relating to other temporary differences
Current tax relating to other temporary differences
Items that may be subsequently reclassified to the income statement
Net exchange differences offset in reserves
Cash flow hedges
Current tax relating to cash flow hedges
Other comprehensive income for the period
Total comprehensive income/(expense)for the period
Earnings per share
Basic
Diluted
Earnings per share from continuing operations
Basic
Diluted
Note
2.1
2.1
5.2
2.5
2.6
2.2
6.2
2.6
2.6
2.6
2.3
2.3
52 weeks ended
1 October 2022 ¹
$m
53 weeks ended
2 October 2021 ¹
$m
271.9
(193.7)
78.2
(26.0)
(54.3)
(2.1)
(6.4)
(8.5)
2.9
(5.6)
(2.0)
(7.6)
50.1
(9.6)
(3.4)
–
(0.1)
0.8
0.5
(0.1)
38.2
30.6
(25.1)c
(25.1)c
(18.5)c
(18.5)c
248.3
(169.5)
78.8
(22.2)
(85.6)
(29.0)
(6.6)
(35.6)
11.1
(24.5)
(1.1)
(25.6)
16.2
(3.1)
4.1
0.3
–
0.6
–
–
18.1
(7.5)
(83.5)c
(83.5)c
(79.9)c
(79.9)c
1
In previous periods, the Group reported financial statements to 30 September, this being the Company’s accounting reference date. Headings for the current and prior period now show the actual
dates to which the financial statements were drawn up. This has no impact on previously reported numbers.
Annual Report and Accounts 2022 Avon Protection plc
127
FINANCIAL STATEMENTS C O N S O L I D A T E D B A L A N C E S H E E T
A T 1 O C T O B E R 2 0 2 2
At 1 October
2022 ¹
$m
At 2 October
2021 ¹
$m
Note
3.1
3.2
2.6
5.4
4.1
4.2
5.4
4.3
5.1
4.4
7.1
5.1
2.6
6.2
7.1
5.5
5.5
171.0
39.9
26.7
0.3
237.9
65.6
30.6
0.2
4.2
9.5
110.1
4.1
42.3
0.7
47.1
63.0
73.4
5.8
6.3
4.9
90.4
210.5
50.3
54.3
(14.2)
0.4
119.7
210.5
181.0
48.6
40.2
–
269.8
62.3
44.7
–
7.8
14.1
128.9
4.0
40.0
3.5
47.5
81.4
66.0
6.1
68.3
5.4
145.8
205.4
50.3
54.3
(15.0)
–
115.8
205.4
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Deferred tax assets
Derivative financial instruments
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Current tax receivables
Cash and cash equivalents
Liabilities
Current liabilities
Borrowings
Trade and other payables
Provisions for liabilities and charges
Net current assets
Non-current liabilities
Borrowings
Deferred tax liabilities
Retirement benefit obligations
Provisions for liabilities and charges
Net assets
Shareholders’ equity
Ordinary shares
Share premium account
Other reserves
Cash flow hedging reserve
Retained earnings
Total equity
1
In previous periods, the Group reported financial statements to 30 September, this being the Company’s accounting reference date. Headings for the current and prior period now show the actual
dates to which the financial statements were drawn up. This has no impact on previously reported numbers.
These financial statements on pages 127 to 163 were approved by the Board of Directors on 22 November 2022 and signed on its behalf by:
Bruce Thompson
Executive Chair
Rich Cashin
Chief Financial Officer
The accompanying accounting policies and notes form part of these financial statements.
Company number 00032965
128
Avon Protection plc Annual Report and Accounts 2022
C O N S O L I D A T E D C A S H F L O W S T A T E M E N T
F O R T H E 5 2 W E E K S E N D E D 1 O C T O B E R 2 0 2 2
Cash flows from operating activities
Cash flows from continuing operations
Cash flows from discontinued operations
Cash flows from operations
Retirement benefit deficit recovery contributions
Tax received/(paid)
Net cash flows from operating activities
Cash flows used in investing activities
Proceeds from disposal of discontinued operations
Costs of divestment
Purchase of property, plant and equipment
Capitalised development costs and purchased software
Acquisition of business (2021: net of acquired cash of $1.1m)
Net cash used in investing activities
Cash flows used in financing activities
Proceeds from loan drawdowns
Loan repayments
Finance costs paid in respect of bank loans and overdrafts
Finance costs paid in respect of leases
Repayment of lease liability
Dividends paid to shareholders
Purchase of own shares – Long Term Incentive Plan
Purchase of own shares – Share Buyback Programme
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Effects of exchange rate changes
Cash and cash equivalents at the end of the period
52 weeks ended
1 October 2022 ¹
$m
53 weeks ended
2 October 2021 ¹
$m
Note
4.3
4.3
4.3
6.2
3.2
3.1
7.1
5.3
5.3
5.2
5.2
5.6
5.5
5.5
4.3
34.8
(1.3)
33.5
(8.5)
3.7
28.7
–
–
(2.9)
(6.0)
(3.2)
(12.1)
42.9
(30.1)
(2.7)
(1.0)
(4.1)
(13.4)
–
(12.4)
(20.8)
(4.2)
14.1
(0.4)
9.5
26.9
(3.3)
23.6
(2.9)
(13.3)
7.4
3.4
(0.6)
(11.7)
(19.9)
(130.9)
(159.7)
42.0
(40.6)
(1.6)
(1.1)
(3.7)
(12.1)
(4.3)
–
(21.4)
(173.7)
187.2
0.6
14.1
1
In previous periods, the Group reported financial statements to 30 September, this being the Company’s accounting reference date. Headings for the current and prior period now show the actual
dates to which the financial statements were drawn up. This has no impact on previously reported numbers.
Annual Report and Accounts 2022 Avon Protection plc
129
FINANCIAL STATEMENTS C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S I N E Q U I T Y
F O R T H E 5 2 W E E K S E N D E D 1 O C T O B E R 2 0 2 2
Share
capital
$m
Share
premium
$m
Hedging
reserve
$m
Other
reserves
$m
Retained
earnings
$m
Note
At 26 September 2020¹
Loss for the period
Net exchange differences offset in reserves
Deferred tax relating to other temporary differences
Remeasurement gain recognised on retirement
benefit scheme
Deferred tax relating to change in tax rates
Deferred tax relating to retirement benefit scheme
Total comprehensive income/(expense) for the period
Dividends paid
Own shares acquired
Fair value of share-based payments
Current tax relating to employee share schemes
charged to equity
Deferred tax relating to employee share schemes
charged directly to equity
At 2 October 2021¹
Loss for the period
Net exchange differences offset in reserves
Current tax relating to other temporary differences
Remeasurement gain recognised on retirement
benefit scheme
Deferred tax relating to change in tax rates
Deferred tax relating to retirement benefit scheme
Interest rate swaps – cash flow hedge
Current tax on interest rate swaps – cash flow hedge
Total comprehensive income for the period
Dividends paid
Own shares acquired
Fair value of share-based payments
Deferred tax relating to employee share schemes
charged directly to equity
2.6
6.2
2.6
2.6
5.6
5.5
6.3
2.6
2.6
2.6
6.2
2.6
2.6
5.4
2.6
5.6
5.5
6.3
2.6
50.3
54.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
50.3
54.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.5
(0.1)
0.4
–
–
–
–
(15.6)
–
0.6
–
–
–
–
0.6
–
–
–
–
–
(15.0)
–
0.8
–
–
–
–
–
–
0.8
–
–
–
–
At 1 October 2022¹
50.3
54.3
0.4
(14.2)
140.5
(25.6)
–
0.3
16.2
4.1
(3.1)
(8.1)
(12.1)
(4.3)
0.5
1.2
(1.9)
115.8
(7.6)
–
(0.1)
50.1
(3.4)
(9.6)
–
–
29.4
(13.4)
(12.4)
1.0
(0.7)
119.7
Total
equity
$m
229.5
(25.6)
0.6
0.3
16.2
4.1
(3.1)
(7.5)
(12.1)
(4.3)
0.5
1.2
(1.9)
205.4
(7.6)
0.8
(0.1)
50.1
(3.4)
(9.6)
0.5
(0.1)
30.6
(13.4)
(12.4)
1.0
(0.7)
210.5
1
In previous periods, the Group reported financial statements to 30 September, this being the Company’s accounting reference date. Headings for the current and prior period now show the actual
dates to which the financial statements were drawn up. This has no impact on previously reported numbers.
Other reserves consist of the capital redemption reserve of $0.6 million (2021: $0.6 million) and the translation reserve of ($14.8) million (2021: ($15.6) million).
All movements in other reserves relate to the translation reserve.
130
Avon Protection plc Annual Report and Accounts 2022
A C C O U N T I N G P O L I C I E S A N D C R I T I C A L A C C O U N T I N G J U D G E M E N T S
F O R T H E 5 2 W E E K S E N D E D 1 O C T O B E R 2 0 2 2
Section 1 – 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 periods presented, unless otherwise stated.
Basis of preparation
Avon Protection plc is a public limited company incorporated and
domiciled in England and Wales and its ordinary shares are traded on the
London Stock Exchange.
The financial period presents 52 weeks ended 1 October 2022 (prior
financial period 53 weeks ended 2 October 2021). The Company previously
reported that the reporting date for the latest annual financial statements
was 30 September 2021, being the Company’s accounting reference date.
The actual date to which the financial statements were drawn up was
2 October 2021 and therefore the headings of the financial statements
have been amended accordingly. This has no impact on previously
reported numbers.
The financial statements have been prepared in accordance with U.K.
adopted International Accounting Standards. The financial statements
have been prepared under the historical cost convention except for
derivative instruments which are held at fair value through profit or loss.
Going concern
The financial statements have been prepared on a going concern basis,
which the Directors believe to be appropriate for the following reasons:
The Directors have prepared a going concern assessment covering the
12-month period from the date of approval of these financial statements.
The assessment indicates that the Group will have sufficient funds to meet
its liabilities as they fall due for that period.
As part of their assessment, the Directors considered a base case and a
severe downside scenario involving a 27% decline in bank-determined
adjusted EBITDA against the base case. Even in this severe downside
scenario, the assessment indicates that the Group will have sufficient funds
to meet its liabilities as they fall due, and will continue to comply with its
loan covenants, throughout the forecast period. The Group has committed
RCF facilities of $200 million (see note 5.1) and related loan covenants
include a limit of 3.0 times for the ratio of net debt, excluding lease
liabilities, to bank-determined adjusted EBITDA (leverage).
On this basis, the Directors are confident that the Group and Company
will have sufficient funds to continue to meet their liabilities as they fall
due for at least 12 months from the approval of these financial statements.
Accordingly the Group and Company continue to adopt the going
concern basis in preparing their financial statements.
Revision to IFRS not applicable in 2022
Standards and interpretations issued by the IASB are only applicable
if endorsed by the U.K. The Group does not consider that any of the
below standards, amendments or interpretations issued by the IASB,
but not yet applicable, will have a material impact on the consolidated
financial statements:
•
IFRS 17 Insurance Contracts (effective date 1 January 2023)
• Amendments to IAS 1 Presentation of Financial Statements:
Classification of Liabilities as Current or Non-current and Making
Materiality Judgements (effective date 1 January 2023)
• Amendments to IAS 37: Onerous Contracts (effective date 1
January 2022)
• Amendments to References to the Conceptual Framework in IFRS 3
(effective date 1 January 2022)
• Amendments to IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors (effective date 1 January 2023)
• Amendments to IAS 12 income Taxes: Deferred Tax Related to Assets
and Liabilities Arising from a Single Transaction (effective date
1 January 2023)
Effective dates are for annual periods beginning on or after the
dates stated.
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.
Inter-group transactions, balances and unrealised gains and losses on
transactions between Group companies are eliminated.
Foreign currencies
The results and financial position of all subsidiaries and associates that
have a functional currency different from U.S. dollars are translated into
U.S. dollars as follows:
• assets and liabilities are translated at the closing rate at the balance
sheet date; and
•
income and expenses are translated at an average exchange rate for the
month where the relevant rate approximates to the foreign exchange
rates ruling at the dates of the transactions.
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 entities with a functional currency other than U.S. dollars,
and of borrowings and other currency instruments designated as hedges
of such investments, are taken to shareholders’ equity. When an entity with
a functional currency other than U.S. dollars 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 in an entity’s functional
currency accounts 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;
• Amendments to IAS 16 Property, Plant and Equipment (effective date
• the transaction price has been allocated to the performance obligations
1 January 2022)
within the contract; and
• Annual Improvements to IFRS Standards 2018 – 2020 (effective date
•
revenue is recognised as or when a performance obligation is satisfied.
1 January 2022)
Annual Report and Accounts 2022 Avon Protection plc
131
FINANCIAL STATEMENTS A C C O U N T I N G P O L I C I E S A N D C R I T I C A L A C C O U N T I N G J U D G E M E N T S
F O R T H E 5 2 W E E K S E N D E D 1 O C T O B E R 2 0 2 2 C O N T I N U E D
Employee benefits
Pension obligations and post-retirement benefits
The Group has both defined benefit and defined contribution plans.
The defined benefit plan’s asset or liability as recognised in the balance
sheet is the present value of the defined benefit obligation at the
balance sheet date less the fair value of plan assets. The defined benefit
obligation is calculated annually by independent actuaries using the
projected unit credit method. The present value of the defined benefit
obligation is determined by discounting the estimated cash outflows
using interest rates of high-quality corporate bonds that are denominated
in the currency in which the benefits will be paid, and that have terms
to maturity approximating to the terms of the related pension liability.
Actuarial gains and losses arising from experience adjustments and
changes in actuarial assumptions are recognised in full in the period
in which they occur, as part of other comprehensive income. 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.
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.
Exceptional items
Transactions are classified as exceptional where they relate to an event
that falls outside of the underlying trading activities of the business and
where individually or in aggregate they have a material impact on the
financial statements.
Revenue continued
Revenue recognition continued
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.
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. 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.
Contract assets and liabilities
Assets and liabilities arising from contracts with customers are separately
identified. Contract assets relate to consideration recognised for work
completed but not billed at the balance sheet date. Contract liabilities
relate to consideration received but not recognised as revenue at the
balance sheet date. See notes 4.2 and 4.4 for further details.
Segment reporting
Segments are identified based on how management monitors
the business.
An operating segment is a component of an entity:
• that engages in business activities from which it may earn revenues
and incur expenses (including revenues and expenses relating to
transactions with other components of the same entity);
• whose operating results are regularly reviewed by the entity’s chief
operating decision maker to make decisions about resources to be
allocated to the segment and assess its performance; and
•
for which discrete financial information is available.
Operating segments are aggregated into a single reportable segment
only when the segments have similar economic characteristics, and the
segments are similar in each of the following respects:
• the nature of the products and services;
• the nature of the production processes;
• the type or class of customer for their products and services;
• the methods used to distribute their products or provide their
services; and
• the nature of the regulatory environment.
The Group Executive team, being the Chief Operating Decision Maker,
assesses the performance of operating segments based on measures of
revenue, adjusted EBITDA and adjusted operating profit, as well as other
measures not defined under IFRS including orders received, closing order
book, organic revenue growth, EBITDA margin, cash conversion and return
on capital employed. Further details on these measures can be found in
the Adjusted Performance Measures section.
The Group has, following a reorganisation, two different operating
and reportable segments, these being the core respiratory and head
protection business and the armor business which is in the process of
being wound down. In the prior period, the sole reportable segment was
made up of two operating segments, Team Wendy and Avon Protection.
Avon Protection has been disaggregated into armor and respiratory and
head protection following the decision to close the armor business. Team
Wendy has been fully integrated into the wider respiratory and head
protection segment in the current financial period.
132
Avon Protection plc Annual Report and Accounts 2022
Intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair
value of the Group’s share of the identifiable net assets of the acquired
subsidiary at the date of acquisition. Identifiable net assets include
intangible assets other than goodwill. Any such intangible assets are
amortised over their expected future lives unless they are regarded
as having an indefinite life, in which case they are not amortised, but
subjected to annual impairment testing in a similar manner to goodwill.
Since the transition to IFRS, goodwill arising from acquisitions of
subsidiaries after 3 October 1998 is included in intangible assets. 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 period 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 period in which the product is available for sale.
Development costs capitalised are tested for impairment annually where
not yet ready for use or whenever there is an indication that the asset
may be impaired. Any impairment is recognised immediately in the
Consolidated Statement of Comprehensive Income.
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.
Computer software
Computer software is included in intangible assets at cost and amortised
over its estimated life of three to ten years.
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 to 15 years
• Customer relationships – three to 14 years
• Order backlog – three months to one year
• Technology and licence agreements – two to ten years
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
• 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 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. These are included in the Consolidated
Statement of Comprehensive Income.
Leases
Right of use assets and lease liabilities are recognised at the
commencement date of the contract for all leases conveying the right to
control the associated asset for a period of time.
The right of use assets are initially measured at cost, which comprises the
initial measurement of the lease liability plus an estimate of dilapidation
provisions (note 7.1) where required. Subsequently the right of use assets
are measured at cost less accumulated depreciation, any accumulated
impairment losses and adjusted for any remeasurement of the lease liability.
Depreciation is calculated on a straight-line basis over the life of the lease.
In general the lives used are:
• Leasehold property – period of the lease
The lease liability is initially measured at the present value of the lease
payments due over the life of the lease. The lease payments are discounted
at the rate implicit in the lease or if that is not readily determined using the
Group’s incremental borrowing rate.
The lease term is determined with reference to any non-cancellable period
of lease contracts plus any periods covered by an option to extend/
terminate the lease if it is considered reasonably certain that the option
will/will not be exercised. In concluding whether or not it is reasonably
certain an option will be exercised for new leases management has
considered the three-year strategic outlook for the Group and other
operational factors.
Subsequently the lease liability is measured by increasing the carrying
value to reflect interest on the liability and reducing the carrying value to
reflect lease payments made.
The carrying value of lease liabilities and associated assets will
be remeasured to reflect any changes to the lease or other
assumptions applied.
Annual Report and Accounts 2022 Avon Protection plc
133
FINANCIAL STATEMENTS A C C O U N T I N G P O L I C I E S A N D C R I T I C A L A C C O U N T I N G J U D G E M E N T S
F O R T H E 5 2 W E E K S E N D E D 1 O C T O B E R 2 0 2 2 C O N T I N U E D
Leases continued
The Group acts as an intermediate lessor for certain properties, and
accounts for its interests in relevant head leases and subleases separately.
Lease classification of the sublease between finance and operating
is assessed with reference to the right of use asset arising from the
head lease.
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 outstanding forward exchange contracts, interest rate
swaps and corresponding hedged items 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.
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; and
•
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.
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 period 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.
134
Avon Protection plc Annual Report and Accounts 2022
Judgements and estimates
Development costs
The Group capitalises the development costs of new products and
processes as intangible assets or property, plant and equipment.
Initial capitalisation and any subsequent impairment are based on
management’s judgement of technological and economic feasibility,
including regulatory approvals required and forecast customer demand.
In determining the amounts to be capitalised the Group makes estimates
regarding the expected future cash generation of the project, discount
rates to be applied and the expected period of benefits. If either
technological or economic feasibility is not demonstrated then the
capitalised costs will be written off to the income statement.
Intangible assets are tested for impairment by grouping development
assets into the smallest identifiable group of assets generating future
cash flows largely independent from other assets (CGUs). Included in
these CGUs are development expenditure, tangible assets related to
the product group and acquired intangibles where associated with the
development project.
Significant judgements and estimates made and sensitivity in respect of
the assumptions used that could have a significant impact on the carrying
value of assets in determining the carrying amount of development costs
at the balance sheet date are disclosed in note 3.1.
Estimating the defined benefit pension scheme assets
and 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.
The investments held by the pension scheme include both quoted and
unquoted securities, the latter which by their nature involve assumptions
and estimates to determine their fair value. Where there is not an active
market for the unquoted securities the fair value of these assets is
estimated by the pension trustees based on advice received from the
investment manager whilst also using any available market evidence
of any recent transactions for an identical asset. The assumptions
used in valuing unquoted investments are affected by current market
conditions and trends which could result in changes in fair value after the
measurement date.
See note 6.2 for further details.
Taxation continued
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.
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.
Business combinations
Business combinations are accounted for using the acquisition accounting
method. Identifiable assets and liabilities acquired are measured at fair
value at acquisition date. Costs related to the acquisition, other than
those associated with the issue of debt or equity securities, are expensed
as incurred. Any contingent consideration payable is recognised at fair
value at the acquisition date. If the contingent consideration is classified
as equity, it is not remeasured and settlement is accounted for within
equity. Otherwise, subsequent changes to the fair value of the contingent
consideration are recognised in profit or loss. Unwinding of discount on
contingent consideration is included within finance costs. Changes to the
fair value arising from changes in the contingent element, for example,
expected cash to be paid, or timing of when payments will be made, are
included in general and administrative expenses.
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.
Annual Report and Accounts 2022 Avon Protection plc
135
FINANCIAL STATEMENTS N O T E S T O T H E G R O U P F I N A N C I A L S T A T E M E N T S
F O R T H E 5 2 W E E K S E N D E D 1 O C T O B E R 2 0 2 2
Section 2 – Results for the period
Within this section you will find disclosures explaining the Group’s results for the period, segmental information, earnings per share and taxation, as well
as details of the discontinued operations.
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, following a reorganisation, two different operating and reportable segments, these being the core respiratory and head protection
business and the armor business which is in the process of being wound down. In the prior period, the sole reportable segment was made up of two
operating segments, Team Wendy and Avon Protection. Avon Protection has been disaggregated into armor and respiratory and head protection
following the decision to close the armor business. Team Wendy has been fully integrated into the wider respiratory and head protection segment.
Revenue
Adjusted EBITDA
Depreciation and amortisation
Impairment charges
Amortisation of acquired intangibles
Operating (loss)/profit
Finance costs
(Loss)/profit before taxation
Taxation
(Loss)/profit for the period from continuing operations
Discontinued operations – loss for the year
(Loss)/profit for the year
Total assets
Basic earnings per share (cents)
Diluted earnings per share (cents)
Revenue
Adjusted EBITDA
Depreciation and amortisation
Impairment charges
Amortisation of acquired intangibles
Operating (loss)/profit
Finance costs
(Loss)/profit before taxation
Taxation
(Loss)/profit for the year from continuing operations
Discontinued operations – loss for the year
(Loss)/profit for the year
Total assets
Basic earnings per share (cents)
Diluted earnings per share (cents)
52 weeks ended 1 October 2022
Respiratory and
head protection
$m
Adjustments and
discontinued ¹
$m
263.5
38.8
(15.0)
(0.4)
–
23.4
(3.7)
19.7
(3.1)
16.6
–
16.6
324.8
54.7c
54.7c
–
(1.2)
–
(4.2)
(6.8)
(12.2)
(2.4)
(14.6)
2.8
(11.8)
(2.0)
(13.8)
–
(45.5)c
(45.5)c
Armor
$m
8.4
(13.3)
–
–
–
(13.3)
(0.3)
(13.6)
3.2
(10.4)
–
(10.4)
23.2
(34.3)c
(34.3)c
53 weeks ended 2 October 2021
Armor
$m
Respiratory and
head protection
$m
Adjustments and
discontinued ¹
$m
6.5
(8.4)
(2.1)
–
–
(10.5)
(0.3)
(10.8)
2.3
(8.5)
–
(8.5)
14.5
(27.7)c
(27.7)c
241.8
46.0
(13.1)
(0.4)
–
32.5
(2.8)
29.7
(2.6)
27.1
–
27.1
384.2
88.3c
88.3c
–
9.0
–
(45.8)
(14.2)
(51.0)
(3.5)
(54.5)
11.4
(43.1)
(1.1)
(44.2)
–
(144.1)c
(144.1)c
Total
$m
271.9
24.3
(15.0)
(4.6)
(6.8)
(2.1)
(6.4)
(8.5)
2.9
(5.6)
(2.0)
(7.6)
348.0
(25.1)c
(25.1)c
Total
$m
248.3
46.6
(15.2)
(46.2)
(14.2)
(29.0)
(6.6)
(35.6)
11.1
(24.5)
(1.1)
(25.6)
398.7
(83.5)c
(83.5)c
1
Please refer to Adjusted Performance Measures section for a full breakdown of adjusted measures, including a reconciliation between adjusted EBITDA and statutory operating profit by line item on page 113.
Revenue includes $107.1 million (2021: $130.8 million) of revenues from the U.S. DOD, sold directly and through indirect channels, the only customer which
individually contributes more than 10% to Group revenues.
136
Avon Protection plc Annual Report and Accounts 2022
Section 2 – Results for the period continued
2.1 Operating segments continued
Revenue analysed by geographic origin
Europe
U.S.
Total
Revenue by line of business – restated1
2022
$m
73.0
198.9
271.9
52 weeks ended 1 October 2022
53 weeks ended 2 October 2021¹
Respiratory
$m
Head
protection
$m
63.2
40.5
89.3
193.0
35.5
25.2
9.8
70.5
Armor
$m
8.4
–
–
8.4
Respiratory
$m
Head
protection
$m
86.1
40.4
42.1
168.6
39.1
22.4
11.7
73.2
Total
$m
107.1
65.7
99.1
271.9
Armor
$m
6.5
–
–
6.5
U.S. DOD
Commercial Americas
U.K. & International
2021
$m
32.3
216.0
248.3
Total
$m
131.7
62.8
53.8
248.3
1
Following a re-organisation and further integration of Team Wendy, the Group classifies revenue into U.S. DOD (comprising all U.S. military revenue), Commercial Americas (which includes U.S. first
responder plus all revenue from other parts of the Americas), and U.K. & International (comprising all revenue outside the continents of America). Prior period figures have been reclassified so they are
presented on a consistent basis with the current period.
Revenue by nature of performance obligation
Sale of goods1
Provision of services2
2022
$m
270.7
1.2
271.9
2021
$m
246.5
1.8
248.3
1 Products transferred to the customer and therefore revenue recognised at a point in time.
2 Products and services transferred over time and therefore revenue recognised over that period of time.
2.2 Discontinued operations
In September 2020 the Group disposed of the entire milkrite | InterPuls business. As a result of the divestment the milkrite | InterPuls business has been
classified as discontinued. As part of the sale and purchase agreement, the Group entered into a Manufacturing Service Agreement with the purchasers
of milkrite | InterPuls to provide ongoing manufacturing whilst arrangements are made to relocate manufacturing equipment from our U.K. facility. The
Group also entered into agreements to provide certain other information technology and administrative services under a 12-month Transitional Services
Agreement which has now concluded. As the activities under these agreements are not part of the continuing operations of the Group, the revenue and
costs during the period associated with these agreements have been classified as discontinued operations.
The results of discontinued operations are as follows:
Revenue
Cost of sales
Gross loss
General and administrative expenses
Operating loss
Finance costs
Loss before taxation
Taxation
Loss from discontinued operations
Basic earnings per share
Diluted earnings per share
2022
$m
3.2
(5.8)
(2.6)
–
(2.6)
–
(2.6)
0.6
(2.0)
(6.6c)
(6.6c)
2021
$m
4.1
(5.3)
(1.2)
(0.9)
(2.1)
–
(2.1)
1.0
(1.1)
(3.6c)
(3.6c)
Annual Report and Accounts 2022 Avon Protection plc
137
FINANCIAL STATEMENTS Section 2 – Results for the period continued
2.2 Discontinued operations continued
Cash flows from discontinued operations included in the cash flow statement are as follows:
Net cash flows from operating activities
Net cash flows from investing activities
Net cash flows from discontinued operations
2022
$m
(1.3)
–
(1.3)
2021
$m
(3.3)
2.8
(0.5)
2.3 Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in
issue during the period, excluding those held in the employee share ownership trust. The Company has dilutive potential ordinary shares in respect of the
Performance Share Plan.
Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below. As the Group was loss making on a
statutory basis in the current and prior periods, basic and diluted earnings per share are equivalent.
Weighted average number of shares
Weighted average number of ordinary shares in issue used in basic calculations (‘000)
Potentially dilutive shares (weighted average) (‘000)
Diluted number of ordinary shares (weighted average) (‘000)
Earnings
Basic
Basic – continuing operations
Basic – discontinued operations
Earnings per share
Basic
Basic – continuing operations
Basic – discontinued operations
Diluted
Diluted – continuing operations
Diluted – discontinued operations
2022
30,308
221
30,529
2022
$m
(7.6)
(5.6)
(2.0)
2021
30,669
189
30,858
2021
$m
(25.6)
(24.5)
(1.1)
2022
$ cents
2021
$ cents
(25.1)
(18.5)
(6.6)
(25.1)
(18.5)
(6.6)
(83.5)
(79.9)
(3.6)
(83.5)
(79.9)
(3.6)
138
Avon Protection plc Annual Report and Accounts 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED Section 2 – Results for the period continued
2.4 Expenses by nature
Employee and other staff costs1
Legal and professional fees
Depreciation and amortisation charges (notes 3.1 and 3.2)
Impairment charges (including $0.4m restructuring-related impairment)
Exchange differences
Transportation expenses
Material costs
Release of contingent consideration
Acquisition related costs
Restructuring costs (excluding $0.4m restructuring-related impairment)
Transaction costs
Other expenses
Total cost of sales, selling and distribution costs and general and administrative expenses
2022
$m
81.7
10.9
21.8
4.6
0.3
9.2
109.7
(3.9)
–
2.9
0.6
36.2
274.0
2021
$m
67.1
9.7
29.4
46.2
1.9
7.0
92.0
(15.7)
2.6
–
–
37.1
277.3
1
Employee costs disclosed in note 2.4 are presented on a continuing basis for all staff-related costs expensed to the Consolidated Statement of Comprehensive Income. They do not therefore reconcile
to note 6.1
Expenses include $3.8 million (2021: $1.8 million) of staff costs and overheads in relation to expensed research and development expenditure.
2.5 (Loss)/profit before taxation
(Loss)/profit before taxation is shown after charging/(crediting):
Loss on disposal of property, plant and equipment
Repairs and maintenance of property, plant and equipment
Research and development
Impairment of trade receivables (note 5.4)
Services provided to the Group (including its overseas subsidiaries) by the Company’s auditor:
Audit fees in respect of the audit of the accounts of the Group including subsidiaries
Audit fees in respect of the audit of the accounts of the Parent Company
Total audit fees
2022
$m
2021
$m
–
4.2
3.8
0.1
1.0
0.2
1.2
–
0.5
1.8
(0.2)
0.6
0.2
0.8
Annual Report and Accounts 2022 Avon Protection plc
139
FINANCIAL STATEMENTS
Section 2 – Results for the period continued
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/(credit)
Deferred tax – current period
Deferred tax – adjustment in respect of previous periods
Total deferred tax charge
Total tax credit
2022
$m
0.7
(0.6)
0.1
0.1
0.3
(4.1)
0.9
(3.2)
(2.9)
2021
$m
0.4
–
(2.7)
(0.6)
(2.9)
(6.5)
(1.7)
(8.2)
(11.1)
The overseas adjustment in respect of the prior period of $0.1 million (2021: credit of $0.6 million) includes a $0.3 million credit in connection with the
resolution of a number of prior period uncertain tax positions (2021: $0.3 million).
The above table excludes tax on discontinued operations which amounted to a credit of $0.6 million in the current period (2021: credit of $1.0 million).
The U.K. Budget Announcement on 3 March 2021 stated that the corporation tax rate would increase to 25% (effective 1 April 2023); this increase was
substantively enacted on 14 May 2021 and will increase the Company’s future current tax charge accordingly. The impact of this increase is also reflected
in these financial statements for all U.K. deferred tax assets.
The tax on the Group’s (loss)/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:
Loss before taxation
Taxation at the average standard rate of 19.0% (2021: 19.0%)
Tax allowances (U.K. and U.S.)
Non-deductible expenses
Changes in tax rates
Differences in overseas tax rates
Adjustment in respect of previous periods
Total tax credit
2022
$m
(8.5)
(1.6)
(0.4)
0.2
(0.8)
(0.7)
0.4
(2.9)
2021
$m
(35.6)
(6.8)
(0.3)
0.2
(0.9)
(0.7)
(2.6)
(11.1)
The income tax charged directly to other comprehensive income during the period was $0.2 million (2021: credit of $1.2 million). The deferred tax charged
directly to other comprehensive income during the period was $15.7 million (2021: credit of $2.6 million). The deferred tax charged directly to equity
during the period was $0.7 million (2021: $1.9 million).
Deferred tax liabilities
At 26 September 2020
Charged to profit for the period
At 2 October 2021
Credited to profit for the period
At 1 October 2022
Accelerated
capital allowances
$m
5.6
0.5
6.1
(0.3)
5.8
Total
$m
5.6
0.5
6.1
(0.3)
5.8
140
Avon Protection plc Annual Report and Accounts 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED Section 2 – Results for the period continued
2.6 Taxation continued
Deferred tax assets
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.
Retirement
benefit
obligation
$m
Share
options
$m
Accelerated
capital
allowances
$m
Tax
losses
$m
Pension
spreading
$m
Intangibles
$m
Right of
Use Assets
$m
Other
temporary
differences
$m
Total
$m
At 26 September 2020
15.1
Credited/(charged) against profit
for the period
Impact of change in tax rates
credited to profit for the period
(Charged)/credited to other
comprehensive income
Impact of change in tax rates
credited to other
comprehensive income
Exchange differences offset
in reserves
Charged to equity
At 2 October 2021
Credited/(charged) against profit
for the period
Impact of change in tax rates
credited to profit for the period
Charged to other
comprehensive income
Impact of change in tax rates
charged to other
comprehensive income
Exchange differences offset
in reserves
Charged to equity
At 1 October 2022
–
–
(3.1)
4.1
1.0
–
17.1
(1.2)
–
(9.6)
(3.4)
(1.3)
–
1.6
2.9
0.1
–
–
–
0.2
(1.9)
1.3
0.2
–
–
–
(0.2)
(0.7)
0.6
0.1
(0.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
1.2
3.4
0.6
–
–
(0.1)
–
5.1
1.9
–
–
–
(0.6)
–
6.4
3.7
(1.3)
0.2
–
–
0.2
–
2.8
2.5
5.0
–
–
–
–
–
0.5
2.8
0.1
–
–
–
–
3.7
29.7
(1.0)
–
8.9
0.9
0.3
(2.8)
–
–
–
4.1
1.3
(1.9)
7.5
3.4
3.0
40.2
(0.4)
(1.6)
(0.2)
4.4
3.1
(0.2)
–
–
(0.1)
–
2.1
–
–
–
–
–
–
–
–
–
–
5.9
3.2
–
–
–
(0.5)
–
6.9
(0.2)
(9.6)
(3.4)
(2.7)
(0.7)
26.7
The standard rate of corporation tax in the U.K. is 19%. The Group has unrecognised deferred tax assets of $3.8 million (2021: $4.7 million) in respect of
capital losses where it is not considered that there will be sufficient available future profits to utilise these losses. The gross amount of unrecognised
deferred tax assets is $15.2 million and has no expiry date.
Deferred tax on pension spreading relates to excess pension contributions made in the previous periods and in the current period for which tax relief is
spread across four years.
$2.8 million (2021: $1.6 million) of the deferred tax asset within other temporary differences relates to inventory reserves and differing cost capitalisation
rules for accounting and tax purposes. $1.8 million of deferred taxes within other temporary differences relates to the deductability of business interest
expense under IRC Section 163(j), with the remainder of other temporary differences relating to a number of smaller timing differences between the tax
and accounting treatment.
Annual Report and Accounts 2022 Avon Protection plc
141
FINANCIAL STATEMENTS Section 3 – Non-current assets
3.1 Intangible assets
At 26 September 2020
Cost
Accumulated amortisation and impairment
Net book amount
53 weeks ended 2 October 2021
Opening net book amount
Exchange differences
Additions
Acquisitions
Armor-related impairments
Other impairments
Amortisation
Closing net book amount
At 2 October 2021
Cost
Accumulated amortisation and impairment
Net book amount
52 weeks ended 1 October 2022
Opening net book amount
Exchange differences
Additions
Impairments
Amortisation
Closing net book amount
At 1 October 2022
Cost
Accumulated amortisation and impairment
Net book amount
Goodwill
$m
Acquired
intangibles
$m
Development
expenditure
$m
Computer
software
$m
30.3
–
30.3
30.3
0.2
–
58.3
–
–
–
88.8
88.8
–
88.8
88.8
(0.1)
–
–
–
88.7
88.7
–
88.7
46.5
(13.8)
32.7
32.7
–
–
51.7
(11.3)
–
(14.2)
58.9
98.2
(39.3)
58.9
58.9
–
–
–
(6.8)
52.1
98.2
(46.1)
52.1
49.4
(29.0)
20.4
20.4
0.2
15.0
–
(8.1)
(0.3) 1
(4.0)
23.2
64.6
(41.4)
23.2
23.2
(1.2)
5.8
(2.0)
(4.7)
21.1
69.2
(48.1)
21.1
10.2
(4.2)
6.0
6.0
0.6
4.9
0.1
–
(0.7) 2
(0.8)
10.1
15.1
(5.0)
10.1
10.1
–
0.2
–
(1.2)
9.1
15.3
(6.2)
9.1
Total
$m
136.4
(47.0)
89.4
89.4
1.0
19.9
110.1
(19.4)
(1.0)
(19.0)
181.0
266.7
(85.7)
181.0
181.0
(1.3)
6.0
(2.0)
(12.7)
171.0
271.4
(100.4)
171.0
1 An ongoing development project was written off during the prior period as a tender to obtain additional third party funding was not successful.
2
Computer software includes the write down of $0.7 million brought forward capitalised costs relating to the configuration and customisation costs in cloud computing arrangements; see adjusted
performance measures.
The remaining useful economic life of the development expenditure is between four and ten years.
142
Avon Protection plc Annual Report and Accounts 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED Section 3 – Non-current assets continued
3.1 Intangible assets continued
Impairment review
Development costs
The Group tests development cost assets not yet ready for use annually for impairment, or more frequently if there are indications of impairment.
Intangible assets are tested for impairment by grouping development assets into the smallest identifiable group of assets generating future cash flows
largely independent from other assets (CGUs). Included in these CGUs are development expenditure as well as tangible assets related to the product
group. The CGUs have been tested against their recoverable amount deemed to be their value in use. Cash flows were discounted to give a present
value using pre-tax discount rates ranging between 17.5% and 29.1% (2021: 10.4%–37.2%) depending on the deemed associated risk profiles of each CGU.
Discount factors applied to each CGU change year on year, driven by varying market factors and perceived risk profiles for each CGU. The increase of the
risk-free rate in the current financial period has led to increased discount factors.
As a result of the review for the period, the following impairment charges were identified:
• General Service Respirator (GSR), fully impaired by $2.9 million due to a change made on costing assumptions and forecast cash flow periods, driven by
changes in market factors ($0.7 million development expenditure, $2.2 million plant and machinery);
• other respiratory asset development expenditure, impaired by $1.1 million due to a change in expected forecast cash flows and changing market
factors. $0.7 million of these impairments were considered exceptional, due to their materiality (see alternative performance measures); and
• armor-specific development expenditure, exceptionally impaired by $0.2 million for a small number of reclassified assets.
Following the impairment charges recognised, recoverable amounts were equal to carrying amounts.
For the GSR the following key assumptions were used as part of the value in use analysis:
• a pre-tax discount rate of 24.1%; and
• cash flow over a period of 2.5 years, including an assumption of contractual extensions and improved gross profit margins.
Sensitivity analysis has shown that if operating profit margins for this product improved by a further 25% in the extended contract periods, a full
impairment would still need to be recognised.
Sensitivity analysis on other respiratory assets has shown that a decrease in forecast net cash flows from the relevant product range by 10% would lead to
an additional impairment of $0.2m.
At the year end $12.2 million of development costs relate to technology under development (2021: $13.0 million), including $1.5 million subject to final
feasibility tests (2021: $3.9 million). If final feasibility tests are unsuccessful or delayed such that the projected economic benefit will not be achieved in the
asset’s lifetime, these costs, along with associated assets, could be subject to impairment.
New product development in its early development stages is subject to assumptions made regarding demands in the market. If such demand did
not materialise approximately 9% of capitalised development costs ($1.9 million) could be subject to impairment, along with associated assets (2021:
$1.0 million).
Goodwill impairment testing
Separately, goodwill was tested for impairment by comparing the carrying values against the value in use of the relevant CGU group, being the respiratory
and head protection operating segment which is now the only operating segment with goodwill (see goodwill section below). The value in use
calculations were based on projected cash flows derived from the latest three-year plan approved by the Board. Cash flows for beyond three years for the
respiratory and head protection CGU were projected to grow by 2.0% p.a. Cash flows were discounted to give a present value using a pre-tax discount rate
of 14.3% (2021: 8.9%). The post-tax discount rate applied across the Group was 9.9% (2021: 7.4%). These discount rates were derived using external expert
advice taking into consideration current market conditions based on U.S. market data.
Sensitivity analysis demonstrates that a decrease in forecast EBITDA of more than 31% (2021: 58%) could be sustained before an impairment may be
required. In addition, increasing the discount rate by 2% would not lead to any indications of impairment.
2021 armor-related impairments
On 12 November 2021 the Group announced the next generation VTP ESAPI body armor product had failed first article testing. This followed a similar
result in December 2020 for the legacy DLA ESAPI body armor product. It was also announced that the Group was experiencing further delays to
achieving final product approval for the DLA ESAPI product.
The failure of the VTP ESAPI body armor product was considered an adjusting event that provides evidence of conditions that existed at the end of the
reporting period. As such the Group’s impairment review of assets at 2 October 2021 included the removal of all future revenue for VTP ESAPI body armor.
The impairment review also incorporated reduced revenue expectations for DLA ESAPI.
Annual Report and Accounts 2022 Avon Protection plc
143
FINANCIAL STATEMENTS Section 3 – Non-current assets continued
3.1 Intangible assets continued
2021 armor-related impairments continued
Impairment testing at 2 October 2021 for assets related to the armor business was performed at multiple levels as these assets generate cash inflows along
with assets in other parts of the Group. The levels of impairment testing were as follows:
1) Product level – VTP ESAPI and DLA ESAPI are both separate products. Included in these CGUs are development expenditure, tangible assets related to
the product group, inventory and acquired intangibles where associated with the development project.
2) Armor business level – this includes the VTP ESAPI and DLA ESAPI CGUs, and other armor specific assets such as acquired intangibles as well as PPE
(including right of use assets) which solely relate to the entire armor business.
3) Ballistic level – this includes the armor business assets, and the assets related to the acquired Ceradyne helmet business.
4) Avon Protection business level – this includes ballistic assets and other assets that make up the Avon Protection operating segment, including goodwill
relating to the Ceradyne acquisition (see below).
The impairment review of the prior period resulted in total non-current asset impairment of $45.1 million in respect of assets relating to the Ceradyne
armor business acquired from 3M as part of the ballistic protection acquisition – these arose at the individual product level and the armor business level.
In addition, inventory provisions of $1.7 million were recognised against VTP ESAPI armor materials. Offsetting these charges, a gain of $15.7 million was
recognised to reduce the net present value of the contingent consideration payable to 3M as a result of the reduced revenue expectations from the DLA
ESAPI body armor contract.
In 2022 revenue expectations from the DLA ESAPI body armor contract have further reduced, resulting in an additional gain of $3.9 million on release of
the remaining net present value of the contingent consideration payable. Offsetting this credit, inventory provisions of $1.6 million were recognised in
respect of raw materials held for the DLA ESAPI body armor contract.
The pre-tax discount rates used in FY21 in determining the value in use at each level were between 8.9% on the Avon Protection business level and 62.3%
at the product level, reflecting the level of uncertainty associated with each of the asset groups reviewed for impairment.
There was no further impairment when subsequently testing ballistic protection level assets and finally Avon Protection CGU assets against expected values
in use. Goodwill relating to the Ceradyne acquisition of $28.0 million and the Ceradyne helmet intangible assets with a carrying value of $28.9 million were
unaffected by the impairment review and have been allocated in full to the respiratory and head protection operating segment.
The impairments fully wrote down armor assets to recoverable amounts. The overall armor asset base, impairments charged and remaining recoverable
amounts at 2 October 2021 were as follows:
Armor-specific assets at 2 October 2021
Acquired intangibles
Development expenditure
Right of use assets
Plant and machinery
Leasehold improvements
Inventory
Total
Carrying value
$m
Impairment
$m
Recoverable
amounts
$m
11.3
8.1
11.7
14.4
0.1
13.3
58.9
(11.3)
(8.1)
(11.7)
(13.9)
(0.1)
(1.7)
(46.8)
–
–
–
0.5
–
11.6
12.1
There were no further additions or other changes to armor-specific non-current assets in the current period.
Recoverable amounts for plant and machinery are based on fair value less costs to sell. These are considered level 2 assets in a fair value hierarchy,
valued based on market data for resale values on disposal. The recoverable amount for all other assets is based upon the relevant value in use.
Remaining non-current assets have both fair value less costs to sell and value in use of $nil.
Changes in the discount rate or growth rate utilised in the product level and armor level reviews would not have materially changed the total impairment.
Impairments were recognised through general and administrative expenses in the Consolidated Statement of Comprehensive Income.
The failures in testing within the armor business did not impact respiratory and head protection products, and the Group remains confident future
regulatory approvals will be obtained for these businesses as required.
Goodwill
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. During the prior period additional goodwill of $58.3 million was recognised on the acquisition of the assets of Team Wendy. Subsequent
to these transactions the full carrying value of $58.3 million associated with Team Wendy was recognised in the Team Wendy CGU with the full carrying
value of $28.0 million associated with the acquisition of the 3M ballistic protection business being recognised in the Avon Protection CGU, following the
incorporation of the 3M ballistic protection business into the Avon Protection operating segment.
144
Avon Protection plc Annual Report and Accounts 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED Section 3 – Non-current assets continued
3.1 Intangible assets continued
Goodwill continued
Following a reorganisation in the current period, the Avon Protection operating segment has been disaggregated into two operating and reporting
segments, these being respiratory and head protection and armor. Team Wendy has been fully integrated into the wider respiratory and head
protection segment. As a consequence, the goodwill previously recognised within the Team Wendy CGU has been fully allocated to the respiratory
and head protection segment. On the creation of armor as a separate operating segment, the Group evaluated the allocation of goodwill generated
on the acquisition of the 3M ballistic protection business using the relative value method. On this basis, no goodwill was allocated to the armor
operating segment.
Acquired intangibles
Acquired intangibles include brands, customer relationships and other intangibles:
Brand
Customer relationships
Other intangibles
Brand
Customer relationships
Other intangibles
At 2 October
2021
Net book amount
$m
Additions
$m
Amortisation
$m
Impairment
$m
At
1 October
2022
Net book amount
$m
11.5
28.4
19.0
58.9
–
–
–
–
(1.1)
(3.0)
(2.7)
(6.8)
–
–
–
–
10.4
25.4
16.3
52.1
At 26 September
2020
Net book amount
$m
2.2
20.0
10.5
32.7
Additions
$m
Amortisation
$m
Impairment
$m
10.4
28.2
13.1
51.7
(1.1)
(10.0)
(3.1)
(14.2)
–
(9.8)
(1.5)
(11.3)
At 2 October
2021
Net book amount
$m
11.5
28.4
19.0
58.9
The valuation of acquired assets is determined at point of acquisition, using complex valuation techniques including forecasting and discounting of future
cash flows. This includes assumptions such as discount rates, royalty rates and estimates for growth rates, weighted average cost of capital and useful lives.
In the prior period, the Group acquired additional intangibles through the acquisition of the Team Wendy business (see note 7.2) which related to
trade names ($10.4 million), technology ($13.1 million) and customer contracts ($28.2 million). External experts were engaged to support the Group in
establishing appropriate estimates for the fair values of these assets. Trade names and technology were valued using the relief from royalty method, whilst
customer contracts were valued using the excess earnings method. Assumptions adopted for the valuation of the individual assets included average
annual growth rates of 4.7–5.4% for revenue forecasts, royalty rates between 1–7.5% depending on the individual assets, relevant qualitative factors and
comparable market data as well discount factors of 10.6–12.6%, based on current market data and the risks associated with each of the individual assets.
Sensitivity analysis has shown that a reduction of assumed growth rates by 2% would have led to a reduced value of $1.6 million across the acquired
intangibles with a corresponding increase in value of goodwill. A change in assumed discount factors by 1% would have led to a change in value
of $2.1 million and a 10% variance in assumed royalty rates would have led to a change in value of $2.4 million across acquired intangibles with a
corresponding change in the valuation of goodwill.
Customer relationships
Customer relationships include two separately identifiable individually material contracts, one with the National Industries for the Blind (NIB) and one
with the Defense Logistics Agency (DLA). The NIB contract was acquired in the prior period through the acquisition of Team Wendy at a fair value of
$14.9 million. As at 1 October 2022, this acquired intangible had a carrying value of $12.3 million and a remaining amortisation period of nine years.
The DLA contract was acquired in the period ending 26 September 2020 through the acquisition of the 3M ballistic protection business at a fair value of
$20.0 million and an initial amortisation period of three years. As a result of lower revenue expectations from this contract, an impairment of $8.3 million
was recognised in the prior period within general and administrative expenses to reduce the carrying value to $nil as at 2 October 2021.
Other customer relationships include those associated with the acquisition of the 3M ballistic protection business originally recognised at a fair value of
$5.9 million amortised over five years. The remaining carrying value of these assets is $1.6 million, after amortisation charges, and a $1.5 million impairment
in the prior year as a result of the armor review.
Other customer relationships also included other Team Wendy customer relationships acquired at fair value of $13.3 million. As at 1 October 2022, these
acquired intangibles had a carrying value of $11.5 million and a remaining amortisation period of 12 years.
Annual Report and Accounts 2022 Avon Protection plc
145
FINANCIAL STATEMENTS Section 3 – Non-current assets continued
3.2 Property, plant and equipment
Freeholds
$m
Lease
assets
$m
Plant and
machinery
$m
Leasehold
improvements
$m
At 26 September 2020
Cost
Accumulated depreciation and impairment
Net book amount
53 weeks ended 2 October 2021
Opening net book amount
Exchange differences
Additions
Acquisition
Reclassification
Armor review impairments
Other impairment
Depreciation charge
Closing net book amount
At 2 October 2021
Cost
Accumulated depreciation and impairment
Net book amount
52 weeks ended 1 October 2022
Opening net book amount
Exchange differences
Additions
Impairments
Depreciation charge
Closing net book amount
At 1 October 2022
Cost
Accumulated depreciation and impairment
Net book amount
2.8
(1.1)
1.7
1.7
–
0.2
–
–
–
–
(0.1)
1.8
3.0
(1.2)
1.8
1.8
–
–
–
(0.1)
1.7
3.0
(1.3)
1.7
37.5
(11.8)
25.7
25.7
0.5
1.6
3.1
–
(11.7)
–
(4.2)
15.0
42.7
(27.7)
15.0
15.0
(1.2)
2.2
(0.4)
(3.0)
12.6
43.2
(30.6)
12.6
83.8
(46.6)
37.2
37.2
0.5
9.0
5.4
(4.0)1
(13.9)
(0.1)
(5.8)
28.3
94.7
(66.4)
28.3
28.3
(0.9)
2.9
(2.2)
(5.5)
22.6
96.8
(74.2)
22.6
1.3
–
1.3
1.3
–
2.5
0.1
–
(0.1)
–
(0.3)
3.5
3.9
(0.4)
3.5
3.5
–
–
–
(0.5)
3.0
3.9
(0.9)
3.0
Total
$m
125.4
(59.5)
65.9
65.9
1.0
13.3
8.6
(4.0)
(25.7)
(0.1)
(10.4)
48.6
144.3
(95.7)
48.6
48.6
(2.1)
5.1
(2.6)
(9.1)
39.9
146.9
(107.0)
39.9
1
Following an internal review of assets acquired in the prior period as part of the acquisition of the 3M ballistic protection business, the Group has reclassified $4.0 million from fixed assets to inventory
due to the underlying nature of such assets being consumable and having a short useful economic life.
Property, plant and equipment with a net book amount of $29.4 million is located within the United States of America (2021: $35.5 million). The balance is
located in the United Kingdom.
$3.7 million (2021: $4.1 million) of expenditure included in the carrying value of plant and machinery relates to assets under construction.
The $0.4 million right of use asset impairment relates to the closure of one of our U.S. offices under the overhead reduction programme. The $2.2 million
plant and machinery impairment is detailed in note 3.1.
2021 armor review related impairments
The Group performed an impairment review of assets at 2 October 2021 following the failure of the VTP ESAPI body armor product (note 3.1). As a result of
this review impairments totalling $25.7 million were recognised on property, plant and equipment.
The right of use asset impairment of $11.7 million fully wrote down amounts relating to U.S. leasehold properties that will be vacated following closure of
the armor business.
The plant and machinery impairment of $13.9 million wrote down assets related to the armor business located at these facilities to their estimated
recoverable amount following closure of the operations.
146
Avon Protection plc Annual Report and Accounts 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED Section 4 – Working capital
This section presents disclosures around the Group’s working capital balances, inventories, trade receivables, payables and cash.
4.1 Inventories
Raw materials
Work in progress
Finished goods
Inventory – gross
Inventory provisions
Inventory – net
2022
$m
36.6
21.0
18.2
75.8
(10.2)
65.6
2021
$m
39.4
18.6
16.9
74.9
(12.6)
62.3
The cost of inventories recognised as an expense and included in cost of sales amounted to $109.7 million (2021: $92.0 million). The amount of inventory
carried as fair value less costs to sell is $nil (2021: $nil).
4.2 Trade and other receivables
Trade receivables
Less: provision for impairment of receivables
Trade receivables – net
Prepayments
Other receivables
2022
$m
26.6
(0.5)
26.1
4.3
0.2
30.6
2021
$m
39.8
(0.4)
39.4
4.4
0.9
44.7
The Group has no contract assets in the current or prior period.
See note 5.4 (ii) Credit risk for further details in relation to the Group provision for impairment of receivables. Changes in provisions for impaired receivables
are included within general and administrative expenses in the Consolidated Statement of Comprehensive Income.
4.3 Cash and cash equivalents
Cash and cash equivalents
2022
$m
9.5
2021
$m
14.1
Cash and cash equivalents are denominated in U.S. dollars, pounds sterling and euros and earn interest based on national rates.
Annual Report and Accounts 2022 Avon Protection plc
147
FINANCIAL STATEMENTS Section 4 – Working capital continued
4.3 Cash and cash equivalents continued
The Group generates cash from its operating activities as follows:
Continuing operations
Loss for the period
Adjustments for:
Taxation
Depreciation
Amortisation of intangible assets
Impairment of non-current assets (excluding $0.4m right of use asset impairment)
Defined benefit pension scheme cost
Finance costs
Other finance expense
Change in contingent consideration
Fair value of share-based payments
Acquisition costs expensed
Transaction costs expensed
Restructuring costs expensed (including $0.4m right of use asset impairment)
Increase in inventories
Decrease in receivables
Increase in payables and provisions
Cash flows from continuing operations before restructuring, transaction and acquisition costs
Restructuring, transaction and acquisition costs paid
Cash flows from continuing operations
Discontinued operations
Loss for the period
Adjustments for:
Taxation
Decrease in receivables
Increase/(decrease) in payables and provisions
Cash flows from discontinued operations
Cash flows from operations
4.4 Trade and other payables
Trade payables
Contract liabilities
Other taxation and social security
Other payables
Accruals
2022
$m
(5.6)
(2.9)
9.1
12.7
4.2
0.8
4.0
2.4
(3.9)
1.0
–
0.6
3.3
(5.0)
11.6
4.1
36.4
(1.6)
34.8
(2.0)
(0.6)
0.2
1.1
(1.3)
33.5
2022
$m
20.0
1.7
1.0
0.1
19.5
42.3
2021
$m
(24.5)
(11.1)
10.4
19.0
46.2
1.2
3.1
3.5
(15.7)
0.7
2.6
–
–
(9.7)
5.4
0.2
31.3
(4.4)
26.9
(1.1)
(1.0)
–
(1.2)
(3.3)
23.6
2021
$m
22.9
3.3
0.8
0.2
12.8
40.0
Contract liabilities represent amounts invoiced under contracts with customers but not recognised as revenue at the balance sheet date and cash
received in advance. $3.3 million (2021: $0.9 million) of the balance in contract liabilities at the start of the period was recognised as revenue in the current
period. The outstanding balance at the end of the period is expected to be recognised within the next 12 months.
Other payables comprise sundry items which are not individually significant for disclosure.
148
Avon Protection plc Annual Report and Accounts 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED Section 5 – Funding
The following section provides disclosures about the Group’s funding position, including borrowings, finance costs, exposure to financial risks and capital
management policies.
5.1 Borrowings
Current
Lease liabilities
Non-current
Bank loans
Lease liabilities
Total Group borrowings
Bank loans comprise drawings under the revolving credit facility.
The Group has the following undrawn committed facilities:
Expiring beyond one year
Total undrawn committed borrowing facilities
Bank loans and overdrafts utilised
Total Group facilities
2022
$m
4.1
53.7
19.7
73.4
77.5
2022
$m
151.3
53.7
205.0
2021
$m
4.0
40.9
25.1
66.0
70.0
2021
$m
164.1
40.9
205.0
The Group has a revolving credit facility (RCF) with a total commitment of $200 million across six lenders with an accordion option of an additional $50
million. $142 million of the facility matures on 8 September 2025. The remaining $58 million matures on 8 September 2024, subject to a one-year extension
option to 8 September 2025.
The RCF is subject to financial covenants measured on a biannual basis. These include a limit of 3.0 times for the ratio of net debt, excluding lease liabilities,
to bank-defined adjusted EBITDA (leverage). The Group was in compliance with all financial covenants during the current and prior financial periods.
The RCF is drawn in short to medium-term tranches of debt which are repayable within 12 months of draw-down. These tranches of debt can be rolled over
provided certain conditions are met, including covenant compliance. The Group considers that it is highly unlikely it would be unable to exercise its right to
roll over the debt based on forecast covenant compliance. Even in a severe downside scenario there are mitigating actions (within the control of the Group)
that could be taken to maintain compliance with these conditions, including future covenant requirements. The Directors therefore believe that the Group
has the ability and the intent to roll over the drawn RCF amounts when due and consequently has presented the RCF as a non-current liability.
The RCF is floating rate priced on the Secured Overnight Financing Rate (SOFR) plus a margin of 1.45–2.35% depending on leverage. The Group has
provided the lenders with a negative pledge in respect of certain shares in Group companies.
In addition to the RCF our U.S. operations have access to a $5.0 million overdraft facility, used to manage short-term liquidity requirements.
Annual Report and Accounts 2022 Avon Protection plc
149
FINANCIAL STATEMENTS Section 5 – Funding continued
5.1 Borrowings continued
The table below presents the maturity analysis in respect of lease liabilities and bank loans:
In one year or less, or on demand
Two to five years
More than five years
Total Group borrowings
2022
$m
4.1
65.5
7.9
77.5
2021
$m
4.0
55.8
10.2
70.0
Lease liabilities relate to land and buildings (right of use assets) leased by the Group for its office space and manufacturing facilities. The leases typically
run for a period of 5–15 years. Most leases include an option to renew the lease for an additional period of 3–10 years after the end of the contract
term. Where practicable, the Group seeks to include extension options in new leases to provide operational flexibility. The extension options held
are exercisable only by the Group and not by the lessors. The Group assesses at lease commencement whether it is reasonably certain to exercise the
extension options. It reassesses whether it is reasonably certain to exercise the options if there is a significant change in circumstances within its control
and discloses any potential future lease payments not included in lease liabilities where it is reasonably certain extension options will be exercised.
Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in the income statement.
Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT and other equipment.
2022
$m
2021
$m
(2.5)
(1.0)
(0.5)
(4.0)
(1.3)
(1.1)
(2.4)
(6.4)
(1.4)
(1.1)
(0.6)
(3.1)
(1.3)
(2.2)
(3.5)
(6.6)
Dollar
%
1.60%
2.50%
5.2 Net finance costs
Finance costs:
– Interest payable on bank loans and overdrafts
– Interest payable in respect of leases
– Amortisation of finance fees
Other finance expenses:
– Net interest cost: U.K. defined benefit pension scheme (note 6.2)
– Unwinding of discount on contingent consideration (note 7.1)
Net finance costs
The effective interest rates at the balance sheet dates were as follows:
Bank loans (interest payable on drawn facilities)
Lease liabilities
2022
2021
Sterling
%
–
7.70%
Dollar
%
4.75%
2.80%
Sterling
%
–
6.50%
Floating interest on bank loans has been hedged using interest rate swaps as described in note 5.4(iv).
Movement analysis for interest due on bank loans
At 02 October
2021
$m
Cash flow
$m
Non cash
movements
$m
Exchange
movements
$m
At 01 October
2022
$m
Interest due on bank loans
–
(2.5)
2.5
–
–
At 26 September
2020
$m
Cash flow
$m
Non cash
movements
$m
Exchange
movements
$m
At 02 October
2021
$m
Interest due on bank loans
(0.1)
(1.3)
1.4
–
–
In addition to cash flows disclosed above for interest payable, the Group paid $0.2 million in the period (2021: $0.3 million) relating to RCF extension
options (note 5.1).
150
Avon Protection plc Annual Report and Accounts 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED Section 5 – Funding continued
5.3 Analysis of net cash/(debt)
Cash and cash equivalents
Bank loans
Net debt excluding lease liabilities
Lease liabilities
Net debt
At 2 October
2021
$m
Cash flow
$m
Non-cash
movements
$m
Exchange
movements
$m
At 1 October
2022
$m
14.1
(40.9)
(26.8)
(29.1)
(55.9)
(4.2)
(12.8)
(17.0)
5.1
(11.9)
–
–
–
(1.4)
(1.4)
(0.4)
–
(0.4)
1.6
1.2
9.5
(53.7)
(44.2)
(23.8)
(68.0)
At 26 September
2020
$m
Cash flow
$m
Non-cash
movements
$m
Exchange
movements
$m
At 2 October
2021
$m
Cash and cash equivalents
Bank loans
Net cash/(debt) excluding lease liabilities
Lease liabilities
Net cash/(debt)
187.2
(39.5)
147.7
(29.0)
118.7
(173.7)
(1.4)
(175.1)
4.8
(170.3)
–
–
–
(4.2)
(4.2)
0.6
–
0.6
(0.7)
(0.1)
14.1
(40.9)
(26.8)
(29.1)
(55.9)
5.4 Financial instruments
Financial instruments by category
Trade and other receivables (excluding prepayments) and cash and cash equivalents are classified as ‘financial assets’. 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 (interest rate swaps) 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.
Contingent consideration arising from the 3M ballistic protection business acquisition is accounted for at fair value. For further details see note 7.1.
Financial risk and treasury policies
The Group’s finance team maintains liquidity, manages relations with the Group’s bankers, identifies and manages 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.
(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 Group recognises loss allowances for expected credit losses (ECLs) on financial assets measured at amortised cost and contract assets (as defined
in IFRS 15).
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.
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.
Annual Report and Accounts 2022 Avon Protection plc
151
FINANCIAL STATEMENTS Section 5 – Funding continued
5.4 Financial instruments continued
Financial risk and treasury policies continued
(i) Credit risk continued
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:
Carrying amount of financial assets
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
Pound sterling
U.S. dollar
Euro
Other currencies
2022
$m
26.1
0.2
9.5
35.8
2022
$m
2.2
31.9
1.2
0.5
35.8
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
2022
$m
18.8
6.9
0.3
–
0.6
26.6
Provision
2022
$m
–
–
(0.2)
–
(0.3)
(0.5)
Net
2022
$m
18.8
6.9
0.1
–
0.3
26.1
Gross
2021
$m
36.6
2.5
0.3
0.1
0.3
39.8
Provision
2021
$m
–
–
–
(0.1)
(0.3)
(0.4)
2021
$m
39.4
0.9
14.1
54.4
2021
$m
5.9
47.2
1.2
0.1
54.4
Net
2021
$m
36.6
2.5
0.3
–
–
39.4
The total past due receivables, net of provisions, is $7.3 million (2021: $2.8 million).
Individually impaired receivables relate to a small number of specific customers. Provisions for impairment are based on expected credit losses and are
estimated based on knowledge of customers and historical experience of losses. A portion of these receivables is expected to be recovered.
Movements on the Group provision for impairment of trade receivables are as follows:
At the beginning of the period
Provision for impairment of trade receivables
At the end of the period
2022
$m
0.4
0.1
0.5
2021
$m
0.6
(0.2)
0.4
The only significant concentration of credit risk is with the U.S. Government Department of Defense. At the balance sheet date outstanding trade
receivables for this customer were $3.0 million (2021: $17.6 million).
The credit risk in relation to trade receivables is managed via credit evaluations for all non-Government customers requiring credit above a certain
threshold, with required approval levels dependent on the value of sales. Where possible, letters of credit or payments in advance are received for
significant export sales.
152
Avon Protection plc Annual Report and Accounts 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED Section 5 – Funding continued
5.4 Financial instruments continued
Financial risk and treasury policies 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.
The following shows the contractual maturities of financial liabilities, including interest payments, where applicable, and excluding the impact of netting
agreements and on an undiscounted basis:
Analysis of contractual cash flow maturities
Carrying
amount
$m
Contractual
cash flows
$m
Less than
12 months
$m
2–5 years
$m
After 5 years
$m
2 October 2022
Bank loans and overdrafts
Trade and other payables
Lease liabilities
Derivatives
Contingent consideration
53.7
41.3
23.8
0.5
–
119.3
63.6
41.3
29.6
0.5
–
135.0
4.2
41.3
4.9
0.2
–
50.6
59.4
–
14.1
0.3
–
73.8
–
–
10.6
–
–
10.6
Analysis of contractual cash flow maturities
Carrying
amount
$m
Contractual
cash flows
$m
Less than
12 months
$m
2–5 years
$m
After 5 years
$m
1 October 2021
Bank loans and overdrafts
Trade and other payables
Lease liabilities
Derivatives
Contingent consideration
40.9
39.2
29.1
–
6.0
115.2
44.5
39.2
36.6
–
7.2
127.5
1.4
39.2
5.0
–
3.5
49.1
43.1
–
17.7
–
3.7
64.5
–
–
13.9
–
–
13.9
(iii) Currency risk
The Group is exposed to transactional foreign exchange risk to the extent that there is a mismatch between the currencies in which sales and purchases
are denominated and the respective functional currencies of Group companies. The functional currencies of Group companies are sterling and U.S. dollars.
Transactional risk is minimised through natural hedging of sales and purchase currencies at a Company level. The Group monitors net transactional
exposure and can utilise forward foreign exchange contracts to hedge the remaining currency risk. These contracts are generally designated as cash flow
hedges. At the end of the reporting period there were no forward contracts outstanding (2021: $nil).
The Group is also exposed to translational foreign exchange risk arising when the results of sterling denominated companies are consolidated into the
Group presentational currency, U.S. dollars. Group policy is not to hedge translational foreign exchange risk.
In respect of monetary assets and liabilities that are not denominated in Company functional currencies, the Group regularly reviews net exposure and
ensures this is kept to an acceptable level by monitoring intercompany funding structures and buying or selling foreign currencies where necessary to
address short-term imbalances.
Annual Report and Accounts 2022 Avon Protection plc
153
FINANCIAL STATEMENTS Section 5 – Funding continued
5.4 Financial instruments continued
Financial risk and treasury policies continued
(iii) Currency risk continued
Sensitivity analysis
It is estimated that, with all other variables held equal (in particular other exchange rates), a one cent increase in the value of the U.S. dollar against sterling
would have increased the Group’s current year profit before interest and tax by $0.2 million (2021: $0.2 million), increased the Group’s profit after tax by
$0.2 million (2021: $0.2 million) and increased shareholders’ funds by $0.2 million (2021: $0.6 million).
The following significant exchange rates applied during the year:
Pound sterling
(iv) Interest rate risk
Derivative financial instruments – interest rate swaps
Current
Non-current
Average rate
2022
Closing rate
2022
Average rate
2021
Closing rate
2021
0.7841
0.9058
0.7311
0.7384
2022
$m
0.2
0.3
0.5
2021
$m
–
–
–
At 2 October
2021
$m
Cash flow
$m
Non-cash
movements
$m
At 1 October
2022
$m
Interest rate swaps
–
–
0.5
0.5
The RCF is floating rate priced using the Secured Overnight Financing Rate (SOFR). In 2022 the Group has implemented a new hedging policy using
interest rate swaps to fix a portion of SOFR floating rate interest. The notional value of interest rate swaps at 1 October 2022 was $30.0 million (2021: $nil),
expiring on 8 September 2025 in line with the RCF.
After taking account of hedging, a 1.0% increase in SOFR would increase interest payable on bank loans by $0.2 million (2021: $0.2 million).
(v) 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, whilst maintaining 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 excluding lease liabilities divided by capital, and leverage (note 5.1).
The Group’s gearing ratio at the balance sheet date was:
Net debt excluding lease liabilities
Group market capitalisation
Gearing ratio
2022
$m
(44.2)
385.0
0.11
2021
$m
(26.8)
815.9
0.03
154
Avon Protection plc Annual Report and Accounts 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED Section 5 – Funding continued
5.4 Financial instruments continued
Financial risk and treasury policies continued
(vi) Fair values
The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows:
Trade receivables
Other receivables
Derivatives
Cash and cash equivalents
Bank loans and overdrafts
Trade and other payables
Contingent consideration
Carrying amount
2022
$m
Fair value
2022
$m
Carrying amount
2021
$m
Fair value
2021
$m
26.1
0.2
0.5
9.5
(53.7)
(41.3)
–
26.1
0.2
0.5
9.5
(53.7)
(41.3)
–
39.4
0.9
–
14.1
(40.9)
(39.2)
(6.0)
39.4
0.9
–
14.1
(40.9)
(39.2)
(6.0)
Basis for determining fair value
The following summarises the significant methods and assumptions used in estimating the fair values of financial instruments reflected in the table above.
Derivatives
The Group’s interest rate swaps are not traded in active markets. These have been fair valued using observable interest rates. The effects of non-
observable inputs are not significant for interest rate swaps.
Counterparty banks perform valuations of interest rate swaps for financial reporting purposes, determined by discounting the future cash flows at rates
determined by year end yield curves.
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.
Contingent consideration
The estimated fair value is calculated as the present value of the future expected cash flows relating to the contract discounted using a risk-adjusted
discount rate. Key unobservable inputs into the fair value calculation are the expected future cash flows and the risk adjusted discount rate. The estimated
fair value would change if the expected cash flows were lower than expected or the discount rate applied was higher.
5.5 Equity
Share capital
Called up allotted and fully
paid ordinary shares of £1 each
At the beginning of the period
At the end of the period
Number
of shares
2022
Ordinary
shares
2022
$m
Share
premium
2022
$m
Number
of shares
2021
Ordinary
shares
2021
$m
Share
premium
2021
$m
31,023,292
31,023,292
50.3
50.3
54.3
54.3
31,023,292
31,023,292
50.3
50.3
54.3
54.3
Ordinary shareholders are entitled to receive dividends and to vote at meetings of the Company.
Annual Report and Accounts 2022 Avon Protection plc
155
FINANCIAL STATEMENTS Section 5 – Funding continued
5.5 Equity continued
Own shares held – Long-Term Incentive Plan
Opening balance
Acquired in the period
Disposed of on exercise of options
Closing balance
2022
Number of shares
2021
Number of shares
334,933
–
(73,219)
261,714
398,560
95,855
(159,482)
334,933
These shares are held in trust in respect of awards made under the Avon Rubber p.l.c. Long-Term Incentive Plan. Dividends on the shares have been
waived. The market value of shares held in trust at 1 October 2022 was $3.2 million (2 October 2021: $8.8 million). The shares are held at cost as treasury
shares and deducted from shareholders’ equity.
In December 2021 73,219 shares vested under the Avon Rubber p.l.c. Long-Term Incentive Plan and were distributed to employees (2021: 159,482 shares
vested and were distributed to employees in January 2021). In the 53 weeks ended 2 October 2021 95,855 shares were acquired by the trust.
Own shares held – Share Buyback Programme
Opening balance
Acquired in the period
Closing balance
2022
Number of shares
2021
Number of shares
–
765,098
765,098
–
–
–
In the 52 weeks ended 1 October 2022 the Group completed a £9.25 million ($12.4 million) Share Buyback Programme, purchasing 765,098 ordinary
shares. Dividends on the shares have been waived. Purchased shares under the programme are held at cost as treasury shares and deducted from
shareholders’ equity.
5.6 Dividends
On 28 January 2022, the shareholders approved a final dividend of 30.6 cents per qualifying ordinary share in respect of the 53 weeks ended 2 October
2021. This was paid on 11 March 2022 utilising $9.1 million of shareholders’ funds (2021: $7.7 million).
The Board of Directors declared an interim dividend of 14.3 cents (2021: 14.3 cents) per qualifying ordinary share in respect of the 52 weeks ended
1 October 2022. This was paid on 2 September 2022 utilising $4.3 million (2021: $4.4 million) of shareholders’ funds.
The Board is recommending a final dividend of 30.6 cents per share (2021: 30.6 cents) which together with the 14.3 cents per share interim dividend gives a
total dividend of 44.9 cents (2021: 44.9 cents). The final dividend will be paid on 10 March 2023 to shareholders on the register at 10 February 2023 with an
ex-dividend date of 9 February 2023.
Dividend cover
Interim dividend
Final dividend
Total dividend
Basic earnings per share – continuing operations
Dividend cover ratio
2022
$ cents
14.3
30.6
44.9
(18.5)
2021
$ cents
14.3
30.6
44.9
(79.9)
(0.4) times
(1.8) times
156
Avon Protection plc Annual Report and Accounts 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED Section 6 – Key management and employee benefits
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 disclosures in relation to both the U.K. defined benefit scheme which was closed to future accrual of benefit in 2009, and
contributions made to defined contribution schemes.
6.1 Employees
Total remuneration and associated costs for the period, in relation to both continuing and discontinued operations, were:
Wages and salaries
Social security costs
Other pension costs
U.S. healthcare costs
Share-based payments (note 6.3)
2022
$m
66.3
6.0
3.0
6.4
1.0
82.7
2021
$m
63.0
5.6
2.9
5.8
0.7
78.0
Detailed disclosures of Directors’ remuneration and share options, including disclosure of the highest paid Director, are given on page 98.
The average monthly number of employees (including Executive Directors) during the period was:
Avon Protection
2022
Number
1,024
2021
Number
1,043
At the end of the financial period, the total number of employees in the Group was 1,007 (2021: 1,057).
Key management compensation
The key management compensation below includes the Executive Directors plus five (2021: seven) others who were members of the Group Executive
during the period. It does not include Non-Executive Directors.
Salaries and other employee benefits
Post-employment benefits
1 Restated to exclude Non-Executive Directors.
The value of LTIP share awards held by key management that vested during the period was $0.7 million (2021: $3.3 million).
6.2 Pensions and other retirement benefits
Defined contribution pension scheme
The charge in respect of defined contribution pension schemes was $3.0 million (2021: $2.9 million).
2022
$m
3.8
0.2
4.0
2021
$m
restated ¹
3.1
0.3
3.4
Annual Report and Accounts 2022 Avon Protection plc
157
FINANCIAL STATEMENTS Section 6 – Key management and employee benefits continued
6.2 Pensions and other retirement benefits continued
Defined benefit pension scheme
Retirement benefit assets and liabilities can be analysed as follows:
Net pension liability
2022
$m
6.3
2021
$m
68.3
The Group operated a contributory defined benefit plan to provide pension and death benefits for the employees of Avon Protection plc 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 12 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 defined benefit plan exposes the Group to actuarial risks such as longevity risk,
inflation risk and investment risk.
The funding of the plan is based on regular actuarial valuations. The most recent full actuarial valuation of the plan was carried out at 31 March 2019 when
the market value of the plan’s assets was £335.8 million. The fair value of those assets represented 83% of the value of the benefits which had accrued to
members, after allowing for future increase in pensions.
The net pension liability for the scheme amounted to $6.3 million as at 1 October 2022 (2021: $68.3 million). The reduction is due to a higher discount rate
being applied to pension liabilities, partially offset by a fall in plan asset values.
During the period the Group made payments to the plan of $8.5 million (2021: $2.9 million) in respect of scheme expenses and deficit recovery plan
payments, including a $4.0 million prepayment covering all contributions due in FY23. In accordance with the deficit recovery plan agreed following
the 31 March 2019 actuarial valuation, the Group will make payments in FY24 of $4.3 million in respect of deficit recovery and scheme expenses. These
payments are subject to review following the March 2022 actuarial valuation which will be finalised in 2023.
Plan assets include Liability Driven Investments (LDI) of $54.4 million (2021: $122.9 million), which are held to manage funding risk. The fall in LDI
valuation reflects increases in government bond yields through 2022. The Group is in close contact with the trustees of the scheme to monitor cash
liquidity risk in context of recent market volatility, including collateral requirements for the LDI. To the date of this report, the scheme has covered all LDI
collateral requirements.
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 for period end using the projected unit
credit method.
Movement in net defined benefit liability
Defined benefit obligation
Defined benefit asset
Net defined benefit liability
At the beginning of the period
Included in profit or loss
Administrative expenses
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
FX gain/(loss)
At the end of the period
2022
$m
(534.7)
(0.8)
(10.3)
(11.1)
(0.2)
175.4
(11.3)
–
163.9
–
21.5
75.5
2021
$m
(526.3)
(1.2)
(8.6)
(9.8)
(0.4)
3.6
7.3
–
10.5
–
24.5
(33.6)
(284.9)
(534.7)
2022
$m
466.4
2021
$m
446.7
–
9.0
9.0
–
–
–
(113.8)
(113.8)
8.5
(21.5)
(70.0)
278.6
–
7.3
7.3
–
–
–
5.7
5.7
2.9
(24.5)
28.3
466.4
2022
$m
(68.3)
(0.8)
(1.3)
(2.1)
(0.2)
175.4
(11.3)
(113.8)
50.1
8.5
–
5.5
(6.3)
2021
$m
(79.6)
(1.2)
(1.3)
(2.5)
(0.4)
3.6
7.3
5.7
16.2
2.9
–
(5.3)
(68.3)
158
Avon Protection plc Annual Report and Accounts 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED Section 6 – Key management and employee benefits continued
6.2 Pensions and other retirement benefits continued
Plan assets
The fair value of the assets of the pension scheme analysed by asset category is shown below:
Equities and other securities
Liability Driven Investment
Secured income fund
Infrastructure fund
Cash
Total fair value of assets
2022
$m
105.6
54.4
53.1
55.2
10.3
278.6
2021
$m
180.7
122.9
69.5
67.6
25.7
466.4
Equity securities are valued using quoted prices in active markets where available. The Liability Driven Investment (LDI) comprises an investment in a
level 2 pooled investment vehicle which combines a series of variable interest-earning cash deposits combined with contracts to hedge interest rate and
inflation risk. The LDI is valued using a net asset value published on the Irish Stock Exchange.
$169.9 million (2021: $194.8 million) of the remaining investments are classified as level 3 within the fair value hierarchy. Holdings in unquoted securities are
valued at fair value which is typically the net asset value provided by the fund administrator at the most recent quarter end. Holdings in the infrastructure
fund are valued by an independent valuer using a model-based valuation such as a discounted cash flow approach.
The significant assumptions used in the valuation are the discount rate and the expected cash flows, both of which are subject to estimation uncertainty.
Changes in assumptions relating to these variables could positively or negatively impact the reported fair value of these instruments.
The Avon Rubber defined benefit pension scheme has an investment strategy which is targeted at maximising investment returns with a low-risk strategy
which still represents a prudent approach to meeting the plan’s liabilities and ensuring that members’ benefits are protected. The strategy considers
the need for appropriate asset class diversification to balance the risks and rewards across a range of alternative asset classes. The investments held by
the pension scheme include both quoted and unquoted securities, the latter which by their nature involve assumptions and estimates to determine
their fair value. Where there is not an active market for the unquoted securities the fair value of these assets are estimated by the pension trustees based
on advice received from the investment manager whilst also using any available market evidence of any recent transactions for an identical asset. The
target weightings under the current asset allocation strategy are 40% to matching investments, 50% to cash flow driven investments and 10% to return-
seeking investments.
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
2022
% p.a.
3.60
2.80
2.30
3.45
5.30
2021
% p.a.
3.55
2.75
2.30
3.40
2.00
Base mortality
100% of S2NA tables, based on members’ year of birth
100% of S2NA tables, based on members’ year of birth
Future improvements in longevity
CMI 2021 projections with a long-term trend of 1.50% p.a.
CMI 2020 projections with a long-term trend of 1.50% p.a.
RPI inflation has been set in line with market break even expectations less an inflation risk premium of 0.3% (2021: 0.2%). The impact of the 0.1% change
in inflation risk premium reduced period end balance sheet liabilities by approximately $2.5m.
Changes to RPI
The conclusion of the joint consultation between the U.K. Government and the U.K. Statistics Authority in November 2020 was that RPI is intended to
be aligned with CPIH from February 2030 and therefore the margin between RPI and CPI will reduce over time. As a result, the Company reduced the
long-term gap between RPI and CPI by ten basis points (from 0.9% to 0.8%) in the prior period.
Annual Report and Accounts 2022 Avon Protection plc
159
FINANCIAL STATEMENTS Section 6 – Key management and employee benefits continued
6.2 Pensions and other retirement benefits continued
Mortality rate
Assumptions regarding future mortality experience are set based on advice, published statistics and experience.
The average life expectancy in years of a pensioner retiring at age 65 on the balance sheet date is as follows:
Male
Female
The average life expectancy in years of a pensioner retiring at age 65, 20 years after the balance sheet date is as follows:
Male
Female
2022
21.8
23.8
2022
23.4
25.6
2021
21.7
23.8
2021
23.4
25.6
No adjustments have been to mortality assumptions at period end to reflect the effects of COVID-19 as it is too soon to make a judgement on the impact
of the pandemic on future mortality improvements. Mortality experience analysis for the schemes will be carried out as a part the next full actuarial
valuation.
Sensitivity analysis
Inflation (1.0% increase)
Inflation (1.0% decrease)
Discount rate for scheme liabilities (1.0% increase)
Discount rate for scheme liabilities (1.0% decrease)
Future mortality (one-year increase)
Defined benefit obligation
increase/(decrease)
$m
21.4
(22.0)
(30.7)
37.2
10.9
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.
6.3 Share-based payments
The Group operates an equity-settled share-based Performance Share Plan (PSP). Details of the plan are set out in the Remuneration Report, section
‘Long-Term Incentive Plan’ on page 94. An expense of $1.0 million (2021: $0.7 million) was recognised in the period relating to share-based payments.
160
Avon Protection plc Annual Report and Accounts 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED Section 6 – Key management and employee benefits continued
6.3 Share-based payments continued
The table below summarises the movements in the number of share options outstanding for the Group, all of which are nil cost options:
Outstanding at the beginning of the period
Forfeited during the period
Exercised during the period
Granted during the period
Outstanding at the end of the period
Number of
options
2022
‘000s
Number of
options
2021
‘000s
372
(165)
(74)
285
418
423
(13)
(159)
121
372
The weighted average remaining contractual life of outstanding share options is 17 months (2021: 14 months). All the share options that vested in the
period vested on 20 December 2021 at a share price of £11.57.
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 (£)
Expected volatility (%)
Risk-free interest rate (%)
Expected option term (yrs)
Dividend yield (%)
Volatility is estimated based on experience over the last three years.
Section 7 – Other
7.1 Provisions for liabilities and charges
Balance at 26 September 2020
Provision created during the period
Release of contingent consideration
Unwind of discount on provisions
Foreign exchange movements
Balance at 2 October 2021
Transferred from accruals on 3 October 2021
Provision created during the period
Cash payments
Release of contingent consideration
Unwind of discount on provisions
Foreign exchange movements
Balance at 1 October 2022
Analysis of total provisions
Current
Non-current
2022
9.07
11.41
43.9
1.1
3.0
–
Warranty
provisions
$m
Property
obligations
$m
Contingent
consideration
$m
–
–
–
–
–
–
1.5
2.2
(1.3)
–
–
(0.1)
2.3
2.7
0.1
–
–
0.1
2.9
–
0.8
–
–
–
(0.4)
3.3
19.5
–
(15.7)
2.2
–
6.0
–
–
(3.2)
(3.9)
1.1
–
–
2022
$m
0.7
4.9
5.6
2021
21.79
31.25
36.7
–
2.8
–
Total
$m
22.2
0.1
(15.7)
2.2
0.1
8.9
1.5
3.0
(4.5)
(3.9)
1.1
(0.5)
5.6
2021
$m
3.5
5.4
8.9
Annual Report and Accounts 2022 Avon Protection plc
161
FINANCIAL STATEMENTS Section 7 – Other continued
7.1 Provisions for liabilities and charges continued
Warranty provisions cover expected costs under guarantees provided with certain products. Warranty provisions were previously included within accruals.
On 3 October 2021 warranty provisions were transferred from accruals to provisions for liabilities and charges, this being considered a more appropriate
categorisation. The Directors have reviewed the impact on the prior period and considered this not material.
Property obligations relate to leased premises of the Group which are subject to dilapidation risks and are expected to be utilised within the next 15 years.
The purchase consideration in relation to the 3M ballistic protection business acquisition included contingent consideration up to a maximum of
$25.0 million depending on the outcome of certain tenders which were pending at the acquisition date and the level of sales which were generated on
these contracts if secured. At acquisition the fair value of the contingent consideration was recognised as $20.0 million based on the expected value and
timing of those payments after applying a discount rate of 12% to reflect the risk in the cash flows at that date.
The contract that triggered the contingent consideration was awarded shortly after the acquisition date with subsequent orders resulting in payments of
$3.4 million in 2020 and $3.2 million in 2022.
The release of $15.7 million in the prior period was due to reduced expectations of the timing and amount of orders ($14.9 million), and an increase to
the discount rate applied to expected future payments ($0.8 million). In 2022 the contractual order period closed with no further orders. As a result the
remaining $3.9 million was released.
7.2 Acquisitions and divestments
Acquisition – Team Wendy
The acquisition of the Team Wendy business completed on 2 November 2020.
The Group acquired 100% of the equity for a total consideration of $132.0 million, being the $130.0 million initial consideration and purchase price
adjustments of $2.0 million reflecting the cash and working capital position at close. The net assets acquired had a book value of $22.3 million before fair
value adjustments.
Set out below is an analysis of the assigned fair values of the assets acquired and liabilities assumed relating to this acquisition:
Customer relationships
Brand
Other intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Cash
Lease liability
Trade and other payables
Net assets acquired
Goodwill
Total consideration
Initial cash consideration
Post-completion working capital adjustment
Cash acquired
Total consideration
Fair value
$m
28.2
10.4
13.1
8.6
12.2
5.8
1.1
(3.1)
(2.6)
73.7
58.3
132.0
130.0
0.9
1.1
132.0
Goodwill of $58.3 million was recognised in respect of this acquisition, representing the amount paid for future sales growth from both new customers
and new products, operating cost synergies and employee know-how. 100% of the value of goodwill is expected to be deductible for tax purposes.
From the date of acquisition to 2 October 2021, Team Wendy generated $41.0 million of revenue (including $0.7 million from other Group companies)
and reported an operating profit of $4.6 million. The operating profit is stated after amortisation of acquired intangibles of $4.0 million and expensing
the $2.4 million inventory fair value step-up following the sell through of the acquired inventory. Had Team Wendy been acquired on the first day of the
financial period, then the estimated contribution to revenue would have been $44.7 million and operating profit $5.0 million. In 2022 Team Wendy has
been fully integrated into the wider respiratory and head protection segment (note 2.1).
Acquisition costs of $2.2 million were expensed in the prior period, following the recognition of $7.4 million of such costs in 2020. Acquisition costs of
$4.4 million were paid in the prior period.
162
Avon Protection plc Annual Report and Accounts 2022
NOTES TO THE GROUP FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022 CONTINUED Section 7 – Other continued
7.3 Other financial commitments
Capital expenditure committed
2022
$m
1.7
2021
$m
2.8
Capital expenditure committed represents the amount contracted in respect of property, plant and equipment at the end of the financial period for
which no provision has been made in the financial statements.
7.4 Group undertakings
Held by Parent Company
Registered office address
Activity
Country in which
incorporated
Avon Polymer Products Limited
Hampton Park West, Melksham, SN12 6NB U.K.
The manufacture and distribution
of respiratory protection systems
Avon Protection Holdings Limited
Hampton Park West, Melksham, SN12 6NB U.K.
Investment holding company
Avon Rubber Pension Trust Limited
Hampton Park West, Melksham, SN12 6NB U.K.
Pension fund trustee
Held by Group undertakings
Avon Protection Systems, Inc.
503 8th St, Cadillac, MI 49601, United States
The manufacture and distribution of respiratory
and ballistic protection systems
Avon Rubber & Plastics, Inc.
503 8th St, Cadillac, MI 49601, United States
Investment holding company
Avon Protection Ceradyne, LLC
Team Wendy LLC
4000 Barranca Parkway, Suite 100, Irvine,
CA 92604, United States
17000 St Clair Ave, Cleveland, OH 44110,
United States
The manufacture and distribution
of ballistic protection systems
The manufacture and distribution
of helmet systems
Avon Technologies Limited
Hampton Park West, Melksham, SN12 6NB U.K.
Dormant company
Avon Protection U.K. Limited
Hampton Park West, Melksham, SN12 6NB U.K.
Dormant company
U.K.
U.K.
U.K.
U.S.
U.S.
U.S.
U.S.
U.K.
U.K.
Shareholdings are ordinary shares and all undertakings are wholly owned by the Group and operate primarily in their country of incorporation. All
companies have the same financial year end. Avon Polymer Products Limited and Avon Protection Holdings 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
Except in respect of the defined benefit pension scheme, internal transactions between Group companies, and compensation of key management
personnel there were no related party transactions during the period or outstanding at the end of the period (2021: $nil). Transactions with the defined
benefit pension scheme are disclosed in note 6.2. Key management compensation is disclosed in note 6.1.
Annual Report and Accounts 2022 Avon Protection plc
163
FINANCIAL STATEMENTS P A R E N T C O M P A N Y B A L A N C E S H E E T
A T 1 O C T O B E R 2 0 2 2
Note
4
5
6
7
10
8
10
9
11
2022
£m
4.4
–
191.0
2.5
197.9
2.0
0.2
2.2
0.5
21.3
21.8
(19.6)
5.1
2.2
7.3
171.0
31.0
34.7
0.5
104.8
171.0
2021
£m
restated¹
4.5
–
191.0
2.5
198.0
7.0
5.2
12.2
0.5
27.5
28.0
(15.8)
5.4
1.5
6.9
175.3
31.0
34.7
0.5
109.1
175.3
Assets
Non-current assets
Tangible assets
Intangible assets
Investments in subsidiaries
Deferred tax assets
Current assets
Trade and other receivables
Cash and cash equivalents
Liabilities
Current liabilities
Borrowings
Trade and other payables
Net current liabilities
Non-current liabilities
Borrowings
Provisions for liabilities and charges
Net assets
Shareholders’ equity
Ordinary shares
Share premium account
Capital redemption reserve
Retained earnings
Total equity
1 See note 13 for details of restatement.
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 period was £15.3 million (2021: profit of £12.6 million).
These financial statements on pages 164 to 171 were approved by the Board of Directors on 22 November 2022 and signed on its behalf by:
Bruce Thompson
Executive Chair
Rich Cashin
Chief Financial Officer
The accompanying accounting policies and notes form part of these financial statements.
164
Avon Protection plc Annual Report and Accounts 2022
P A R E N T C O M P A N Y S T A T E M E N T O F C H A N G E S I N E Q U I T Y
F O R T H E 5 2 W E E K S E N D E D 1 O C T O B E R 2 0 2 2
At 26 September 2020 as previously reported
Restatement¹
At 26 September 2020 as restated
Profit for the year
Dividends paid
Own shares acquired
Fair value of share-based payments
Deferred tax relating to employee share schemes
At 2 October 2021 as restated
Profit for the year
Dividends paid
Own shares acquired
Fair value of share-based payments
Deferred tax relating to employee share schemes
At 1 October 2022
1 See note 13 for further details of restatement.
Share
capital
£m
Share
premium
£m
Capital
redemption
reserves
£m
Retained
earnings ¹
£m
Total
equity
£m
Note
13
1
2
11
12
6
1
2
11
12
6
31.0
–
31.0
–
–
–
–
–
34.7
–
34.7
–
–
–
–
–
0.5
–
0.5
–
–
–
–
–
31.0
34.7
0.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
124.6
(15.3)
109.3
12.6
(8.7)
(3.1)
0.4
(1.4)
109.1
15.3
(10.5)
(9.3)
0.7
(0.5)
190.8
(15.3)
175.5
12.6
(8.7)
(3.1)
0.4
(1.4)
175.3
15.3
(10.5)
(9.3)
0.7
(0.5)
31.0
34.7
0.5
104.8
171.0
Annual Report and Accounts 2022 Avon Protection plc
165
FINANCIAL STATEMENTS P A R E N T C O M P A N Y A C C O U N T I N G P O L I C I E S
F O R T H E 5 2 W E E K S E N D E D 1 O C T O B E R 2 0 2 2
Accounting policies
The principal accounting policies adopted in the preparation of these
financial statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.
Basis of preparation
These financial statements were prepared in accordance with Financial
Reporting Standard 101 Reduced Disclosure Framework (FRS 101).
In preparing these financial statements, the Company applies the
recognition, measurement and disclosure requirements of International
Accounting Standards in conformity with the requirements of the
Companies Act 2006 (‘Adopted IFRSs’), but makes amendments where
necessary in order to comply with the Companies Act 2006 and has set
out below where advantage of the FRS 101 disclosure exemptions has
been taken:
Share-based payments
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.
• 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);
Plant and equipment
Property, plant and equipment is stated at historical cost less accumulated
depreciation and any recognised impairment losses.
• transactions with wholly owned subsidiaries (IAS 24);
• capital management (paragraphs 134–136, IAS 1);
• share-based payments (paragraphs 45(b) and 46–52, IFRS 2);
•
financial instruments (IFRS 7);
• compensation of key management personnel (paragraph 17, IAS 24);
•
•
fair value measurement (paragraphs 91–99, IFRS 13);
leases (paragraphs 90–93, IFRS 16);
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 to write down the depreciable amount
of relevant assets by equal annual instalments over their estimated
useful lives.
In general, the lives used are:
• Leasehold property – period of lease agreement
• the requirements of paragraphs 30 and 31 of IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors; and
The residual values and useful lives of the assets are reviewed,
and adjusted if appropriate, at each balance sheet date.
• the requirements of paragraph 18A of IAS 24 Related Party Disclosures.
Where required, equivalent disclosures are given in the Group financial
statements.
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.
Leases
Right of use assets and lease liabilities are recognised at the
commencement date of the contract for all leases conveying
the right to control the associated asset for a period of time.
The right of use assets are initially measured at cost, which comprises the
initial measurement of the lease liability plus an estimate of dilapidation
provisions (note 10) where required. Subsequently the right of use
assets are measured at cost less accumulated depreciation and any
accumulated impairment losses and adjusted for any remeasurement of
the lease liability.
Depreciation is calculated on a straight-line basis over the life of the lease.
In general the lives used are:
• Leasehold property – period of the lease
The lease liability is initially measured at the present value of the lease
payments due over the life of the lease. The lease payments are discounted
at the rate implicit in the lease or if that is not readily determined using the
Company’s incremental borrowing rate.
Foreign currencies
The Company’s functional currency is sterling as this is the currency of the
primary economic environment in which the Company operates. 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 benefit plan to provide
pension and death benefits for the employees of Avon Protection plc 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.
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.
166
Avon Protection plc Annual Report and Accounts 2022
Leases continued
The lease term is determined with reference to any non-cancellable period
of lease contracts plus any periods covered by an option to extend/
terminate the lease if it is considered reasonably certain that the option
will/will not be exercised. In concluding whether or not it is reasonably
certain an option will be exercised for new leases management has
considered the three-year strategic outlook for the Group and other
operational factors.
Trade payables
Trade payables are obligations to pay for goods or services that have been
acquired in the ordinary course of business from suppliers.
Accounts payable are classified as current liabilities if payment is due
within one year or less (or in the normal operating cycle of the business if
longer). If not, they are presented as non-current liabilities. They are initially
recognised at fair value and subsequently held at amortised cost.
Subsequently the lease liability is measured by increasing the carrying
value to reflect interest on the liability and reducing the carrying value to
reflect lease payments made.
Provisions
Provisions are recognised when:
• the Company has a legal or constructive obligation as a result of a
past event; and
•
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.
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.
Share capital
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of new shares or options are shown in equity
as a deduction, net of tax, from the proceeds.
Where the Company purchases its own share capital (treasury shares)
through employee share ownership trusts, the consideration paid,
including any directly attributable incremental costs (net of income
taxes), is deducted from shareholders’ funds until the shares are cancelled,
reissued or disposed of. Where such shares are subsequently sold or
reissued, any consideration received, net of any directly attributable
incremental transaction costs and the related income tax effects, is
included in shareholders’ funds.
The carrying value of lease liabilities and associated assets will
be remeasured to reflect any changes to the lease or other
assumptions applied.
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
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 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.
Trade and other receivables
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 cost. 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.
Annual Report and Accounts 2022 Avon Protection plc
167
FINANCIAL STATEMENTS N O T E S T O T H E P A R E N T C O M P A N Y F I N A N C I A L S T A T E M E N T S
F O R T H E 5 2 W E E K S E N D E D 1 O C T O B E R 2 0 2 2
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 £15.3 million (2021: £12.6 million).
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 only employees of the Company during the current period were the Chief Executive Officer and the Chief Financial Officer to the Group.
Detailed disclosures of the Executive Directors’ remuneration packages are provided in the Remuneration Report on page 98 to 100.
In the prior period, the Company also employed a monthly average of 54 administrative staff. These employees were transferred to Avon Polymer
Products Limited, a wholly owned subsidiary of the Company, on 2 October 2021.
4 Tangible assets
Cost
At 2 October 2021
Additions
At 1 October 2022
Depreciation charge
At 2 October 2021
Charge for the period
At 1 October 2022
Net book value
At 1 October 2022
At 2 October 2021
Lease assets relate to the Group’s leased properties.
5 Investments in subsidiaries
Opening net book value
Additions
Closing net book value
Lease assets
£m
10.8
0.5
11.3
6.3
0.6
6.9
4.4
4.5
2021
£m
113.7
77.3
191.0
2022
£m
191.0
–
191.0
During the prior period, the Company made an additional cash investment in Avon Protection Holdings Limited of £77.3 million to support the funding of
the Team Wendy acquisition.
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 respiratory protection systems
Hampton Park West, Melksham, SN12 6NB U.K.
U.K.
Avon Protection Holdings Limited
Investment company
Hampton Park West, Melksham, SN12 6NB U.K.
Avon Rubber Pension Trust Limited
Pension fund trustee
Hampton Park West, Melksham, SN12 6NB U.K.
U.K.
U.K.
Details of investments held by these subsidiaries are given in note 7.4 to the Group financial statements.
168
Avon Protection plc Annual Report and Accounts 2022
6 Deferred tax assets
At 26 September 2020
Credited/(charged) to profit for the year
Charged to equity
At 2 October 2021
Credited to profit for the year
Charged to equity
At 1 October 2022
7 Trade and other receivables
Other receivables
Prepayments
Amounts owed by Group undertakings
1 See note 13 for details of restatement.
Share
options
£m
Accelerated
capital
allowances
£m
Other
temporary
differences
£m
2.3
0.1
(1.4)
1.0
0.1
(0.5)
0.6
0.1
(0.1)
–
–
–
–
-
0.4
1.1
–
1.5
0.4
–
1.9
2022
£m
0.2
1.0
0.8
2.0
Amounts due to Group undertakings are unsecured, are interest free, have no fixed date of repayment and are repayable on demand.
8 Trade and other payables
Trade payables
Accruals
Amounts due to Group undertakings
1 See note 13 for details of restatement.
2022
£m
0.3
3.0
18.0
21.3
Amounts due to Group undertakings are unsecured, are interest free, have no fixed date of repayment and are repayable on demand.
Total
£m
2.8
1.1
(1.4)
2.5
0.5
(0.5)
2.5
2021
£m
restated ¹
0.2
1.8
5.0
7.0
2021
£m
restated ¹
0.6
1.7
25.2
27.5
Annual Report and Accounts 2022 Avon Protection plc
169
FINANCIAL STATEMENTS N O T E S T O T H E P A R E N T C O M P A N Y F I N A N C I A L S T A T E M E N T S
F O R T H E 5 2 W E E K S E N D E D 1 O C T O B E R 2 0 2 2 C O N T I N U E D
9 Provisions for liabilities and charges
Balance at 26 September 2020
Addition during the period
Balance at 2 October 2021
Addition during the period
Balance at 1 October 2022
Analysis of total provisions
Non-current
Property
obligations
£m
1.5
–
1.5
0.7
2.2
2021
£m
1.5
1.5
2022
£m
2.2
2.2
Provisions relate to property obligations arising in relation to leased premises of the Company which are subject to dilapidation risks and are expected to
be utilised within the next ten years. Property provisions are subject to uncertainty in respect of any final negotiated settlement of any dilapidation claims
with landlords.
10 Borrowings
The Group has a revolving credit facility with total commitments of $200 million across six lenders with an accordion option of an additional $50 million.
Further details regarding credit risks are disclosed in note 5.4 to the Group financial statements.
Current
Lease liabilities
Non-current
Lease liabilities
Total borrowings
The table below presents the contractual maturity analysis in respect of lease liabilities:
In one year or less, or on demand
Two to five years
More than five years
Total lease liabilities
2022
£m
0.5
5.1
5.6
2022
£m
0.5
2.6
2.5
5.6
2021
£m
0.5
5.4
5.9
2021
£m
0.5
2.3
3.1
5.9
Lease liabilities relate to land and buildings (lease assets) leased by the Company for its office space and manufacturing facilities of U.K. trading subsidiaries.
11 Share capital
Details of the Company’s share capital are set out in note 5.5 to the Group financial statements.
12 Share-based payments
The Company operates an equity-settled share-based Long Term Incentive Plan (LTIP) details of which are disclosed in note 6.3 to the Group
financial statements.
The Company recognises share-based payment charges for awards held by the Chief Executive Officer and the Chief Financial Officer. Share-based
payment charges for other employees are recharged to the relevant subsidiary.
170
Avon Protection plc Annual Report and Accounts 2022
13 Restatement
Comparatives have been restated for the following items:
1.
The recognition of a net intercompany payable of £15.3 million between the Company and its subsidiary Avon Polymer Products Limited arising
from the reallocation of the proceeds received by the Company on the divestment of milkrite | InterPuls in September 2020 but attributable to
Avon Polymer Products Limited of £43.3 million and the recognition of a dividend received of £28 million from Avon Polymer Products Limited in
September 2020. Both of these items were previously omitted in the Company’s financial statements but were correctly reflected in the 2021 and
2020 Avon Polymer Products Limited company accounts, meaning no restatement was required at the subsidiary level.
2.
The gross presentation of intercompany receivables and payables which had previously been offset as at 2 October 2021.
There was no impact to the profit and loss account for the 53 weeks period ended 2 October 2021.
A reconciliation of the previously reported figures to the restated figures is presented below:
Amounts owed by Group undertakings
Amounts due to Group undertakings
Retained earnings
Amounts due to Group undertakings
Retained earnings
As reported
2 October 2021
£m
–
(4.9)
(124.4)
Adjustment to
amounts
due to Group
undertakings
£m
–
(15.3)
15.3
Gross
intercompany
balances
£m
2 October 2021
restated
£m
5.0
(5.0)
–
5.0
(25.2)
(109.1)
As reported
26 September 2020
£m
Adjustment to
amounts
due to Group
undertakings
£m
26 September 2020
restated
£m
(15.7)
(124.6)
(15.3)
15.3
(31.0)
(109.3)
Annual Report and Accounts 2022 Avon Protection plc
171
FINANCIAL STATEMENTS N O T I C E O F A N N U A L G E N E R A L M E E T I N G
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 advisor authorised under the Financial Services and Markets Act 2000. If you have
sold or otherwise transferred all of your shares in Avon Protection plc, 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 2022
Notice is hereby given that the AGM of shareholders of Avon Protection
plc (‘the Company’) will be held at Hampton Park West, Semington Road,
Melksham SN12 6NB, Wiltshire on 27 January 2023 at 10:30am for the
purposes set out below.
You will not receive a form of proxy for the AGM in the post. Instead,
you will receive instructions to enable you to vote electronically and
outlining how to register to do so. You may request a hard copy form of
proxy directly from the Registrar, Link Group, 10th Floor, Central Square,
29 Wellington Street, Leeds LS1 4DL (Tel: 0371 664 0300 or +44 371 664
0300 if overseas).
(a)
make political donations to political parties or to independent
election candidates not exceeding £100,000 in total;
(b)
make political donations to political organisations (other than political
parties) not exceeding £100,000 in total; and
(c)
incur any political expenditure not exceeding £100,000 in total,
during the period beginning with the date of the passing of this resolution
and ending at the close of business on 27 December 2023 or, if sooner,
the conclusion of the next AGM of the Company. For the purpose of
this resolution ‘political donation’, ‘political party’, ‘political organisation’,
‘independent election candidate’ and ‘political expenditure’ are to be
construed in accordance with sections 363, 364 and 365 of the Act.
Ordinary business
To consider and, if thought fit, pass resolutions 1–12 (inclusive) as
ordinary resolutions:
Resolution 1
To receive the Company’s accounts and the reports of the Directors and
the auditor for the year ended 30 September 2022.
Resolution 2
To approve the Directors’ Remuneration Report (other than the part
containing the Directors’ Remuneration Policy) for the financial year ended
30 September 2022.
Resolution 3
To declare a final dividend of 30.6 U.S. cents per ordinary share as
recommended by the Directors.
Resolution 4
To elect Jos Sclater as a Director of the Company.
Resolution 5
To elect Rich Cashin as a Director of the Company.
Resolution 6
To re-elect Bruce Thompson as a Director of the Company.
Resolution 7
To re-elect Chloe Ponsonby as a Director of the Company.
Resolution 8
To re-elect Bindi Foyle as a Director of the Company.
Resolution 9
To re-elect Victor Chavez CBE as a Director of the Company.
Resolution 10
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 11
To authorise the Directors to determine the auditor’s remuneration.
Resolution 12
That, in accordance with sections 366 and 367 of the Companies Act 2006
(‘the Act’), the Company and all its subsidiaries during the period for which
this resolution has effect be and are hereby authorised, in aggregate, to:
172
Avon Protection plc Annual Report and Accounts 2022
Special business
To consider and if thought fit, pass resolution 13 as an ordinary resolution
and resolutions 14–17 (inclusive) as special resolutions:
Resolution 13
That in accordance with section 551 of 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 £10,086,064
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 AGM 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.
Resolution 14
That, subject to the passing of resolution 13, 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)
be limited to the allotment of equity securities or sale of treasury
shares up to an aggregate nominal amount of £1,512,909; and
(b)
expire on the date 15 months after the date of this resolution or, if
earlier, the date of the next AGM 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 15
That, subject to the passing of resolution 13, the Directors be authorised,
in addition to any authority granted under resolution 13, 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:
Explanatory notes relating to the resolutions
The Board believes that the adoption of resolutions 1 to 17 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 AGM. Each of the Directors of the Company intends to vote in favour
of all resolutions in respect of their own beneficial holdings.
(a)
be limited to the allotment of equity securities or sale of treasury
shares up to an aggregate nominal amount of £1,512,909;
(b)
(c)
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 AGM 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 16
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 section 693(4) of the Act) of ordinary
shares of £1 each in the capital of the Company provided that:
(a)
the maximum number of shares which may be purchased is 3,025,819;
(b)
the minimum price (excluding expenses) which may be paid for each
share is £1;
(c)
the maximum price (excluding expenses) which may be paid for each
ordinary share is an amount equal to the higher of:
Resolution 1 – Reports and accounts
The Directors are required by law to present to the AGM the accounts, and
the reports of the Directors and auditor, for the year ended 30 September
2022. These are contained in the Company’s 2022 Annual Report.
Resolution 2 – Directors’ Remuneration Report
This resolution seeks shareholders’ approval of the Directors’
Remuneration Report for the year ended 30 September 2022 contained
on pages 86 to 105 of the 2022 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 2022 of 30.6 U.S. cents
be paid. Subject to approval, the final dividend will be paid on 10 March
2023 to eligible shareholders on the Company’s Register of Members at
close of business on 10 February 2023. The dividend will be converted
into pound sterling for payment at the prevailing exchange rate prior to
payment. The exchange rate will be notified to shareholders through a
Regulatory News Service in advance of the dividend payment date.
Resolutions 4 to 9 – Re-appointment of Directors
Each member of the Board has offered himself/herself for election or
re-election in accordance with best practice corporate governance
standards. The Board unanimously recommends that they each be elected
or re-elected as Directors of the Company. The Chair confirms that each
of the Non-Executive Directors who are seeking re-election at the AGM
continues to be an effective member of the Board and to demonstrate
their commitment to their role. Chloe Ponsonby, in her capacity as Senior
Independent Director, has confirmed that Bruce Thompson is an effective
Chair and demonstrates commitment to his role as Chair.
105% 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; or
The Company announced on 17 October 2022 that Jos Sclater would
be appointed to the Board as Chief Executive Officer with effect from
16 January 2023. Resolution 4 proposes his election to the Board by
shareholders on the assumption that he will have been appointed by
the Directors to the Board prior to AGM on 27 January 2023.
(i)
(ii)
the value of an ordinary share calculated on the basis of the
higher of the price quoted for the last independent trade of
and the highest current independent bid for any number of the
Company’s ordinary shares on the London Stock Exchange 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 AGM 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 17
That a general meeting of the Company (other than an AGM) may be
called on not less than 14 clear days’ notice.
By order of the Board
Miles Ingrey-Counter
General Counsel and Company Secretary
Biographical details for each Director are set out on pages 72 and 73 of
the 2022 Annual Report.
Resolutions 10 and 11 – 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 2022.
Resolution 12 – Authority to make political donations
The Act requires companies to obtain shareholders’ authority before they
can make donations to political organisations or incur political expenses.
It is not proposed or intended to alter the Company’s policy of not
making political donations, within the normal meaning of that expression.
However, this resolution is proposed to ensure that the Company and
its subsidiaries do not, because of any uncertainty as to the bodies or
activities covered by the Act, unintentionally commit any technical breach
of the Act by making political donations. Resolution 12, if passed, will give
the Board authority to make political donations until the close of business
on 27 December 2023 or, if sooner, the next AGM of the Company (when
the Board intends to renew this authority), up to an aggregate of £100,000
for the Company and its subsidiary companies.
Annual Report and Accounts 2022 Avon Protection plc
173
FINANCIAL STATEMENTS
N O T I C E O F A N N U A L G E N E R A L M E E T I N G C O N T I N U E D
Resolution 13 – Directors’ authority to allot
This resolution deals with the Directors’ authority to allot Relevant
Securities in accordance with section 551 of the Act. The authority granted
at the last AGM is due to expire at the conclusion of this year’s AGM 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 £10,086,064, which
is equal to approximately one-third of the issued share capital of the
Company as at 22 November 2022 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 AGM of the Company.
In this resolution, ‘Relevant Securities’ means:
(a)
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
(b)
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 14 – General disapplication of pre-emption rights
This resolution will, if passed, give the Directors power, pursuant to
the authority to allot granted by resolution 13, 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 £1,512,909 which
represents approximately 5% of the Company’s issued share capital as at
22 November 2022 and renews the authority given at the AGM in 2021.
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 15.
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 AGM of
the Company.
The Directors have no present intention to exercise the authority conferred
by this resolution.
Resolution 15 – Additional disapplication of
pre-emption rights
This resolution seeks a further power, pursuant to the authority granted
by resolution 13, 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 £1,512,909 which represents approximately 5% of the
Company’s issued share capital as at 22 November 2022. This is in addition
to the 5% referred to in resolution 14 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 AGM of
the Company.
174
Avon Protection plc Annual Report and Accounts 2022
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 16 – 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 3,025,819
ordinary shares of £1 each, representing approximately 10% of the
Company’s issued share capital as at 22 November 2022.
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 AGM. The Company purchased 765,098
shares in the period from the last AGM to 22 November 2022 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 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 22 November 2022, there were options to subscribe outstanding
over 418,028 shares, representing 1.38% of the Company’s issued share
capital. If the authority given by resolution 16 were to be fully exercised,
these options would represent 1.53% of the Company’s issued share
capital after cancellation of the re-purchased shares. As of 22 November
2022, there were no warrants outstanding over shares.
Resolution 17 – Notice of Meeting
Resolution 17 is a resolution to allow the Company to hold general
meetings (other than AGMs) 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 AGMs) 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 AGMs) 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 17 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 AGMs. The approval will be effective until
the Company’s next AGM, 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.
1.
2.
3.
4.
Notice of Meeting notes
The following notes explain your general rights as a shareholder and your
right to attend and vote at this AGM or to appoint someone else to vote on
your behalf.
8.
To be entitled to vote on the business of the AGM (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 by close of business on 25 January 2023.
Changes to the Register of Members after the relevant deadline shall
be disregarded in determining the rights of any person to vote on the
business of the AGM.
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 AGM. A shareholder may appoint more than one
proxy in relation to the AGM 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.
9.
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 AGM.
5. You can vote either:
• by logging on to www.signalshares.com and following
the instructions;
• you may request a hard copy form of proxy directly from the
Registrar, Link Group, on Tel: 0371 664 0300 (+44 371 664 0300
if overseas). Calls are charged at the standard geographical rate
and will vary by provider. Calls outside the United Kingdom will
be charged at the applicable international rate. Lines are open
between 9:00 am and 5:30 pm, Monday to Friday excluding public
holidays in England and Wales; or
•
in the case of CREST members, by utilising the CREST electronic
proxy appointment service in accordance with the procedures set
out below.
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 Group at 10th Floor, Central Square, 29 Wellington Street, Leeds
LS1 4DL by 10:30 am (GMT) on 25 January 2023.
6.
7.
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.
CREST members who wish to appoint a proxy or proxies through
the CREST electronic proxy appointment service may do so
for the AGM (and any adjournment of the AGM) 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 10:30 am (U.K. time) on 25 January 2023.
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.
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.
If you are an institutional investor you may be able to appoint a proxy
electronically via the Proxymity platform, a process which has been
agreed by the Company and approved by the Registrar. For further
information regarding Proxymity, please go to www.proxymity.io.
Your proxy must be lodged by 10.30 am on 25 January 2023 in order
to be considered valid or, if the meeting is adjourned, by the time
which is 48 hours before the time of the adjourned meeting. Before
you can appoint a proxy via this process you will need to have agreed
to Proxymity’s associated terms and conditions. It is important that
you read these carefully as you will be bound by them and they will
govern the electronic appointment of your proxy.
Unless otherwise indicated on the Form of Proxy, CREST, Proxymity
or any other electronic voting instruction, the proxy will vote as they
think fit or, at their discretion or withhold from voting.
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.
As at 22 November 2022 (being the latest practicable business day
prior to the publication of this Notice), the Company’s issued share
capital consists of 30,258,194 ordinary shares of £1 each, carrying one
vote each. 765,098 ordinary shares of £1 each are held in treasury.
These shares are not taken into consideration in relation to the
payment of dividends or voting. Therefore, the total voting rights in
the Company as at 22 November 2022 are 30,258,194.
Under section 527 of the Act, 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 AGM; 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 Act (in each case) that the
shareholders propose to raise at the relevant meeting. The Company
may not require the shareholders requesting any such website
Annual Report and Accounts 2022 Avon Protection plc
175
10.
11.
12.
13.
14.
FINANCIAL STATEMENTS
N O T I C E O F A N N U A L G E N E R A L M E E T I N G C O N T I N U E D
Notice of Meeting notes continued
publication to pay its expenses in complying with sections 527 or 528
of the Act. Where the Company is required to place a statement on a
website under section 527 of the Act, 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 AGM for the relevant financial year includes any statement
that the Company has been required under section 527 of the Act to
publish on a website.
15.
The following documents are available for inspection at our registered
office from the date of this Notice until the conclusion of the AGM
and at the place of the meeting from at least 15 minutes prior to and
during the meeting until its conclusion:
• copies of the Directors’ letters of appointment or service
contracts; and
• a copy of the current Articles of Association of the Company.
Scanned copies are also be available on request from the
Company Secretary.
16.
You may not use any electronic address (within the meaning of
section 333(4) of the Act) 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.
176
Avon Protection plc Annual Report and Accounts 2022
G L O S S A R Y O F F I N A N C I A L T E R M S A N D A B B R E V I A T I O N S
Term
Definition
Adjusted basic earnings per share Adjusted profit for the year divided by the weighted average number of shares in issue
Adjusted dividend cover
The ratio of adjusted basic earnings per share from continuing operations to the total dividend for the year
Adjusted EBITDA
Adjusted EBITDA is defined as adjusted operating profit before depreciation, amortisation and impairment of
non-current assets. It excludes any effect of discontinued operations
Adjusted EBITDA margin
The ratio of adjusted EBITDA to revenue
Adjusted operating profit
Operating profit adjusted to exclude exceptional items
BPS
Basis points
Cash conversion percentage
The ratio of cash generated from operations before the effect of exceptional items, as a percentage of
adjusted EBITDA
Closing order book
Orders held by the Group at the end of the year which are not yet fulfilled
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 cover
The ratio of basic earnings per share from continuing operations to the total dividend for the year
Dividend per share
Dividends paid/proposed, divided by the weighted average number of shares in issue
EBITDA
Exceptional items
Intellectual property
Net debt
Orders received
The Group’s earnings before charging interest, tax, depreciation, amortisation and impairment of non-current assets
Transactions are classified as exceptional items where they relate to an event that falls outside of the underlying
trading activities of the business and where individually, or in aggregate, they have a material impact on the
financial statements
Intangible property created by the Group through research and development, that is protected through patents,
copyrights or trademarks
Net debt is the Group’s drawn bank debt, overdrafts and lease obligations net of any cash
The orders received throughout the year and recognised as revenue together with orders in the closing order book
Return on capital employed
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
Total research and development
as % of revenue
Total expenditure on research and development expressed as a percentage of revenue
Term
50 series
AGM
APAC
APC
CBRN
DLA
DOD
ESAPI
ESG
ESPP
FAT
FTSE
FX
FY
GHG
H1/H2
ITAR
JSGPM
KPIs
LTIP
MENA
MOD
NATO
Explanation
Range of masks based on the proven technology of the M50 mask system
Annual General Meeting
Asia-Pacific
Avon Protection Ceradyne
Chemical, biological, radiological and nuclear
Defense Logistics Agency
Department of Defense
Enhanced Small Arms Protective Insert
Environmental, social and corporate governance
Employee Stock Purchase Plan
First Article Testing
Financial Times Stock Exchange
Foreign exchange
Financial year
Greenhouse Gas
First half of the financial year (October–March)/second half of financial year (April–September)
International Traffic in Arms Regulation
Joint service general protection mask
Key Performance Indicators
Long-Term Incentive Plan
Middle East and North Africa
Ministry of Defence
North Atlantic Treaty Organization
Annual Report and Accounts 2022 Avon Protection plc
177
FINANCIAL STATEMENTS G L O S S A R Y O F F I N A N C I A L T E R M S A N D A B B R E V I A T I O N S C O N T I N U E D
Explanation
Next Generation Integrated Head Protection System
The NATO Support and Procurement Agency, the executive body of the NATO Support and Procurement
Organisation (NSPO, of which all 30 NATO nations are members)
Powered Air Purifying Respirator
Performance Share Plan
Rest of World
Self-Contained Breathing Apparatus
Share Incentive Plan
Special Security Agreement
Special Weapons and Tactics
Traumatic Brain Injury
The amount of greenhouse gasses emitted during a given period, measured in metric tons of carbon dioxide
equivalent
Task Force for Climate Related Financial Disclosures
Total shareholder return
United Nations Sustainable Development Goals
Vital Torso Protection
Term
NG IHPS
NSPA
PAPR
PSP
RoW
SCBA
SIP
SSA
SWAT
TBI
tCO2e
TFCD
TSR
UN SDGS
VTP
178
Avon Protection plc Annual Report and Accounts 2022
S H A R E H O L D E R I N F O R M A T I O N
Shareholder information
As at 31 October 2022 the Company had 1,202 shareholders, of which 723
had 1,000 shares or fewer.
Financial calendar
Half year results are usually announced in May and year end results
in November.
In respect of the year ended 30 September 2022 the AGM will be held
on 27 January 2023 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
Bruce Thompson (Executive Chair)
Rich Cashin (Chief Financial Officer)
Chloe Ponsonby (Non-Executive Director)
Bindi Foyle (Non-Executive Director)
Victor Chavez CBE (Non-Executive Director)
Company secretary
Miles Ingrey-Counter
Auditor
KPMG LLP
Chartered Accountants and Statutory Auditor
Registrar and transfer office
Link Group, 10th Floor, Central Square, 29 Wellington Street, Leeds LS1 4DL
Tel: 0371 664 0300 (+44 371 664 0300 if overseas)
Calls are charged at the standard geographical rate and will vary by
provider; lines are open 9:00 am–5:30 pm, excluding public holidays in
England and Wales.
Financial advisor
Rothschild & Co
Brokers
Peel Hunt LLP
Jefferies Group LLC
Financial PR
MHP Communications
Lawyer
White & Case LLP
Principal bankers
Barclays Bank PLC
Comerica Inc.
NatWest
Fifth Third
Bank of Ireland
CIC
Website
www.avon-protection-plc.com
All Team Wendy product names referenced in this Annual Report
are trademarks of Team Wendy LLC. Team Wendy LLC is part of the
Avon Protection plc group of companies.
Avon Protection plc’s commitment to environmental issues is reflected in this Annual Report, which has been
printed on Arena Extra White Smooth, an FSC® certified material.
This document was printed by Pureprint Group using its environmental print technology, with 99% of
dry waste diverted from landfill, minimising the impact of printing on the environment. The printer is a
CarbonNeutral® company.
Both the printer and the paper mill are registered to ISO 14001.
Hampton Park West
Semington Road
Melksham, Wiltshire
SN12 6NB
England
Telephone: +44 (0) 1225 896 800
Email: enquiries@avon-protection.com