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RNS
Avon Rubber PLC  -  AVON   

Final Results

Released 07:00 16-Nov-2016

RNS Number : 2612P
Avon Rubber PLC
16 November 2016
 

News Release

 

16 November 2016

AVON RUBBER p.l.c.
("Avon", the "Group" or the "Company")

Audited results for the year ended 30 September 2016

30 Sept 2016

£Millions

REVENUE

142.9

134.3

6%

ADJUSTED EBITDA (*)

30.8

ADJUSTED OPERATING PROFIT (*)

21.8

20.2

8%

ADJUSTED PROFIT BEFORE TAX (*)

21.6

19.8

9%

NET CASH/(DEBT)

2.0

(13.2)

 

EARNINGS PER SHARE:

 

 

 

Adjusted basic (*)

74.2p

56.1p

33%

Basic

60.4p

45.4p

33%

Adjusted diluted (*)

72.8p

54.6p

33%

Diluted

59.2p

44.2p

34%

DIVIDEND PER SHARE

9.48p

7.29p

30%

 

FINANCIAL HIGHLIGHTS:

·     Operating profit growth of 8%

·     EBITDA growth of 13%

·     Tax credit of £0.9m

·     Diluted earnings per share increased 33%

·     Return on sales (EBITDA divided by revenue) improved 1.3% from 20.3% to 21.6%

·     Continuing healthy conversion of operating profit to operating cash at 152%

·     Net cash at year end of £2m (2015: net debt of £13.2m)

·     Dividend of 9.48p per share up 30%

 

OPERATIONAL HIGHLIGHTS:

·     Successful integration of the acquisitions of InterPuls, Hudstar and Argus

·     $9m order for recently approved CBRN/CO Escape Hood

·     Market share growth of Impulse Air to 29% in the US and 6% in Europe in a soft dairy market

·     Continued strong take up of Cluster Exchange which is now servicing 467,000 cows on 1,530 farms across US and Europe

(*) Note:

The Directors believe that adjusted measures provide a more useful comparison of business trends and performance. Adjusted results exclude discontinued operations, exceptional items, the amortisation of acquired intangibles and defined benefit pension scheme costs. The term adjusted is not defined under IFRS and may not be comparable with similarly titled measures used by other companies.

 

All profit and earnings per share figures in this news release relate to adjusted business performance (as defined above) unless otherwise stated.

 

A reconciliation of adjusted measures to statutory measures is provided below:

 

 

Statutory

Adjustments

Adjusted

Group EBITDA (£m)

30.0

0.8

30.8

Group operating profit (£m)

17.6

4.2

21.8

Other finance expense (£m)

0.7

(0.6)

0.1

Group profit before taxation (£m)

16.8

4.8

21.6

Tax (credit)/charge (£m)

(1.8)

0.9

(0.9)

Group profit for the year (£m)

18.3

4.2

22.5

Basic earnings per share (pence)

60.4

13.8

74.2

Diluted earnings per share (pence)

59.2

13.6

72.8

Protection & Defence EBITDA (£m)

21.9

0.5

22.4

Protection & Defence operating profit (£m)

14.0

2.0

16.0

Dairy EBITDA (£m)

9.8

-

9.8

Dairy operating profit (£m)

5.4

1.8

7.2

 

The adjustments comprise:

§ amortisation of acquired intangibles of £3.3m (2015: £1.0m)

§ net defined benefit pension scheme cost of £0.3m (2015: credit £0.3m), which relates to a scheme closed to future accrual and therefore does not relate to current operations

§ exceptional items of £0.5m (2015: £0.6m) relating to acquisition integration costs (2015: executive search fees and acquisition costs)

§ tax effect of adjustments of £0.9m (2015: £0.2m)

§ loss on discontinued operations of £0.3m (2015: £1.5m) relating to dilapidations costs of former leased premises of a business disposed of in 2006

Further details are provided in note 3.

 

Commenting on the results Rob Rennie, Chief Executive Officer, said: 

"Avon's strategy has delivered strong earnings growth and cash generation. Our business has proved to be resilient in difficult market conditions and we exit the year a more robust business with a range of good opportunities for growth".

 

 

For further enquiries, please contact:

Avon Rubber p.l.c.

 

Rob Rennie, Chief Executive

020 7067 0700 (until 12 noon today)

Andrew Lewis, Group Finance Director

01225 896 830

Sarah Matthews-DeMers, Associate Group Finance Director

01225 896 563

 

 

Weber Shandwick Financial

 

Nick Oborne

020 7067 0700

 

 

Note to editors: The Group has transformed itself over recent years into an innovative design and engineering group, specialising in two core markets, Protection & Defence and Dairy. With a strong emphasis on research and development, we design, test and manufacture specialist products from a number of sites in the US and Europe, serving markets around the world. We achieve this through nurturing the talent and aspirations of our employees to realise their highest potential.

 

Avon Protection Systems is the recognised global market leader in advanced Chemical, Biological, Radiological and Nuclear (CBRN) respiratory protection systems for the world's military, homeland security, first responder, fire and industrial markets. With an unrivalled pedigree in mask design dating back to the 1920's, Avon Protection Systems' advanced products are the first choice for Personal Protective Equipment (PPE) users worldwide and are placed at the heart of many international defence and tactical PPE deployment strategies. Our expanding global customer base now includes military forces, civil and first line defence troops, emergency service teams and industrial, marine, mineral and oil extraction site personnel. All put their trust in Avon's advanced respiratory solutions to shield them from every possible threat whether land, air or sea based.

 

Our world-leading Dairy supplies business and its Milkrite | InterPuls brand has a global market presence. With a long history of manufacturing liners and tubing for the dairy industry, we have become the leading innovator and designer for products and services right at the heart of milking. The acquisition of InterPuls in 2015, a specialist in electro-mechanical milking components, such as pulsators, milk meters, automatic cluster removers and milking clusters, has added significantly to our product range, making us the complete milking point solutions provider improving every farm we touch.

 

Working with leading scientists and health specialists in the global dairy industry, we continue to invest in technology to further improve the milking process and animal welfare. Our products provide exceptional results for both the animal and the milker, making the milk extraction process more efficient. As our market share and milking experience continue to improve, so does our global presence.

 

For further information please visit the Group's website: www.avon-rubber.com 

 

 

INTRODUCTION

Avon's strategy has delivered strong earnings growth and cash generation resulting in the Group ending the year with net cash of £2.0m.

 

During the year we have successfully integrated the acquisitions made late in 2015 and early 2016 and, in difficult market conditions, both sides of our business have proved to be resilient. We exit the year a more robust business with both a broader product range and increased routes to market.

 

We continue to maintain our focus on creating a healthy and sustainable business and, by investing in and integrating technology in both divisions, we are creating exciting future international growth opportunities.

 

Continuing sound financial and operational management has both protected our margins and delivered strong operating cash flows, enabling us to fund the recent acquisitions whilst reducing our debt by £15.2m, thus maintaining a strong balance sheet.

 

ACQUISITION

In October 2015 we acquired the Argus thermal imaging camera business from e2v technologies plc for £3.3m. The thermal imaging product is complementary to our offering in both the fire service and law enforcement markets and has been successfully integrated into our sales and distribution structure with good demand for the products.

 

GROUP RESULTS

Group revenue increased 6% to £142.9m (2015: £134.3m) with Protection & Defence higher by 2% at £100.9m (2015: £98.8m) and Dairy up 18% to £42.0m (2015: £35.5m). Operating profit before depreciation and amortisation (EBITDA) rose 13% to £30.8m (2015: £27.3m) and operating profit rose 8% to £21.8m (2015: £20.2m).

 

The progressive strengthening of the US dollar during the year gave the Group a foreign exchange translation tailwind. The US $/£ average rate was $1.42 (2015: $1.54) and this 12 cent tailwind was equivalent to £9.4m at a revenue level and £1.4m at an operating profit level.

 

SEGMENTAL PERFORMANCE

 

PROTECTION & DEFENCE PERFORMANCE

Protection & Defence represented 71% (2015: 74%) of total Group revenues. The business saw revenues increase by 2% from £98.8m to £100.9m.

 

Operating profit grew to £16.0m (2015: £15.9m) and EBITDA was up 4% to £22.4m (2015: £21.6m), representing a return on sales (defined as EBITDA divided by revenue) of 22.2% (2015: 21.9%). Our margins have improved due to the mix of product shipped, efficiencies, the careful management of discretionary spend and increased prices under our long-term DOD contract.

 

Under our long-term DOD M50 mask contract we supplied 189,000 mask systems during the financial year, bringing the total to over 1.6m systems so far under this contract. Having received orders for 169,000 mask systems during the year, this left us with an order book of 30,000 systems as we entered our 2017 financial year. This has been supplemented since the year end by a further order from the DOD for 131,000 mask systems.

 

The filter requirement has less short-term visibility, but we expect this consumable item to be a good source of repeat revenue in the long term as more masks enter service. As expected, the DOD qualified a second source to provide filters during 2015 and in 2016 we received orders under this new arrangement for 122,000 filter pairs, with 37,000 pairs carried forward for delivery in the first quarter of 2017.

 

During the year the Joint Service Aircrew Mask (JSAM) programme design, development and testing work progressed well. This will provide respiratory protection to a wide range of operators on the DOD's fleet of fixed-wing aircraft. During 2016 the DOD continued to test the product on the aircraft platforms it will be deployed on. We continue to expect that when this concludes, it should lead to a production contract which could be worth in excess of $70m, with the first revenues expected in 2017.

 

Sales to US law enforcement and non-US military and law enforcement were £31.6m (2015: £27.7m) as a result of a good performance from the underlying portfolio and a $9m order from the New York Police Department for our recently approved CBRN/CO Escape Hood, the majority of which was delivered in the final quarter of the year.

 

We saw growth in sales to the fire market this year following the acquisition and successful integration of the Argus thermal imaging camera business.

 

AEF has experienced a softer year, reflecting the variability in timing of certain DOD procurement programmes for fuel and water storage tanks.

 

DOD spares sales have increased this year, as expected given the increase in the installed base of masks. Long term, as the installed base of masks continues to grow so will the DOD's requirement to fill its supply chain.

 

The closing order book in Protection & Defence was £20m (2015: £20m). This included the 15,000 mask systems non-DOD order we received in September which will be delivered in the first quarter of the new year. We also carried forward 30,000 DOD masks (2015: 50,000) and since the year end have received a further order for 131,000 mask systems from the DOD.  

 

We continue to see several higher margin export opportunities for military masks, although the timing of order receipt remains difficult to predict. These remain live and are progressing and we expect to receive and deliver them in our 2017 financial year.

 

DAIRY PERFORMANCE

Dairy revenues increased by 18% to £42.0m (2015: £35.5m) following the acquisition of InterPuls in August 2015 which offset softer market conditions caused by low milk prices. An increasing proportion of higher margin Milkrite | InterPuls product and service sales, together with disciplined management of discretionary spend, contributed to an increased operating profit of £7.2m (2015: £6.4m).

 

EBITDA was £9.8m (2015: £7.7m), giving a return on sales (as defined above) of 23.3%, up from 21.7% in 2015.

 

Market conditions for dairy farmers have been weak as milk prices have been low. This typically cyclical market dynamic has, as expected, reduced demand for our consumable products as farmers extend the life through over-using our products. The capital nature of the InterPuls products makes the replacement cycle longer, meaning InterPuls is more affected by the cyclical market dynamics than Milkrite consumable products.

 

Our Dairy business has become substantially less dependent on original equipment manufacturers (OEMs) in recent years as we continue to grow sales of our own higher margin Milkrite | InterPuls branded products and services. In difficult market conditions we are encouraged that our Milkrite | InterPuls market share continues to increase, meaning that we exit this cyclical downturn with a more robust business.

 

Milkrite | InterPuls sales increased as a proportion of total revenue, providing a richer sales mix. Only six years ago OEM customers represented 47% of our revenue; at the end of this year this had fallen to 20%, reflecting the success of the higher margin Milkrite | InterPuls brand and the decision of certain OEMs to insource or dual source production.

 

In Europe, where Avon-manufactured liners have a 73% market share, Milkrite | InterPuls's liner market share has increased to 32% due to growth in traditional own brand products and the success of our Impulse Air mouthpiece vented liner, first launched in Europe late in 2013. This product continues to gain traction, with its market share increasing to 6%.

 

In the US, where Avon-manufactured liners have a 61% market share, the Impulse Air mouthpiece vented liner continued to perform well, with its market share increasing to 29%. The total Milkrite | InterPuls market share in the US is 51%.

 

We are encouraged that in poor market conditions retention of existing farmers and the take up by new farmers of our innovative Cluster Exchange service remains strong in both North America and Europe. By the end of the year we were servicing 467,000 cows on 1,530 farms in the US and Europe, up from 430,000 cows and 1,262 farms at the same time last year. This added-value service enhances the value of each direct liner sale we make and has led to a more robust and sustainable business model, with the potential to grow a significant recurring revenue stream in the years to come, as more farms sign up. We are extending the exchange service concept to include pulsators and tags under a new Farm Services umbrella.

 

Milk prices in our major markets appear to have bottomed-out and started to improve in the final quarter of our financial year, a trend which has continued since the year end.

 

We are pleased with the integration of InterPuls, acquired in August 2015, into the wider Dairy business and are on track to realise the long-term strategic benefits that have been identified, in particular the sales synergies available in the North American market. The programme for the roll out of InterPuls products through existing Milkrite distribution in the US has commenced, with the first revenues seen in the final quarter of the financial year. This, together with our expectation that the recent improvement in milk price will continue and positively impact demand for our products, leaves the Board confident of the ability of the Dairy business to make progress in 2017.

 

In China, our customer base continues to grow, demonstrating the continuation of the industrialisation of the milking process and the strength of the local presence we have established in this market. We remain encouraged by the excellent long-term potential for our products.

 

In South America, where we opened our sales and distribution facility in the first half of 2015, we have started to make good progress in establishing a strong dealer network and expect to see growth in this region, with revenue growing in line with our expectations.

 

FINANCE EXPENSES

Net interest costs were £0.2m (2015: £0.2m) and other (non-cash) finance expenses associated with the unwinding of discounts on provisions were £0.1m (2015: £0.2m).

 

TAXATION

The statutory tax credit totalled £1.8m (2015: charge £2.7m) on a statutory profit before tax of £16.8m (2015: £17.8m). The effective tax rate for the period is a credit of 11% (2015: charge of 15%), reflecting the geographic split of taxable profits for 2016, the finalisation of the 2015 tax returns and the positive outcome of certain tax enquiries.

 

Prior period adjustments related to the positive outcome of certain tax enquiries and taxation payable in the US where legislation concerning the timing of deductibility of certain expenditure was passed by Congress after the 2015 financial statements were approved but before we filed our US tax returns. Hence we were able to take the benefit of this in our tax filings but we had not assumed such a benefit when calculating our tax liability at the time of approving the 2015 financial statements.

 

EARNINGS PER SHARE

Basic earnings per share were 74.2p (2015: 56.1p) and diluted earnings per share were 72.8p (2015: 54.6p).

 

NET CASH AND CASH FLOW

Net cash at the end of the year was £2.0m (2015: net debt of £13.2m). At the year end, our main bank facility was £30.9m, which is US dollar denominated and committed to 30 November 2019.

 

In the year we invested £3.3m in the Argus acquisition and £6.8m (2015: £6.2m) in property, plant and equipment and new product development. In the Protection & Defence business this focused on the completion of our new product development programme, Project Fusion. In Dairy we invested in the development of our iMilk600 milk meter, the completion of our new claw and the hardware required to support our Cluster Exchange service offering.

 

Operating activities generated cash of £33.1m (2015: £24.1m), representing 152% of operating profit (2015: 119%). Through disciplined financial management the Group has driven strong conversion of profits into cash. All elements of working capital are impacted by the timing of shipments to customers and foreign exchange which has increased inventories, receivables and payables.

 

UK RETIREMENT BENEFIT OBLIGATIONS

The balance, as measured under IAS 19 (revised), associated with the Group's UK retirement benefit obligation, which has been closed to future accrual, has moved from a £16.6m deficit at 30 September 2015 to a £40.0m deficit at 30 September 2016.

 

This movement has resulted from an increase in liabilities as the AA corporate bond rate has fallen, partially offset by strong performance from our return-seeking assets and Liability Driven Investment.

 

During 2016, the Group paid total contributions of £0.7m (2015: £0.8m).

 

The last triennial actuarial valuation took place as at 31 March 2013. That valuation showed the scheme to be 98.0% funded on a continuing basis and under the deficit recovery plan, the payments for the Group financial years ending 30 September are as follows: 2017: £0.7m and 2018: £0.7m. These amounts include £0.3m p.a. in respect of administration expenses.

 

The Trustee is currently undertaking the 31 March 2016 valuation, the results of which are due by 30 June 2017.

 

RESEARCH AND DEVELOPMENT

Intangible assets relating to development costs totalling £19.2m (2015: £16.2m) form a significant part of the balance sheet as we invest in new product development. This can be seen from our expanding product range in both Protection & Defence and Dairy. The annual charge for amortisation of development costs was £2.5m (2015: £1.9m).

 

Our total investment in research and development (capitalised and expensed) amounted to £8.3m (2015: £7.1m), 6% of revenue, of which £4.3m (2015: £3.9m) was customer funded and has been recognised as revenue.

 

In Dairy we have started to expand our product range under the Milkrite | InterPuls brand beyond liners and tubing into non-rubber goods such as liner shells, claws and farm intelligence systems.

 

We have started to see the benefits of these efforts, which underpin the long-term prosperity of the Group, during our 2016 financial year.

 

FOREIGN EXCHANGE SENSITIVITY

The Group reports trading results of overseas companies based on average rates of exchange compared with sterling over the year. This income statement translation exposure is not hedged as this is an accounting rather than cash exposure and as a result the 2016 adjusted operating profit would be impacted by £0.6m (2015: £0.7m) for each 5¢ movement in the average US dollar rate.

 

DIVIDEND

Based on the Group's improved profitability, cash generation and the confidence the Board has in the Group's future prospects, the Board is pleased to propose a 30% increase in the final dividend to 6.32p per ordinary share (2015: 4.86p). This, combined with the 2016 interim dividend of 3.16p, results in a full year dividend of 9.48p (2015: 7.29p), up 30%.

 

OPPORTUNITIES

The acquisitions we completed late in 2015 and early 2016 have been successfully integrated into the existing Group, enhancing our global market leading positions and delivering further opportunities for growth. We will continue to invest in innovative new technologies and products and in building our brand and market reach to bring these opportunities to fruition.

 

BOARD CHANGES

Rob Rennie joined as Chief Executive on 1 December 2015.

 

After serving as a Non-Executive Director since December 2012 Richard Wood stood down at the AGM in January 2016.

 

Chloe Ponsonby was appointed on 1 March 2016. Chloe is a founding partner at the Lazarus Partnership, an independent equity research and advisory firm.

 

After eight years as Group Finance Director, Andrew Lewis will step down on 30 November 2016.

 

The Board thanks Andrew for his significant contribution to Avon's success. He has been instrumental in the successful transformation of the Group, helping to build the foundations that have led to the recent consistent growth in profits. His stewardship of the Group's finances has placed it in a good position to take advantage of the many opportunities ahead. The Board wishes him every success in the future.

 

The Board is pleased to confirm the appointment of Paul Rayner as Interim Group Finance Director with effect from 1 December 2016.

 

OUTLOOK

Our strategy of integrating new technologies from product development and acquisitions with our existing strong brands and routes to market has created a business that is resilient to adverse market conditions with strong foundations for growth in both divisions.

 

In our global Protection & Defence business we continue to see a number of higher margin export opportunities, have good visibility of DOD revenues for 2017 and a strong underlying portfolio of non-DOD business which we expect to be enhanced by the increasing impact of the recently launched new products.

 

In Dairy, after the weak market conditions in 2016, the acquisition of InterPuls and the encouraging gains in Milkrite | InterPuls market share provide us with significant opportunity as the milk prices improve in 2017. This, together with the sales and distribution platforms we have established in China and Brazil to service these rapidly growing emerging markets, means we have a Dairy business with excellent short and longer term growth prospects.

 

The majority of the Group's earnings are US dollar denominated and hence the continued strengthening of the US dollar against Sterling provides a potentially significant foreign exchange translation tailwind in 2017 should it be maintained throughout the year.

 

 

                       

David Evans                                                        Rob Rennie

Chairman                                                            Chief Executive Officer

16 November 2016                                          16 November 2016
 

Consolidated Statement of Comprehensive Income

for the year ended 30 September 2016

 

 

 

 

 

 

 

 

 

 

Year to 30 Sept 2016

Year to 30 Sept 2015

 

 

Statutory

Adjustments

Adjusted

Statutory

Adjustments

Adjusted

 

Note

£'000

£'000

£'000

£'000

£'000

£'000

Continuing operations

 

 

 

 

 

 

 

Revenue

2

142,884

-

142,884

134,318

-

134,318

Cost of sales

 

(90,159)

-

(90,159)

(88,618)

-

(88,618)

Gross profit

 

52,725

-

52,725

45,700

-

45,700

Selling and distribution costs

 

(17,984)

-

(17,984)

(13,007)

-

(13,007)

General and administrative expenses

 

(17,111)

4,133

(12,978)

(13,807)

1,329

(12,478)

Operating profit

2

17,630

4,133

21,763

18,886

1,329

20,215

 

 

 

 

 

 

 

 

Operating profit is analysed as:

 

 

 

 

 

 

 

Before depreciation and amortisation

 

 

 

          29,982

826

30,808

26,981

286

27,267

Depreciation and amortisation

 

(12,352)

3,307

(9,045)

(8,095)

1,043

(7,052)

Operating profit

 

17,630

4,133

21,763

18,886

1,329

20,215

 

 

 

 

 

 

 

 

Finance income

 

11

-

11

45

-

45

Finance costs

 

(165)

-

(165)

(192)

-

(192)

Other finance expense

 

(675)

642

(33)

(901)

654

(247)

Profit before taxation

 

16,801

4,775

21,576

17,838

1,983

19,821

Taxation

4

1,824

(924)

900

(2,672)

(253)

(2,925)

Profit for the year from continuing operations

 

18,625

3,851

22,476

15,166

1,730

16,896

Discontinued operations - loss for the year

 

(346)

346

-

(1,500)

1,500

-

Profit for the year

 

18,279

4,197

22,476

13,666

3,230

16,896

 

Consolidated Statement of Comprehensive Income

for the year ended 30 September 2016 (continued)

 

 

 

 

 

 

 

 

 

 

Year to 30 Sept 2016

Year to 30 Sept 2015

 

 

 

Statutory

Adjustments

Adjusted

Statutory

Adjustments

Adjusted

 

 

Note

£'000

£'000

£'000

£'000

£'000

£'000

 

Other comprehensive (expense)/income

 

 

 

 

 

 

 

 

Actuarial  loss recognised on retirement benefit scheme (*)

 

(23,084)

-

(23,084)

(1,040)

-

(1,040)

 

 

 

 

 

 

 

 

 

 

Deferred tax relating to retirement benefit scheme (*)

 

3,471

-

3,471

3,321

-

3,321

 

 

 

 

 

 

 

 

 

 

Net exchange differences offset in reserves (**)

 

7,903

-

7,903

3,311

-

3,311

 

Cash flow hedges (**)

 

(898)

-

(898)

-

-

-

 

 

 

 

 

 

 

 

 

 

Tax relating to exchange differences offset in reserves (**)

 

(1,698)

-

(1,698)

-

-

-

 

Other comprehensive (expense)/income for the year, net of taxation

 

(14,306)

-

(14,306)

5,592

                -

5,592

 

Total comprehensive income for the year

 

3,973

4,197

8,170

19,258

3,230

22,488

Earnings per share

 

 

 

 

 

 

 

 

Basic

6

60.4p

 

74.2p

45.4p

 

56.1p

 

Diluted

6

59.2p

 

72.8p

44.2p

 

54.6p

 

Earnings per share from continuing operations

 

 

 

 

 

 

 

 

Basic

6

61.5p

 

74.2p

50.4p

 

56.1p

 

Diluted

6

60.3p

 

72.8p

49.0p

 

54.6p

 

 

 

* Items that are not subsequently reclassified to the income statement.

**Items that may be subsequently reclassified to the income statement.

 

Consolidated Balance Sheet

as at 30 September 2016

 

 

 

 

 

 

As at

As at

 

 

30 Sept 16

30 Sept 15

 

Note

£'000

£'000

Assets

 

 

 

Non-current assets

 

 

 

Intangible assets

 

47,357

41,309

Property, plant and equipment

 

30,112

28,212

Deferred tax assets

 

7,775

4,574

 

 

85,244

74,095

 

 

 

 

Current assets

 

 

 

Inventories

 

20,648

17,123

Trade and other receivables

 

19,968

17,023

Derivative financial instruments

 

-

3

Cash and cash equivalents

10

4,495

332

 

 

45,111

34,481

 

 

 

 

Liabilities

 

 

 

Current liabilities

 

 

 

Borrowings

10

2,499

2,350

Trade and other payables

 

24,185

17,150

Derivative financial instruments

 

895

-

Provisions for liabilities and charges

7

745

855

Current tax liabilities

 

8,317

6,823

 

 

36,641

27,178

 

 

 

 

Net current assets

 

8,470

7,303

 

 

 

 

Non-current liabilities

 

 

 

Borrowings

10

-

11,143

Deferred tax liabilities

 

10,007

9,734

Retirement benefit obligations

 

39,951

16,605

Provisions for liabilities and charges

7

1,755

1,712

 

 

51,713

39,194

Net assets

 

42,001

42,204

 

 

 

 

Shareholders' equity

 

 

 

Ordinary shares

8

31,023

31,023

Share premium account

 

34,708

34,708

Capital redemption reserve

 

500

500

Translation reserve

 

8,584

2,379

Accumulated losses

 

(32,814)

(26,406)

Total equity

 

42,001

42,204

 

Consolidated Cash Flow Statement

for the year ended 30 September 2016

 

 

 

 

 

 

Year to

Year to

 

 

30 Sept 16

30 Sept 15

 

Note

£'000

£'000

Cash flows from operating activities

 

 

 

Cash generated before the impact of exceptional items

 

33,146

24,053

Cash impact of exceptional items

 

(449)

(1,192)

Cash generated from continuing operations

 

32,697

22,861

Cash used in discontinued operations

 

(317)

(1,529)

Cash generated from operations

9

32,380

21,332

Finance income received

 

11

45

Finance costs paid

 

(320)

(192)

Retirement benefit deficit recovery contributions

 

(700)

(800)

Tax paid

 

(1,031)

(3,270)

Net cash generated from operating activities

 

30,340

17,115

 

 

 

 

Cash flows from investing activities

 

 

 

Proceeds from sale of property, plant and equipment

 

50

21

Purchase of property, plant and equipment

 

(3,565)

(3,222)

Capitalised development costs and purchased software

 

(3,273)

(2,961)

Acquisition of subsidiaries 

 

(3,300)

(21,249)

Net cash used in investing activities

 

(10,088)

(27,411)

 

 

 

 

Cash flows from financing activities

 

 

 

Net movements in loans

 

(11,973)

10,605

Dividends paid to shareholders

 

(2,430)

(1,859)

Purchase of own shares

 

(1,812)

(1,152)

Net cash (used in)/generated from financing activities

 

(16,215)

7,594

 

 

 

 

Net increase/(decrease) in cash, cash equivalents and bank overdrafts

 

4,037

(2,702)

Cash, cash equivalents and bank overdrafts at beginning of the year

 

332

2,925

Cash, cash equivalents and bank overdrafts acquired on acquisitions

 

-

12

Effects of exchange rate changes

 

126

97

Cash, cash equivalents and bank overdrafts at end of the year

10

4,495

332

 

 

 

 

Consolidated Statement of Changes in Equity

for the year ended 30 September 2016

 

 

 

 

 

 

 

 

 

 

 

 

Share

Share

Other

Accumulated

 

 

 

capital

Premium

reserves

losses

Total

 

Note

£'000

£'000

£'000

£'000

£'000

At 1 October 2014

 

31,023

34,708

(432)

(40,283)

25,016

Profit for the year

 

-

-

-

13,666

13,666

Unrealised exchange differences on overseas investments

 

-

-

3,311

-

3,311

Actuarial loss recognised on retirement benefit scheme

 

-

-

-

(1,040)

(1,040)

Deferred tax relating to retirement benefit scheme

 

-

-

-

3,321

3,321

Total comprehensive income for the year

 

-

-

3,311

15,947

19,258

Dividends paid

5

-

-

-

(1,859)

(1,859)

Movement in shares held by the employee benefit trust

 

-

-

-

(971)

(971)

Movement in respect of employee share scheme

 

-

-

-

85

85

Deferred tax relating to employee share schemes

 

-

-

-

675

675

At 30 September 2015

 

31,023

34,708

2,879

(26,406)

42,204

Profit for the year

 

-

-

-

18,279

18,279

Net exchange differences offset in reserves

 

-

-

7,903

-

7,903

Tax relating to exchange differences offset in reserves

 

-

-

(1,698)

-

(1,698)

Cash flow hedges

 

-

-

-

(898)

(898)

Actuarial loss recognised on retirement benefit scheme

 

-

-

-

(23,084)

(23,084)

Deferred tax relating to retirement benefit scheme

 

-

-

-

3,471

3,471

Total comprehensive income for the year

 

-

-

6,205

(2,232)

3,973

Dividends paid

5

-

-

-

(2,430)

(2,430)

Movement in shares held by the employee benefit trust

 

-

-

-

(1,697)

(1,697)

Movement in respect of employee share scheme

 

-

-

-

83

83

Deferred tax relating to employee share schemes

 

-

-

-

(132)

(132)

At 30 September 2016

 

31,023

34,708

9,084

(32,814)

42,001

 

 

Other reserves consist of the capital redemption reserve of £500,000 (2015: £500,000) and the translation reserve of £8,584,000 (2015: £2,379,000).

 

All movements in other reserves relate to the translation reserve.

 

Notes to the Preliminary Financial Statements

for the year ended 30 September 2016

 

 

1.            Basis of preparation

 

a)    These financial results do not comprise statutory accounts for the year ended 30 September 2016 within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 30 September 2015 were approved by the Board of Directors on 17 November 2015 and delivered to the Registrar of Companies. Statutory accounts for the year ended 30 September 2016 will be delivered to the Registrar following the Company's Annual General Meeting. The report of the auditors on these accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.

 

b)    This financial information has been prepared in accordance with International Financial Reporting Standards and International Financial Reporting Interpretations Committee (IFRIC) interpretations as adopted by the European Union (collectively 'IFRSs') and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

 

c)    Certain statements in this announcement constitute forward-looking statements. Any statement in this announcement that is not a statement of historical fact including, without limitation, those regarding the Company's future expectations, operations, financial performance, financial condition and business is a forward-looking statement. Such forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially. These risks and uncertainties include, among other factors, changing economic, financial, business or other market conditions. These and other factors could adversely affect the outcome and financial effects of the plans and events described in this announcement and the Company undertakes no obligation to update its view of such risks and uncertainties or to update the forward-looking statements contained herein. Nothing in this announcement should be constructed as a profit forecast.

 

d)    Recent accounting developments

 

The following standards, amendments and interpretations have been issued by the International Accounting Standards Board (IASB) or by the IFRIC.

 

The Group's approach to these is as follows:

 

i) Standards, amendments and interpretations effective in 2016:

 

No new standards or amendments have been adopted for the year ended 30 September 2016.

 

ii) Standards, amendments and interpretations to existing standards issued but not yet effective in 2016 and not adopted early:

 

The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1 October 2015, have not been adopted early and are not expected to have a material impact on the Group financial statements:

 

§ IFRS 9, 'Financial instruments'

§ IFRS 14, 'Regulatory Deferral Accounts'

§ IFRS 15, 'Revenue from Customer Contracts'

§ IFRS 16, 'Leases'

§ Amendments to IAS 1, 'Disclosure Initiative'

§ Amendments to IAS 7, 'Disclosure Initiative'

§ Amendment to IFRS 10 and IAS 28, 'Sale or Contribution of assets between and Investor and its Associate or Joint Venture'

§ Amendments to IFRS 10, IFRS 12 and IAS 28, 'Applying the consolidation exemption'

§ Amendments to IFRS 11, 'Accounting for Acquisition Interests in Joint Operations'

§ Amendments to IAS 12, 'Recognition of Deferred Tax Assets for Unrealised Losses'

§ Amendments to IAS 16 and IAS 38, 'Clarification of Acceptable Methods of Depreciation and Amortisation'

§ Amendments to IAS 16 and IAS 41, 'Agriculture - Bearer Plants'

§ Amendments to IAS 27, 'Equity Method in Separate Financial Statements'

§ Annual improvements cycle 2012-2014

2.            Segment information

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Group Executive team.

The Group has two clearly defined business segments, Protection & Defence and Dairy, and operates out of Europe and the US.

Business Segments

Year ended 30 September 2016

 

 

 

 

 

Protection

& Defence

 

 

 

 

 

Dairy

Unallocated

Group

 

£'000

£'000

£'000

£'000

 

100,917

41,967

 

142,884

 

 

 

 

 

 

Segment result before depreciation, amortisation, exceptional items, acquisition costs and defined benefit pension scheme costs

 

22,417

9,791

(1,400)

30,808

Depreciation of property, plant and equipment

 

(3,895)

(1,968)

(28)

(5,891)

Amortisation of development costs and software

 

(2,536)

(608)

(10)

(3,154)

Segment result before amortisation of acquired intangibles, exceptional items, acquisition costs and defined benefit pension scheme costs

 

15,986

7,215

(1,438)

21,763

Amortisation of acquired intangibles

 

(1,487)

(1,820)

 

(3,307)

Exceptional items and acquisition costs

 

(506)

 

 

(506)

Defined benefit pension scheme costs

 

 

 

(320)

(320)

Segment result

 

13,993

5,395

(1,758)

17,630

Finance income

 

 

 

11

11

Finance costs

 

 

 

(165)

(165)

 

 

 

(675)

(675)

Profit before taxation

 

13,993

5,395

(2,587)

16,801

 

 

 

1,824

1,824

 

13,993

5,395

(763)

18,625

 

 

 

(346)

(346)

 

13,993

5,395

(1,109)

18,279

 

 

 

 

 

 

 

 

 

 

 

 

69,240

48,624

12,491

130,355

 

14,180

12,383

61,791

88,354

 

 

 

 

 

 

Other segment items

 

 

 

 

 

Capital expenditure

 

 

 

 

 

         - intangible assets

 

2,616

640

17

3,273

 

1,970

1,719

-

3,689

 

 

 

 

 

 

 

 

Year ended 30 September 2015

 

 

 

 

Protection

& Defence

 

 

 

 

Dairy

Unallocated

Group

 

£'000

£'000

£'000

£'000

Revenue

98,843

35,475

 

134,318

 

 

 

 

 

Segment result before depreciation, amortisation, exceptional items, acquisition costs and defined benefit pension scheme credit

21,632

7,707

(2,072)

27,267

Depreciation of property, plant and equipment

(3,513)

(1,121)

(50)

(4,684)

Amortisation of development costs and software

(2,206)

(153)

(9)

(2,368)

Segment result before amortisation of acquired intangibles, exceptional items, acquisition costs and defined benefit pension scheme credit

15,913

6,433

(2,131)

20,215

Amortisation of acquired intangibles

(384)

(659)

 

(1,043)

Exceptional items and acquisition costs

(209)

(180)

(215)

(604)

Defined benefit pension scheme credit

 

 

318

318

Segment result

15,320

5,594

(2,028)

18,886

Finance income

 

 

45

45

Finance costs

 

 

(192)

(192)

Other finance expense

 

 

(901)

(901)

Profit before taxation

15,320

5,594

(3,076)

17,838

Taxation

 

 

(2,672)

(2,672)

Profit for the year from continuing operations

15,320

5,594

(5,748)

15,166

Discontinued operations - loss for the year

 

 

(1,500)

(1,500)

Profit for the year

15,320

5,594

(7,248)

13,666

 

 

 

 

 

 

 

 

 

 

Segment assets

59,487

42,645

6,444

108,576

Segment liabilities

8,378

10,336

47,658

66,372

 

 

 

 

 

Other segment items

 

 

 

 

Capital expenditure

 

 

 

 

         - intangible assets

2,800

146

15

2,961

         - property, plant and equipment

1,320

1,902

-

3,222

 

 

 

 

 

             

 

 

 

 

3.        Adjustments and discontinued operations

 

 

2016

2015

 

 

£'000

£'000

Amortisation of acquired intangible assets

 

3,307

1,043

Recruitment costs

 

-

215

Integration costs

 

506

-

Acquisition costs

 

-

389

Defined benefit pension scheme administration costs

 

320

350

Defined benefit pension scheme settlement gain

 

-

(668)

 

 

4,133

1,329

 

 

 

 

 

 

2016

2015

 

 

£'000

£'000

Loss on discontinued operations

 

346

1,500

 

The tax impact of the above is a £nil reduction in tax payable (2015: £nil). The deferred tax impact gives rise to a credit to the income statement of £924,000 (2015: £253,000).

The recruitment costs in 2015 relate to the recruitment of main Board Directors.

The acquisition costs in 2015 relate to legal and professional fees on the acquisition of Hudstar Systems Inc. and InterPuls S.p.A.

Defined benefit pension scheme costs relate to administrative expenses of the scheme which is closed to future accrual. The defined benefit pension scheme settlement gain arose following a trivial commutation exercise.

The loss for the year on discontinued operations of £346,000 (2015: £1,500,000) relates to dilapidations costs of former leased premises of a business which was disposed of in 2006.

4.        Taxation

 

 

2016

2015

 

 

£'000

£'000

United Kingdom

 

2,943

(578)

Overseas

 

(4,767)

3,250

 

 

(1,824)

2,672

Deferred tax on the amortisation of acquired intangible assets

924

253

Adjusted tax (credit)/charge

 

(900)

2,925

 

The effective tax rate for the year is a credit of 11% (30 September 2015: 15% charge).

 

The adjusted effective tax rate, where the tax charge and the profit before taxation are adjusted for exceptional items, the amortisation of acquired intangibles and defined benefit pension scheme costs is a credit of 4% (30 September 2015: 15%).

 

 

 

5.        Dividends

 

On 29 January 2016, the shareholders approved a final dividend of 4.86p per qualifying ordinary share in respect of the year ended 30 September 2015. This was paid on 18 March 2016, absorbing £1,473,000 of shareholders' funds.

 

On 28 April 2016, the Board of Directors declared an interim dividend of 3.16p (2014: 2.43p) per qualifying ordinary share in respect of the year ended 30 September 2016. This was paid on 5 September 2016 absorbing £957,000 (2015: £732,000) of shareholders' funds.                

 

After the balance sheet date the Board of Directors proposed a final dividend of 6.32p per qualifying ordinary share in respect of the year ended 30 September 2016, which will absorb an estimated £1,915,000 of shareholders' funds. Subject to shareholder approval, the dividend will be paid on 17 March 2017 to shareholders on the register at the close of business on 17 February 2017. In accordance with accounting standards this dividend has not been provided for and there are no corporation tax consequences.

 

6.            Earnings per share

 

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year, excluding those held in the employee share ownership trust. The Company has dilutive potential ordinary shares in respect of the Performance Share Plan. Adjusted earnings per share adds back to profit the effect of the amortisation of acquired intangible assets, exceptional items, acquisition costs and defined benefit pension scheme costs.

 

Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below.

 

 

 

 

 

2016

2015

 

 

 

 

Weighted average number of ordinary shares in issue used in

basic calculations (thousands)

30,276

30,107

Potentially dilutive shares (weighted average) (thousands)

 

612

830

Fully diluted number of ordinary shares

(weighted average) (thousands)

30,888

30,937

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

2016 Basic eps

2016 Diluted eps

2015

 

2015 Basic eps

2015 Diluted eps

 

 

£'000

pence

pence

£'000

pence

pence

 

Profit attributable to equity shareholders of the Company

18,279

60.4

59.2

13,666

45.4

44.2

 

Loss from discontinued operations

346

1.1

1.1

1,500

5.0

4.8

 

Profit from continuing operations

18,625

61.5

60.3

15,166

50.4

49.0

 

Adjustments

3,851

12.7

12.5

1,730

5.7

5.6

 

Profit excluding loss from discontinued operations, amortisation of acquired intangibles assets, exceptional items, acquisition costs and defined benefit pension scheme costs

22,476

74.2

72.8

16,896

56.1

54.6

 

                               

7.        Provisions for liabilities and charges

 

Facility

Property

 

 

relocation

obligations

Total

 

 £'000

£'000

£'000

Balance at 1 October 2014

454 

3,365

3,819

Charged in the year

-

1,500

1,500

Unwinding of discount

-

247

247

Payments in the year

(485)

(2,545)

(3,030)

Exchange difference

31

-

31

Balance at 30 September 2015

-

2,567

2,567

Unwinding of discount

-

33

33

Payments in the year

-

(100)

(100)

Balance at 30 September 2016

-

2,500

2,500

 

 

 

 

 

8.        Share capital

 

 

 

2016

2015

Number of shares (thousands)

 

31,023

31,023

 

 

 

 

Ordinary shares (£'000)

 

31,023

31,023

 

 

9.        Cash generated from operations

 

 

 

 

 

2016

2015

 

 

 

 

 

£'000

£'000

Continuing operations

 

 

 

 

 

 

Profit for the year

18,625

15,166

Adjustments for:

 

 

Taxation

(1,824)

2,672

Depreciation

5,891

4,684

Amortisation of intangible assets

6,461

3,411

Defined benefit pension scheme costs/(credit)

320

(318)

Finance income

(11)

(45)

Finance costs

165

192

Other finance expense

675

901

Loss on disposal of intangibles

5

-

Loss on disposal of property, plant and equipment

73

7

Movement in respect of employee share scheme

83

85

Increase in inventories

 

 

 

 

(422)

(1,264)

(Increase)/decrease in receivables

 

 

 

 

(677)

4,225

Increase/(decrease) in payables and provisions

3,333

(6,855)

Cash generated from continuing operations 

32,697

22,861

Discontinued operations

 

 

 

 

 

 

Loss for the year

 

 

 

 

(346)

(1,500)

Increase/(decrease) in payables and provisions

 

 

 

29

(29)

Cash used in discontinued operations

 

 

 

 

(317)

(1,529)

Cash generated from operations

 

 

 

 

32,380

21,332

 

 

 

 

 

 

 

 

Cash flows relating to the discontinued operations are as follows:

 

 

Cash flows from operating activities

 

 

 

 

(317)

(1,529)

Cash used in discontinued operations

 

 

 

 

(317)

(1,529)

 

 

 

 

 

10.    Analysis of net cash/(debt)

This note sets out the calculation of net cash/(debt), a measure considered important in explaining our financial position.

 

 

 

 

At 1 Oct

Cash flow

Exchange

movements

At 30 Sept

 

 

 

2015

2016

 

 

 

£'000

£'000

£'000

£'000

Cash at bank and in hand

 

 

332

4,037

126

4,495

Overdraft

 

 

-

-

-

-

Net cash and cash equivalents

 

332

4,037

126

4,495

Debt due in less than 1 year

 

(2,350)

247

(396)

(2,499)

Debt due in more than 1 year

 

(11,143)

11,726

(583)

-

 

 

 

(13,161)

16,010

(853)

1,996

 

On 9 June 2014 the Group agreed new bank facilities with Barclays Bank and Comerica Bank. The combined facility comprises a revolving credit facility of $40m and expires on 30 November 2019. This facility is priced on the dollar LIBOR plus a margin of 1.25% and includes financial covenants which are measured on a quarterly basis. The Group was in compliance with its financial covenants during 2016 and 2015.  

 

InterPuls S.p.A has a fixed term loan of €2.5m which was due for renewal on 31 October 2016. This facility is priced on EURIBOR plus margin of 1.3%.

 

11.      Exchange rates

The following significant exchange rates applied during the year.

 

 

Average rate

Closing rate

Average rate

Closing rate

 

2016

2016

2015

2015

US Dollar

1.423

1.296

1.542

1.517

Euro

1.282

1.161

1.351

1.359

 

Fair value of financial instruments

 

The fair value of forward exchange contracts is determined by using valuation techniques using year-end spot rates, adjusted for the forward points to the value date of the contract.

 

 

12.      Acquisition

 

On 8 October 2015 the Group acquired the trade and assets of the Argus thermal imaging business from e2v technologies plc for consideration of £3.3m. Based in Chelmsford UK, Argus is a leading designer and manufacturer of thermal imaging cameras for the first responder and fire markets and further strengthens the Group's product range and distribution capability in these markets.

 

The book value of the assets acquired was £1.0m and after accounting policy adjustments and fair value adjustments of £1.8m, goodwill of £0.5m was recognised reflecting sales synergies from integration of distribution channels, access to new markets and the workforce of the acquired business.

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

£'000

Intangible assets recognised on acquisition

 

 

2,277

Deferred tax associated with the initial recognition of intangible assets

(455)

Other net assets

 

 

 

 

 

991

Goodwill

 

 

 

 

 

487

Cash consideration settled at completion

 

 

 

3,300

 

 

13.      Annual Report & Accounts

 

Copies of the Directors' report and the audited financial statements for the year ended 30 September 2016 will be posted to shareholders who have elected to receive a copy and may also be obtained from the Company's registered office at Hampton Park West, Semington Road, Melksham, Wiltshire, SN12 6NB, England. Full audited financial statements will be available on the Company's website at www.avon-rubber.com.

 

 


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