Building a Brighter Future
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Avon RubberAvon p.l.c. Annual Report 2017 BUILDING A BRIGHTER FUTURE Corporate Headquarters Hampton Park West Semington Road Melksham Wiltshire SN12 6NB England ANNUAL REPORT Telephone: +44 (0) 1225 896 800 AND ACCOUNTS Email: [email protected] www.avon-rubber.com 2017 OVERVIEW Contents Highlights Overview 01 Highlights We are an innovative technology group Group highlights 02 At a Glance 04 Why Invest in Avon Rubber? specialising in respiratory protection ORDERS RECEIVED 06 Chairman’s Statement 2017 £173.9m systems and milking point solutions 2016 £142.3m STRATEGIC REPORT Strategic Report 2015 £121.2m 10 Our Strategy through our two businesses, Avon £173.9m 12 Our Business Model 14 Our Divisional Strategy Protection and milkrite | InterPuls. 18 How We Measure REVENUE 2017 £163.2m Our Performance We design, test and manufacture 2016 £142.9m 20 Chief Executive Officer’s Review specialist products and services £163.2m 2015 £134.3m 22 Divisional Review 22 Avon Protection to maximise the performance and 24 milkrite | InterPuls ADJUSTED OPERATING PROFIT 2017 £25.8m 26 Financial Review capabilities of our customers. 32 Principal Risks and 2016 (Restated)* £20.9m Risk Management £25.8m 2015 (Restated)* £19.2m 36 Environment and Corporate Social Responsibility GOVERNANCE OPERATING PROFIT Governance 2017 £19.8m 42 Board of Directors 2016 (Restated)* £16.8m 43 Corporate Governance 2015 (Restated)* £17.9m Report £19.8m 48 Nomination Committee Report 50 Audit Committee Report NET CASH 2017 £24.7m 53 Remuneration Report 2016 £2.0m 75 Directors’ Report £24.7m £(13.2)m 2015 Financial Statements 82 Independent Auditors’ Report ADJUSTED EARNINGS PER SHARE 2017 82.8p 88 Consolidated Statement STATEMENTS FINANCIAL of Comprehensive Income 2016 (Restated)* 71.9p 89 Consolidated Balance Sheet 82.8p 2015 (Restated)* 53.5p 90 Consolidated Cash Flow Statement 91 Consolidated Statement of Changes in Equity EARNINGS PER SHARE 2017 70.6p 92 Accounting Policies 2016 (Restated)* 58.1p and Critical Accounting Judgements 70.6p 2015 (Restated)* 42.7p 98 Notes to the Group Financial Statements 122 Parent Company DIVIDEND PER SHARE 2017 12.32p Balance Sheet 123 Parent Company 2016 58.1p Statement of Changes 2015 7.29p INFORMATION SHAREHOLDER in Equity 12.32p 124 Parent Company Page 14–15 Accounting Policies 127 Notes to the Parent Company Financial Statements 131 Five Year Record Growth in orders received across both businesses has Page 16–17 delivered a strong financial performance in 2017 and Shareholder information 132 Notice of Annual a healthy order book for 2018. General Meeting 140 Shareholder Information * Restated to correct the charge for share based payments (see note 24). Avon Rubber p.l.c. Avon Rubber p.l.c. 01 Annual Report and Accounts 2017 Annual Report and Accounts 2017 OVERVIEW At a Glance STRATEGIC REPORT Avon Protection milkrite | InterPuls Avon Protection is the recognised global leader in advanced Chemical, milkrite | InterPuls is a global leader providing complete milking Biological, Radiological and Nuclear (CBRN) respiratory protection point solutions to customers across the world with the aim of systems for the world’s Military, Law Enforcement and Fire markets. improving every farm it touches. Agents & Distributors Agents & Distributors 305 2,014 GOVERNANCE Geographic Overview We are a global business operating from 12 12 sites in the US and Europe serving SITES customers in 89 countries around the world. milkrite | InterPuls Avon Protection USA USA – Johnson Creek – Cadillac STATEMENTS FINANCIAL – Modesto – Belcamp Italy – Picayune – Albinea – West Palm Beach UK UK – Melksham – Melksham – Poole Brazil – Chelmsford China 89 COUNTRIES 800 INFORMATION SHAREHOLDER Revenue split Revenue split EMPLOYEES by destination by business North America 66.0% Avon Protection 69.7% Europe 17.4% milkrite | InterPuls 30.3% Rest of the World 16.6% Key milkrite | InterPuls Corporate Headquarters Avon Protection Melksham, UK Distribution Countries 02 Avon Rubber p.l.c. Avon Rubber p.l.c. 03 Annual Report and Accounts 2017 Annual Report and Accounts 2017 OVERVIEW Why Invest in Avon Rubber? We have a clear strategy to generate long-term, profitable earnings growth through maximising the opportunity from our current portfolio and selective product development to maintain our technology leadership position. Our strong financial position and cash generation will allow us to enhance the returns from our organic strategy with value STRATEGIC REPORT enhancing acquisitions as well as maintain a progressive dividend policy. Organic sales Value enhancing Attractive Strong cash Dividend growth acquisitions EBITDA margins generation growth GOVERNANCE 3%+ 20%+ 90%+ 30% Through a focus on innovative Carefully selected, value Using our proprietary product We have a strong cash flow Under our progressive dividend products designed for global enhancing acquisitions to expertise to develop market to fund our growth strategy, with policy, we expect to continue to grow growth markets we target 3%+ per complement our organic growth leading products, we target sustainable an objective of delivering cash dividends ahead of earnings until we annum constant currency organic and take us into related EBITDA margins greater than 20% conversion of 90% or more reach a cover of two times adjusted revenue growth from the core growth markets earnings per share FINANCIAL STATEMENTS FINANCIAL SHAREHOLDER INFORMATION SHAREHOLDER 04 Avon Rubber p.l.c. Avon Rubber p.l.c. 05 Annual Report and Accounts 2017 Annual Report and Accounts 2017 OVERVIEW Chairman’s Statement OVERVIEW It has been a year of structural and strategic transition for the Group. We have a newly appointed and energised executive team in Paul McDonald and Nick Keveth, who have Dividend STRATEGIC REPORT acted with impressive decisiveness in embedding changes within the organisation as we continue per share to strengthen the business. In this year of management change, we have 12.32p delivered a strong set of financial results. We enter (2016: 9.48p) the new financial year as a more robust business with stronger management, a broader product range, increased routes to market and a strong order book. We continue to maintain our focus on “2017 was another creating a healthy and sustainable business and, strong year of delivery by investing in and integrating technology in both divisions, we are creating exciting future international GOVERNANCE and we look to the future growth opportunities. with confidence.” None of our achievements would have been David Evans possible without the energy and commitment of SHAREHOLDER RETURNS The Board has continued to set the right tone our people. Employees across Avon have worked Chairman On a constant currency basis, orders received from the top during the year, visiting all main sites tirelessly to deliver these results and I would like to grew by 11.8%, revenue was up 4.5% and adjusted and meeting regularly with senior management. thank them all for their commitment and support. operating profit grew by 16.1% reflecting strong Our internal Board evaluation in 2017 robustly performances by both divisions. challenged all aspects of the Board including my STRATEGY performance and that of each Director, the Board The Board has focused on refining the Group’s The Board considers the dividend to be an important Committees and the Board as a whole. I am pleased strategy during the year. In broad terms, our component of shareholder returns and as such has to report that the Board continues to function strategy is to grow the core by maximising organic a policy to deliver a progressive dividend year on effectively as a cohesive body with a good balance sales growth from our current product portfolio, year. The Board is pleased to be recommending an of support and challenge, and continues to be FINANCIAL STATEMENTS FINANCIAL supported by selective product development, increased final dividend of 8.21p per share, making a committed to the highest standards of governance and through value enhancing acquisitions to total dividend for the year of 12.32p, which is a 30% and compliance. complement and extend the reach of our existing increase on the previous year. businesses and to bring new growth opportunities. DELIVERING STRONG RESULTS ADJUSTED EARNINGS PER SHARE Delivery of this strategy requires us to manage GOVERNANCE AND THE BOARD 2017 was another strong year of delivery and we the impact of the end of the ten year sole-source During the year, Andrew Lewis stood down as look to the future with confidence. 82.8p contract with the US Department of Defense for Group Finance Director and the Board retained the the M50 respirator, which we are well prepared services of Paul Rayner on an interim basis while the We have the right strategy, the right product for. The investments we have made in recent years search for a permanent successor was conducted. portfolio and the right management team to 2017 82.8p to broaden our Protection product portfolio to Nick Keveth was appointed Chief Financial Officer generate further value for shareholders in the 2016 (Restated)* 71.9p support a wider range of Military programmes, both on 1 June 2017. Rob Rennie stepped down as Chief years to come. 2015 (Restated)* 53.5p in the US and in other countries, gives the Board Executive Officer on 15 February 2017 and was confidence that we will continue to deliver against replaced by Paul McDonald with immediate effect. SHAREHOLDER INFORMATION SHAREHOLDER our organic growth targets, driving long-term David Evans