TIDMAVON
RNS Number : 2094H
Avon Rubber PLC
02 December 2020
AVON RUBBER P.L.C.
UNAUDITED PRELIMINARY RESULTS FOR THE YEAR
ED 30 SEPTEMBER 2020
FOCUSING ON PROTECTION
Paul McDonald, Chief Executive Officer:
"2020 has been a year of both significant strategic evolution
and strong organic execution for Avon Rubber. We have again
delivered strong results ahead of expectations and continued to
make significant steps transforming the business into a leading
provider of life critical personal protection products.
We have consistently delivered on our strategy to invest in
expanding our product portfolio to meet more of the protection
needs of our customers. This has enabled us to build a broader and
more visible long-term contract portfolio to position the business
to deliver further growth in 2021 and beyond.
Throughout the unprecedented COVID-19 pandemic we have continued
to prioritise the safety and wellbeing of our people. It is thanks
to their dedication and resilience that we have been able to
support our customers, maintain our operations and deliver these
strategic milestones and strong results."
30 Sept 30 Sept % Change Organic
2020 2019 Constant
Currency
(Restated)(2) % Change
---------------------------------- ---------- --------------- --------- -----------
Orders received GBP160.8m GBP129.8m 23.9% 4.5%
Closing order book GBP79.8m GBP36.7m 117.4% 19.3%
Revenue GBP168.0m GBP128.4m 30.8% 0.1%
Adjusted(1) operating profit GBP30.2m GBP22.6m 33.6% 8.9%
Adjusted(1) profit before tax GBP28.2m GBP22.2m 27.0% 8.8%
Adjusted(1) basic earnings per
share 76.5p 67.2p 13.8% (2.9%)
Dividend per share 27.08p 20.83p 30.0% 30.0%
Net cash GBP93.2m GBP35.4m
Statutory results
Operating profit GBP5.9m GBP9.9m
Profit before tax GBP0.5m GBP8.7m
Basic earnings per share 447.4p 46.2p
Diluted basic earnings per share 441.3p 45.8p
---------------------------------- ---------- --------------- --------- -----------
Strategic and operational highlights
-- Transformation into a leading global provider of life critical personal protection systems:
o Acquisition of 3M's ballistic helmets and armor business
("Helmets & Armor") completed on 2 January 2020, integration
progressing as planned and remains on track to deliver $5m of
targeted synergies
o Divestment of milkrite | InterPuls on 25 September 2020
created a focused protection business and further strengthened the
balance sheet providing capacity for future growth
o Acquisition of Team Wendy creating a global leader in helmets,
helmet liners and retention systems completed post year end on 2
November 2020
-- The business has continued to operate with only minor disruption throughout the year, despite the unprecedented
challenge of COVID-19, thanks to the dedication and resilience of our employees
-- Organic revenue growth reflects strong First Responder performance with Law Enforcement growth more than
offsetting our exit from the Fire Self-Contained Breathing Apparatus ("SCBA") market
-- Continued contract momentum underpinning medium term revenue outlook:
o Medium term contracts worth up to $177m secured to supply the
U.S. Department of Defense ("DOD") with the M50 mask system, M61
filters, spare parts and accessories
o 10-year NATO Support & Procurement Agency contract to
supply FM50 mask systems, powered and supplied air systems,
filters, spare parts and accessories
o $93m next generation Integrated Head Protection System
("IHPS") ballistic helmet sole source contract secured with the
U.S. DOD
o Next generation The Vital Torso Protection X-Side Ballistic
Insert ("VTP XSBI") body armor four-year $265m dual source contract
secured with the U.S. DOD
o Three-year legacy Enhanced Small Arms Protective Inserts
("ESAPI") body armor sole source contract with a value of up to
$333m secured with the U.S. DOD
Financial highlights
-- Strong financial delivery and position:
o Revenue growth of 30.8%, comprising 0.1% organic constant
currency growth, with a 31.7% contribution from the Helmets &
Armor acquisition and a 1.0% currency headwind
o Adjusted EBITDA margin of 22.9%, up 140bps on an organic
constant currency basis, with a strong uplift in respiratory
protection driven by improved product mix
o Organic constant currency adjusted operating profit growth of
8.9%
o Adjusted operating profit up 33.6% reflecting the benefits of
strong organic trading performance and the Helmets & Armor
acquisition and adjusted earnings per share up 13.8%
o Reported operating profit and basic earnings per share
includes GBP6.5m of amortisation of acquired intangibles and
GBP17.8m of exceptional costs related to the acquisition of Helmets
& Armor and Team Wendy
o Reported basic earnings per share of 447.4p reflects the
results of milkrite | InterPuls and gain arising from the
divestment
-- Strong cash conversion and balance sheet
o Cash conversion of 84.9%, with organic cash conversion
excluding Helmets & Armor of 123.3%
o Net cash of GBP93.2m, following completion of the Helmets
& Armor acquisition and divestment of milkrite | InterPuls,
includes offsetting lease liabilities of GBP22.8m
o New $200m medium term bank facility provides financing
flexibility and capacity for further strategic investment
-- Final dividend per share of 18.06p, up 30.0%, resulting in full year total dividend of 27.08p, also up 30.0%
Outlook
-- Focused life critical personal protection business with leading positions in respiratory and ballistic protection
-- Medium term outlook underpinned by multi-year Military contracts across the portfolio
-- Strong opening order book of $101.7m (GBP79.8m) provides excellent visibility and confidence for 2021
-- Strong pipeline of Rest of World opportunities with first orders and deliveries expected under the new 10-year
NATO Support & Procurement Agency contract
-- First Responder momentum expected to continue into 2021
-- Team Wendy acquisition completed on 2 November 2020 to further accelerate growth
-- Net cash position and strong balance sheet provide capacity to deliver our growth strategy and make further value
enhancing acquisitions over the medium-term
-- Mindful of continued risks presented by COVID-19. Excellent operational response in 2020 provides confidence that
any challenges can be successfully navigated
-- Group well positioned to deliver further success in 2021 and beyond
Notes:
(1) The Directors believe that adjusted measures provide a more
useful comparison of business trends and performance. Adjusted
results exclude exceptional items, costs associated with
acquisitions, defined benefit pension scheme costs, the
amortisation of acquired intangibles and discontinued operations.
The term adjusted is not defined under IFRS and may not be
comparable with similarly titled measures used by other
companies.
(2) 2019 has been restated to reflect the continuing operations
of the Group following the divestment of
milkrite | InterPuls on 25 September 2020, to reflect the impact
of adopting IFRS 16 Lease accounting which came into effect on 1
October 2019 and to reflect the impact of the Barber pension
equalisation adjustment.
For further enquiries, please contact:
Avon Rubber p.l.c.
Paul McDonald, Chief Executive Officer +44 1225 896 848
Nick Keveth, Chief Financial Officer
Ryan Mahoney, Deputy Chief Financial Officer
MHP Communications
Andrew Jaques +44 7710 032 657
Charlie Barker avonrubber@mhpc.com
Pete Lambie
Ailsa Prestige
Analyst and investor webcast
Paul McDonald, Chief Executive Officer and Nick Keveth, Chief
Financial Officer, will host a webcast for analysts and investors
at 9.00am this morning.
The webcast will be broadcast live at
https://webcasting.brrmedia.co.uk/broadcast/5f8d6ca6c4d0076f2b940db5
Dial in: +44 330 336 9411
PIN: 2406278
A copy of the presentation for the webcast will be uploaded to
www.avon-rubber.com at 8:30am this morning.
Legal Entity Identifier: 213800JM1AN62REBWA71
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulation ("MAR") EU no.596/2014. Upon the
publication of this announcement via Regulatory Information Service
("RIS"), this inside information is now considered to be in the
public domain.
Note to editors:
Avon Rubber is listed on the London Stock Exchange (LSE: AVON)
and is a constituent of the FTSE 250 Index.
Avon Rubber is an innovative technology group, which designs and
produces life critical personal protection systems to maximise the
performance and capabilities of its customers, with leading
positions in the respiratory and ballistic protection markets for
the world's militaries and first responders.
For further information, please visit our website: www.avon-rubber.com .
CHIEF EXECUTIVE OFFICER'S REVIEW
I am delighted to report another year of significant progress
for Avon Rubber. The consistent execution of our strategy has
transformed the group into a focused provider of life critical
personal protection systems with leading positions in respiratory
and ballistic protection for the world's militaries and first
responders.
Our strategy has focused on sustainable growth through
diversifying the revenue we generate by delivering more products to
our existing customers, as well as broadening our global customer
base.
Organically we have continued to focus on maximising sales from
our current product portfolio and actively developing next
generation technologies to enhance our products and systems to
better protect our customers from life critical risks. During 2020
we have secured new multi-year sustainment contracts to supply the
U.S. DOD with the M50 mask system, M61 filters and associated
spares and accessories, and we further broadened our respiratory
protection customer base through a 10-year contract with the NATO
Support and Procurement Agency to supply FM50 mask systems, powered
and supplied air systems, filters, spares and accessories. We have
also delivered a strong year in First Responder following increased
demand for respiratory protection related to COVID-19.
To complement our organic growth, we have continued to target
carefully selected, value enhancing acquisitions. The acquisition
of Helmets & Armor, which we completed in January, was a
milestone acquisition for Avon Rubber and has significantly
expanded our portfolio through the addition of ballistic helmets
and armor. The business has made excellent progress since
completion, securing multi-year contracts with the U.S. DOD for
next generation ballistic helmets and body armor, as well as the
ongoing supply of legacy body armor products. The integration of
this business continues to progress well and is on track for
completion by the end of 2020.
The divestment of milkrite | InterPuls at the end of the
financial year was a natural but important step in our strategic
development, focusing the group on our Avon Protection business and
providing funding capacity for future M&A.
The acquisition of Team Wendy on 2 November 2020 represents
another important strategic step for the group, creating a global
leader in helmets. The combination of Team Wendy, a leading
provider of helmets, helmet liners and retention systems for
military and first responder markets, with Helmets & Armor
provides increased growth opportunities from a broader product
range and enhanced helmet customer base globally.
Throughout the unprecedented COVID-19 pandemic we have continued
to prioritise the safety and wellbeing of our people. It is thanks
to their dedication and resilience that we have been able to
operate with only minor disruption throughout the year.
I am delighted with the significant strategic progress we have
made this year, repositioning the business as a leading provider of
life critical personal protection to military and first responder
markets. Our strategic actions are delivering a broader range of
opportunities and adding value for both our existing and new
customers, as well as our people and our shareholders. All of which
leaves us well positioned to deliver further growth in 2021 and
beyond.
STRATEGY
Our strategy is based upon creating shareholder value through
three key elements:
-- Growing the core by maximising organic revenue growth from within the current product portfolio and improving our
operational efficiency;
-- Pursuing selective product development to maintain our innovative leadership position; and
-- Targeting value enhancing acquisitions to complement our existing business and further accelerate growth.
GROWING THE CORE
Expanding our Military product portfolio and customer base
Strong Military order momentum in the year has been delivered
through the strategic focus on our core Military markets with both
the U.S. DOD and our Rest of World customers. Our ability to
consistently deliver strong results reflects our innovation and
technology leadership position. As a result, we continue to add to
our contract pipeline by securing new long-term contracts with both
the U.S. DOD and our Rest of World customers which provides us with
significant visibility over revenues and earnings together with a
diversified platform from which to deliver sustainable growth over
the medium term.
The landmark $340m five-year contract awards in 2019 for the M69
aircrew mask and the M53A1 mask and powered air system confirmed
our position as the sole source provider of General Purpose Masks,
Tactical Masks, Powered Air Systems and Tactical SCBA across the
entire U.S. DOD. We have followed the first orders and deliveries
last year with receipt of the second order for $21.2m in February
2020 under the M69 contract and have good visibility of the next
order under this contract which is expected in the first half of
2021.
The M53A1 contract is to supply all branches of the U.S. DOD and
other national and federal agencies with the M53A1 tactical mask,
the MP-PAPR powered air system, the ST54 self-contained breathing
apparatus and other spares and accessories. As expected, during the
year we have received multiple follow-on orders under this contract
and the diversity of the customer order profile is demonstrating
the reach of our portfolio across this broader and increasingly
visible customer base.
We secured two multi-year sustainment contracts during 2020
worth up to $177m to continue supplying the U.S. DOD with the M50
mask system, M61 filter and related spares and accessories. These
two awards highlight the benefit of the installed base of over two
million M50 mask systems which continues to support strong
sustainable revenues from original mask sales and the associated
consumable products of filters, spares and accessories.
Alongside the diversified and growing order pipeline with the
U.S. DOD, we have seen continued success with the broader
respiratory portfolio in meeting a wider range of needs for our
Rest of World customers. We continue to leverage our technology
leadership position to attract growth from new and existing Rest of
World customers and as a result continue to build a strong pipeline
of customers for our respiratory protection products. We were
delighted to announce a new 10-year framework contract with the
NATO Support and Procurement Agency which provides a purchasing
route for NATO and NATO affiliated nations to purchase from across
our broad respiratory portfolio with the FM50 mask system, powered
and supplied air systems and the full suite of spares and
accessories included in the contract vehicle.
We have also successfully re-established our relationship with
the U.K. Ministry of Defence ("U.K. MOD"). Following the success of
our customer acceptance testing of the U.K. General Service
Respirator ("U.K. GSR"), we moved into full production during the
year. We are excited about the longer-term future of this
relationship with the U.K. MOD and our demonstrable progress
building our contract pipeline with our Rest of World
customers.
Growing our First Responder business
The First Responder line of business has delivered an excellent
year and has benefitted from the increased demand related to
COVID-19, which offset our exit from the Fire SCBA market and
increased margins. We have seen a strong increase in demand in the
U.S. for both original mask equipment and for replacement filters,
accessories and spares, across the second half of the year and into
the new financial year.
Continuous focus on operational efficiency
Ensuring we deliver maximum operational efficiency alongside
focusing on maintaining excellent customer service is an ongoing
strategic focus across our global operations.
As we continue to expand our personal protection product
portfolio and deliver ever more technical solutions for our
Military and First Responder customers, we are focused on ensuring
that we maintain high productivity and efficiency levels whilst
being able to meet all of our customers' requirements. Maintaining
our excellent product quality and reliability across our product
range is critical to the success of our business given we operate
in life critical personal protection products.
The acquisition of Helmets & Armor added three well invested
manufacturing facilities to operate alongside our existing
manufacturing footprint. In order to continue focusing on
operational efficiency and to drive a common set of process across
all locations we have brought all of our manufacturing and supply
chain activities together into an integrated global operations team
under the leadership of Keyana Hughes who has joined the Group's
Executive Leadership team. Keyana joined the Group as part of the
Helmets & Armor acquisition and brings extensive manufacturing
experience which will support us in maximising the operational
efficiency of our global operations.
SELECTIVE PRODUCT DEVELOPMENT
Continued investment to maintain our innovative technology
leadership position
We have continued to invest in the year 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. We
continue to ensure our development pipeline is designed in
partnership with our customers to ensure that their exacting
performance requirements are met whilst ensuring we have a
committed and commercial route to market to maximise our return on
investment.
During the year we have made a significant investment in our
respiratory protection portfolio through the next generation of
supplied air products and the next generation hoods programme,
continuing to develop our filter technology and ramping up
production on the U.K. GSR and MCM100, following a full dive test
with the U.S. Navy. In our ballistic protection portfolio
development expenditure has been focused on continuing the
investment in our next generation IHPS and VTP body armor
programmes ahead of the expected first deliveries in 2021.
In 2020, we invested a total of GBP9.0m (2019: GBP7.3m),
representing 5.4% of revenue (2019: 5.7%), in research and
development. We expect to continue to invest at this level over the
medium term, reflecting our confidence in our expanded research and
development capability to innovate across our broader personal
protection portfolio to meet more of the integrated future
technical needs of our customers for the benefit of further revenue
and profit growth.
VALUE ENHANCING ACQUISITIONS
Milestone acquisition of Helmets & Armor
The acquisition of Helmets & Armor in January 2020 was an
important strategic step, enhancing the growth prospects for Avon
Protection. The Helmets & Armor business is high-quality, with
a strong management team, backed by leading proprietary technology,
established contract platforms and well invested manufacturing
operations.
Our initial focus in 2020 has been on the smooth transition to
Avon Protection ownership and maintaining business continuity. This
has included ongoing fulfilment of the Integrated Head Protection
System ("IHPS") Low Rate Initial Production contract, completion of
the Vital Torso Protection Low Rate Initial Production body armor
contract and securing follow on contracts of these next generation
helmets and body armor systems.
Since completion the business has secured three very significant
long-term body armor and helmet contracts with the U.S. DOD.
-- The Next Generation Integrated Head Protection System ("NG IHPS") ballistic helmet contract, part of the U.S.
ArmyÕs Soldier Protection System, is a sole source contract with a maximum value of $93m. This new contract
award will follow on from the existing low-rate initial production contract for the IHPS which is due to end in
2021.
-- The Vital Torso Protection X-Side Ballistic Insert ("VTP XSBI") body armor framework contract, which is part of
the U.S. ArmyÕs Soldier Protection System, is a dual source contract and has a maximum value of $265m, over
a four-year duration. This adds to the multi-source four-year framework contract with a maximum value of $704m
awarded in 2019 to supply Enhanced Small Arms Protective Insert ("VTP ESAPI") and X-Small Arms Protective Insert
("VTP XSAPI"). Deliveries under both contracts are expected to commence in the second half of our new financial
year following completion of first article testing.
-- The Enhanced Small Arms Protective Inserts ("ESAPI") body armor framework contract is an award to supply the
Defense Logistics Agency ("DLA") with legacy body armor inserts to support existing operational requirements
during the transition to the next generation VTP body armor. The ESAPI contract was a competitively tendered
award which has a maximum value of $333m over a maximum three-and-a-half-year duration. The first order, worth
$20m, was received in March 2020, with deliveries expected to commence in our 2021 financial year following
completion of first article testing.
Having secured a smooth transition to Avon Protection ownership
and maintained business continuity, we have continued to make
significant progress integrating Helmets & Armor into Avon
Protection. Our first priority was on the back office support
functions across IT, Finance and HR to ensure business continuity.
We established a project plan to align the IT systems and system
architecture with Avon Protection and have also embedded support
into Helmets & Armor across Finance and HR functions. This
project is on track to complete in December ahead of the expiry of
the transitional service arrangements with 3M at the end of the
calendar year.
As reported at the half year, we migrated our existing Helmets
& Armor First Responder customers to Avon Protection in the
Spring to provide those customers with a single point of contact.
In July we officially launched our helmet product range to all our
North American First Responder customers. We are pleased with the
initial progress achieved and the pipeline of opportunities secured
following this launch.
In the second half we combined the manufacturing and supply
chain operations of the business across our global footprint under
the leadership of a single integrated global operations team . Our
global operations will drive standard ways of working, processes
and systems across the footprint to drive operational efficiency,
product quality and customer service.
In the first quarter of the new financial year we have completed
the operational integration of Helmets & Armor into Avon
Protection by combining responsibility for the Helmets & Armor
Military customers into our Military line of business.
Following completion of the integration with Avon Protection,
from the start of our 2021 financial year we will no longer report
Helmets & Armor as a separate line of business, we will instead
include the results of the business within our Military and First
Responder lines of business.
As a result of the progress we have made in integrating Helmets
& Armor, we are on track to deliver in 2021 the $5m of
annualised cost synergies identified at the time of the acquisition
and see the potential for further operational efficiencies and
revenue synergies to be realised over the long-term.
Divestment of milkrite | InterPuls supporting strategic focus on
Avon Protection
On the 25 September 2020 we completed the divestment of milkrite
| InterPuls for a cash consideration of GBP178.5m after customary
closing adjustments. This transaction represents an important step
in the strategic development of Avon Rubber. milkrite | InterPuls
had been an important part of the growth of the Group over many
years but having achieved our valuation expectations for the
business we believed that it was the right time to divest the
business and use the proceeds to provide additional capacity for
investment in the Avon Protection business.
Acquisition of Team Wendy creating a global leader in
helmets
We completed the acquisition of Team Wendy on 2 November 2020,
marking another important strategic step in the development of Avon
Protection as a leading provider of life critical personal
protection systems to Military and First Responder customers.
Consistent with the wider Avon Protection model, Team Wendy is a
high-quality business, backed by leading proprietary technology, an
existing diversified customer base and with strong R&D
development capabilities which will enhance the pipeline of
opportunities and accelerate the growth of the Group.
Team Wendy is a leading supplier of helmets and helmet liner and
retention systems for Military and First Responder markets.
Combining Team Wendy with our existing Helmets & Armor business
will create a global leader in Military and First Responder helmets
with a broader product portfolio and stronger capabilities and
routes to market.
Team Wendy adds leading helmet liner and retention systems used
by the U.S. DOD and established positions in Rest of World military
and first responder helmet markets to our existing Helmet &
Armor business which is focused in next generation ballistic
helmets and body armor for the U.S. DOD. The enlarged helmet
business will be better positioned for investment in next
generation products and establishes a broader platform into which
other technologies can be incorporated. The enlarged helmet
business will also have better scale and an enhanced route to
market, with Team Wendy's complementary customer base and
well-established global footprint expected to provide significant
business development opportunities over the medium term.
Given the complementary nature of Team Wendy to our existing
helmets business, Team Wendy will continue to operate from its
Cleveland, Ohio base on a stand-alone basis. Team Wendy will
continue to be led by Jose Rizo-Patron alongside his existing
strong management team. Following completion Jose has joined the
Group's Executive Leadership team.
Well positioned to pursue further acquisitions
The successful integration of Helmets & Armor and the recent
acquisition of Team Wendy illustrate the potential for the Group to
leverage its leading market position, deeply embedded customer
relationships and innovation capability across a broadening range
of life critical protective equipment. The Group's customers are
faced with evolving threats and operational challenges that
increasingly require integrated and technology enabled solutions
and Avon Protection, as the market leader in respiratory and
ballistic protection, is ideally placed to act as both a technology
innovator and integrator. As such, there remains significant scope
to extend our capability into adjacent product areas and we believe
that further value enhancing acquisition opportunities will be
actionable to supplement our continued organic growth over the
medium-term. Following the acquisition of Team Wendy we will retain
a strong balance sheet, with a small net cash position. The Group
recently entered a medium-term bank facility of $200m, which means
we are well positioned to pursue other potential acquisitions that
meet our criteria over the medium-term.
OUTLOOK
The consistent execution of our strategy has transformed the
group into a focused provider of life critical personal protection
systems with leading positions in respiratory and ballistic
protection for the world's militaries and first responders.
Our medium-term outlook is underpinned by multi-year military
contracts across the product portfolio. Together with a strong
opening order book of $101.7m (GBP79.8m) and continuing strong
demand from First Responder customers, these contracts provide
excellent visibility as we enter the new financial year. We are
well positioned to deliver further organic growth in 2021 and
beyond.
The 2021 financial year will also benefit from a full year
contribution from Helmets & Armor, versus the 9 months
contribution in 2020. We expect revenues from helmet and armor
products to continue at the current level in the first half of the
year, with growth in the second half driven by deliveries under the
new U.S. DOD body armor contracts following completion of first
article testing.
Following the acquisition of Team Wendy, our 2021 financial year
will benefit from 11 months of contribution. We expect Team Wendy
to grow revenue in line with our investor proposition of 3%+ per
annum in 2021.
We will continue to monitor the impact of COVID-19 on our
business and to prioritise the safety and wellbeing of our
employees and their families. Whilst the operating environment of
COVID-19 remains challenging, customer demand for our products
remains robust and we have continued to operate with only minor
disruption to date. We will continue to closely manage our supplier
base to ensure the continued delivery of our customers' ongoing
requirements.
We have transformed the business over the last three years and
positioned it for future growth through our consistent focus on
delivering against our strategic priorities of growing the core,
selective product development and value enhancing acquisitions.
This leaves us well positioned to deliver further progress in 2021
and beyond.
FINANCIAL REVIEW
We have delivered a strong financial performance during the year
benefitting from both organic growth and the acquisition of Helmets
& Armor. Revenue and adjusted operating profit grew by 30.8%
and 33.6% respectively; an increase of 0.1% and 8.9% on an organic
continuing operations basis.
% Change at
organic constant
2019 currency
2020 (Restated)(1) % Change
--------------------------- ---------- --------------- --------- ------------------
Orders received GBP160.8m GBP129.8m 23.9% 4.5 %
Closing order book GBP79.8m GBP36.7m 117.4% 19.3%
Revenue GBP168.0m GBP128.4m 30.8% 0.1%
Adjusted EBITDA GBP38.4m GBP28. 4m 35.2% 6.8%
Adjusted EBITDA margin 22.9% 22.1% 0.8% 1.4%
Adjusted operating profit GBP30.2m GBP22.6m 33.6% 8.9%
Operating profit GBP5.9m GBP9.9m - -
Adjusted profit after tax GBP23.4m GBP20.5m 14.1% (2.8%)
Profit after tax GBP1.6m GBP10.2m - -
Adjusted basic earnings
per share 76.5p 67.2p 13.8% (2.9%)
Basic earnings per share 447.4p 46.2p - -
--------------------------- ---------- --------------- --------- ------------------
(1) 2019 has been restated to reflect the continuing operations
of the Group following the divestment of milkrite | InterPuls on 25
September 2020 and to reflect the impact of adopting IFRS 16 Lease
accounting which came into effect on 1 October 2019.
Orders received of GBP160.8m (2019: GBP129.8m) supported an
increase in revenue to GBP168.0m (2019: GBP128.4m) reflecting the
benefit of the inclusion of 9 months of performance from Helmets
& Armor. On an organic constant currency basis, revenue grew by
0.1% with Military revenue reducing by 3.6% given the strong
comparator in 2019, offset by First Responder which grew strongly
by 7.7% notwithstanding our exit from the Fire SCBA market.
Our adjusted EBITDA margin of 22.9% (2019: 22.1%), increased by
1.4% on an organic constant currency basis excluding the impact of
Helmets & Armor. This primarily reflected the benefits of the
commercial pricing of the new M50 and M53A1 DOD contracts and the
strong performance from higher margin First Responder revenues.
Adjusted EBITDA was GBP38.4m (2019: GBP28.4m); eliminating the
effect of the Helmets & Armor acquisition and currency
movements organic adjusted EBITDA grew by 6.8%.
Adjusted operating profit grew very strongly to GBP30.2m (2019:
GBP22.6m). Eliminating the small benefit of currency movements and
the Helmets & Armor acquisition, adjusted operating profit grew
by 8.9% on a constant currency basis.
Reported operating profit of GBP5.9m (2019: GBP9.9m) reflects
GBP6.5m (2019: GBP0.9m) of amortisation of acquired intangibles, an
increase of GBP5.6m following the acquisition of Helmets &
Armor, and exceptional costs of GBP17.8m (2019: GBP11.8m). In 2020,
the exceptional costs related to the acquisition of Helmets &
Armor and Team Wendy including acquisition costs of GBP9.6m,
transition costs of GBP2.3m and acquisition accounting adjustments
of GBP5.9m to account for acquired inventory at our underlying
cost. In 2019, the exceptional costs included acquisition costs of
GBP2.9m, a charge to equalise the pension benefits for men and
women and past service costs of GBP3.5m and the one-off costs of
GBP5.4m relating to our exit from the Fire SCBA market.
After an adjusted tax charge of GBP4.8m (2019: GBP1.7m), the
Group recorded an adjusted profit for the period after tax of
GBP23.4m (2019: GBP20.5m). The strong growth in adjusted operating
profit more than offset the increased adjusted tax rate of 17%
(2019: 8%), which has increased following the Helmets & Armor
acquisition due to the greater proportion of U.S. profits and the
prior period benefiting from the resolution of a number of
uncertain tax provisions. Adjusted basic earnings per share
increased by 13.8% to 76.5p (2019: 67.2p).
On a reported basis, the profit before tax was GBP0.5m (2019:
GBP8.7m) and, after a tax credit of GBP1.1m (2019: GBP1.5m), profit
for the period was GBP1.6m (2019: GBP10.2m). Basic earnings per
share from continuing operations were 5.2p (2019: 33.4p), with
basic earnings per share including discontinued operations of
447.4p (2019: 46.2p), benefiting from the proceeds from the
divestment of milkrite | InterPuls.
Cash from continuing operations was GBP32.6m (2019: GBP18.4m)
benefiting from the receipt of cash relating to the 2019 $16.6m
Rest of World Military mask system contract which offset a Helmets
& Armor working capital out flow due to the timing of receipts
from 3M under the terms of the transitional service agreement.
Operating cash conversion from adjusted EBITDA increased to 84.9%
(2019: 64.8%) and excluding Helmets & Armor cash conversion was
123.3%.
REVENUE
2020 2019
GBPm GBPm
----------------- ------ ------
Military 82.8 87.2
Helmets & Armor 40.8 -
First Responder 44.4 41.2
----------------- ------ ------
Total 168.0 128.4
----------------- ------ ------
Military
Military revenue of GBP82.8m (2019: GBP87.2m) was down 3.6% at
constant currency given the strong comparator in 2019. Order
in-take of GBP88.5m (2019: GBP83.9m) was up 5.5% on a constant
currency basis, contributing to a strong closing order book of
GBP36.8m (2019: GBP29.4m) which gives us excellent visibility as we
enter 2021.
U.S. DOD revenue totalled GBP58.9m versus GBP54.8m in 2019,
reflecting the diversification of the respiratory protection
portfolio with the benefit of a full year of deliveries of the M69
aircrew masks and M53A1 mask and powered air system products. This
was offset, as expected, by lower volumes of the M50 mask system
with first deliveries under the new sustainment contract. Volumes
of M50 mask system spares and accessories grew in the year,
highlighting the importance of the installed base of 2 million M50
mask systems in generating sustainable revenues. As a result, U.S.
DOD spares and development costs revenue increased to GBP24.8m
(2019: GBP12.2m).
Rest of World Military revenues of GBP23.9m (2019: GBP32.4m)
declined as a result of the inclusion in 2019 of the $16.6m Rest of
World mask system contract. During the year we have made excellent
progress in delivering a more sustainable Rest of World Military
business with a more visible contract pipeline. We delivered the
first orders under the five-year UK General Service Respirator
contract and secured a 10-year framework contract with the NATO
Support and Procurement Agency to supply our FM50 mask system,
together with filters, spares and accessories with the first
deliveries under this contract expected in our 2021 financial
year.
Helmets & Armor
We completed the acquisition of Helmets & Armor on 2 January
2020, so the performance this year includes the first nine months
of our ownership. Over the period we have benefitted from revenue
of GBP40.8m, being GBP38.4m from Military customers and GBP2.4m
from First Responder. Military revenues comprise ongoing deliveries
to the U.S. DOD of the IHPS helmet, completion of the low rate
production volumes for VTP ESAPI body armor, as well as sales of
flat armor to original equipment manufacturers of rotary wing
aircraft.
Helmets & Armor delivered an EBITDA margin of 17.9%
reflecting the initial cost synergy delivery. This resulted in an
adjusted operating profit contribution of GBP5.1m.
We have made good progress integrating the Helmets & Armor
business into Avon Protection and we remain on track to deliver the
full targeted synergies of $5m in our 2021 financial year. The
one-off costs expected to be incurred to complete the integration
of $12.7m, are ahead of our initial estimates of $10m due to
additional resources and costs required to deliver the back office
integration during the COVID-19 pandemic. Going forward, w e see
the potential for further operational efficiencies and revenue
synergies to be realised over the long-term.
First Responder
The First Responder business had an exceptional year with
revenues increasing by 7.8% on a constant currency basis to
GBP44.4m (2019: GBP41.2m), with increased demand related to
COVID-19 having more than offset the prior year Fire SCBA revenues.
Excluding the impact of our exit from the Fire SCBA market,
underlying revenue increased by 23.0% on a constant currency
basis.
We have seen a strong increase in demand from first responders
for both original mask equipment and for replacement filters,
accessories and spares, across the second half of the year, as a
result of the COVID-19 pandemic. This momentum has resulted in a
strong opening order book of GBP5.5m which gives us a confident
outlook into the next financial year. We have continued to see
strong demand in the new financial year from First Responders for
both original equipment and importantly for spares and
accessories.
RESEARCH AND DEVELOPMENT EXPITURE
We continue to invest for the future and our total investment in
research and development (capitalised and expensed) amounted to
GBP9.0m (2019: GBP7.3m) as shown below. Total research and
development as a percentage of revenue was 5.4% (2019: 5.7%).
2020 2019 (1)
GBPm GBPm
----------------------------------------------------- ------ ---------
Total expenditure 9.0 7.3
Less customer funded (2.2) (2.5)
----------------------------------------------------- ------ ---------
Group expenditure 6.8 4.8
Capitalised (5.1) (3.2)
----------------------------------------------------- ------ ---------
Income statement impact of current year expenditure 1.7 1.6
Amortisation 2.8 3.0
Total income statement impact before exceptionals 4.5 4.6
----------------------------------------------------- ------ ---------
Revenue 168.0 128.4
R&D spend as % of revenue 5.4% 5.7%
----------------------------------------------------- ------ ---------
(1) 2019 has been restated to reflect the continuing operations
of the Group following the divestment of milkrite | InterPuls on 25
September 2020.
In the respiratory protection product portfolio, the most
significant investments have been in the development of our next
generation of supplied air and escape hoods products, further
development of our filter technology, ramping up production on the
U.K. GSR programme and ongoing improvements in the capabilities of
the MCM100 underwater rebreather following a full dive test
programme with the U.S. Navy.
In Helmets & Armor, investment expenditure has been focussed
on continuing the development of the next generation IHPS helmet
and VTP body armor programmes ahead of first deliveries expected in
the 2021 financial year.
PROFIT FOR THE YEAR
2020 2019
Adjusted Adjustments Total
Adjusted Adjustments Total (Restated)(5) (Restated)(5) (Restated)(5)
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- --------- ------------ ------- --------------- --------------- -----------------
Continuing operations
Operating profit 30.2 (24.3) 5.9 22.6 (12.7) 9.9
------------------------------- --------- ------------ ------- --------------- --------------- -----------------
Operating profit
Before depreciation,
amortisation and impairment 38.4 (17.8) 20.6 28.4 (8.0) 20.4
Impairment - - - - (3.8) (3.8)
Depreciation and amortisation (8.2) (6.5) (14.7) (5.8) (0.9) (6.7)
------------------------------- --------- ------------ ------- --------------- --------------- ---------------
Operating profit 30.2 (24.3)(1) 5.9 22.6 (12.7)(1) 9.9
------------------------------- --------- ------------ ------- --------------- --------------- ---------------
Net finance costs (2.0) (3.4)(2) (5.4) (0.4) (0.8)(2) (1.2)
------------------------------- --------- ------------ ------- --------------- --------------- ---------------
Profit before taxation 28.2 (27.7) 0.5 22.2 (13.5) 8.7
Taxation (4.8) 5.9(3) 1.1 (1.7) 3.2(3) 1.5
------------------------------- --------- ------------ ------- --------------- --------------- ---------------
Profit for the year from
continuing operations 23.4 (21.8) 1.6 20.5 (10.3) 10.2
Discontinued operations Ð
gain on disposal - 129.8(4) 129.8 - -(4) -
Discontinued operations Ð
profit from discontinued
operations - 5.4(4) 5.4 - 3.9(4) 3.9
------------------------------- --------- ------------ ------- --------------- --------------- ---------------
Profit for the year 23.4 113.4 136.8 20.5 (6.4) 14.1
------------------------------- --------- ------------ ------- --------------- --------------- ---------------
Basic earnings per share 76.5p 370.9p 447.4p 67.2p (21.0p) 46.2p
------------------------------- --------- ------------ ------- --------------- --------------- ---------------
Diluted basic earnings per
share 75.5p 365.8p 441.3p 66.6p (20.8p) 45.8p
------------------------------- --------- ------------ ------- --------------- --------------- ---------------
(1) Adjustments
Adjustments of GBP24.3m (2019: GBP12.7m) excluded from adjusted
operating profit comprise amortisation of acquired intangible
assets of GBP6.5m (2019: GBP0.9m) and exceptional costs of GBP17.8m
(2019: GBP11.8m). In 2020, the exceptional costs related to the
acquisition of Helmets & Armor and Team Wendy including
acquisition costs of GBP9.6m, transition costs of GBP2.3m and
acquisition accounting adjustments of GBP5.9m to account for
acquired inventory at our underlying cost. In 2019, the exceptional
costs included acquisition costs of GBP2.9m, a charge to equalise
the pension benefits for men and women and past service costs of
GBP3.5m and the one-off costs of GBP5.4m relating to our exit from
the Fire SCBA market.
(2) Net finance costs
Net finance costs were GBP5.4m (2019: GBP1.2m) comprising
GBP1.0m of bank interest due to drawing on the Group bank facility
to partially fund the acquisition of Helmets & Armor in January
(2019: GBP0.4m of finance income), GBP0.9m (2019: GBP0.7m) of
interest in respect of leases, and other finance expenses of
GBP3.5m (2019: GBP0.9m) which primarily represents the unwind of
the discount on the net pension liability and contingent
consideration of GBP3.1m and GBP0.3m of finance fees written off
following the bank refinancing during the year. Other finance
expenses have been excluded from adjusted profit for the year.
(3) Taxation
Taxation was a credit of GBP1.1m (2019: GBP1.5m credit)
comprising an adjusted tax charge of GBP4.8m (2019: GBP1.7m), at an
adjusted effective rate of 17% (2019: 8%), offset by the tax
effects of the impact of the acquisition costs, amortisation of
acquired intangibles and the defined benefit pension scheme of
GBP5.9m (2019: GBP3.2m). Included within this is a GBP1.2m credit
in respect of previous periods which includes a GBP0.8m credit in
connection with the release of provisions following the successful
resolution of a number of prior year uncertain tax positions.
(4) Profit from Discontinued Operations
The profit from discontinued operations of GBP135.2m in the year
comprised the profit after tax of milkrite | InterPuls up to the
date of disposal on 25 September 2020 of GBP5.4m and the post tax
gain on disposal of GBP129.8m.
(5) Restatement
The previously reported prior year comparatives for the adjusted
measures have been restated for the following items: to reflect the
impact of the new lease standard, to present milkrite | InterPuls
as a discontinued operation following the disposal in September
2020 and to include the pension administration costs within the
adjusted performance measures as these were previously
excluded.
The table below shows the reconciliation of the previously
reported key measures to the restated prior year comparatives:
Change in
As reported 30 accounting Discontinued Pension Restated 30 Sep
Sep 2019 policy operations adjustments 2019
GBPm GBPm GBPm GBPm GBPm
------------------- --------------- ------------------ ------------------ ------------------- -------------------
Adjusted Earnings 28.0 (0.1) (7.0) (0.4) 20.5
------------------- --------------- ------------------ ------------------ ------------------- -------------------
Adjusted Earnings
per share (pence) 91.7p (0.3p) (22.9p) (1.3p) 67.2p
------------------- --------------- ------------------ ------------------ ------------------- -------------------
Adjusted operating
profit 31.3 0.4 (8.6) (0.5) 22.6
------------------- --------------- ------------------ ------------------ ------------------- -------------------
Adjusted EBITDA 39.5 1.0 (11.6) (0.5) 28.4
------------------- --------------- ------------------ ------------------ ------------------- -------------------
NET CASH AND CASH FLOW
Cash generated from continuing operations was GBP32.6m, compared
to GBP18.4m in 2019 benefiting from the cash receipt relating to
the 2019 $16.6m Rest of World Military mask system contract which
offset a Helmets & Armor working capital out flow due to the
timing of receipts from 3M under the terms of the transitional
service agreement. Operating cash conversion from adjusted EBITDA
increased to 84.9% (2019: 64.8%), and excluding Helmets & Armor
was 123.3% on an organic continuing operations basis.
2020 2019 (1)
GBPm GBPm
-------------------------------------------------------- ------- ---------
Cash flows from continuing operations before the
impact of exceptional items 32.6 18.4
Cash impact of exceptional items and discontinued
operations (4.8) 6.6
-------------------------------------------------------- ------- ---------
Cash flows from operations 27.8 25.0
Net interest (3.3) (0.9)
Payments to pension plan (21.8) (1.5)
Tax (2.7) (6.1)
Purchase of property, plant and equipment (6.1) (2.2)
Capitalised development costs and purchased software (9.5) (3.5)
Acquisitions (71.8) -
Divestments 167.7 -
Investing and financing activities used in divestments (4.8) (2.9)
Purchase of own shares - (1.3)
Dividends to shareholders (7.0) (5.4)
Net proceeds from loan drawdowns 29.3 -
Foreign exchange and other items 0.8 0.6
-------------------------------------------------------- ------- ---------
Increase in net cash 98.6 1.8
-------------------------------------------------------- ------- ---------
(1) 2019 has been restated to reflect the continuing operations
of the Group following the divestment of milkrite | InterPuls on 25
September 2020.
At the year-end, the Group had net cash of GBP93.2m (2019:
GBP35.4m), being cash of GBP147.0m less bank debt of GBP31.0m and
lease liabilities of GBP22.8m (2019: GBP12.9m). The increase in
lease liabilities is due to GBP8.8m acquired as part of the Helmets
& Armor acquisition, GBP6.4m as a result of new leases entered
into during the year, offset by GBP3.3m divested with milkrite |
InterPuls and GBP2.0m of rent payments.
During the year we entered into a new U.S. Dollar denominated
bank facility of $200.0m (GBP157.0m) (2019: $85.0m (GBP66.7m)),
which is committed to 8 September 2023, with a further two 1 year
extension options.
Our net cash position and strong balance sheet provided us with
the capacity to complete the acquisition of Team Wendy in November
as well as providing capacity to deliver our growth strategy and
make further value enhancing acquisitions. Our policy is to
maintain a strong financial position and keep the ratio of net debt
to adjusted EBITDA under two times.
ACQUISITION AND INTEGRATION OF HELMETS & ARMOR
We completed the acquisition of the Helmets & Armor business
for a total cash consideration in the year of $90.6m, made up of
$87.2m of initial consideration after adjusting for the level of
working capital at completion and contingent consideration of
$3.4m. Further total potential contingent consideration of up to
$21.7m (GBP15.2m) is payable depending on the value of orders
received under the DLA ESAPI contract. We incurred cash acquisition
costs in the year of GBP2.9m, bringing total acquisition costs to
GBP5.7m.
DIVESTMENT OF MILKRITE | INTERPULS
We completed the divestment of the milkrite | InterPuls business
for a total consideration of GBP178.5m after customary closing
adjustments. As part of the proceeds from the divestment the Group
agreed with the trustees of its U.K. pension scheme to make a
one-time contribution of GBP20.0m to strengthen the scheme's
funding position. We incurred associated transaction costs in the
year of GBP8.8m.
ACCOUNTING STANDARDS CHANGES
From the start of the financial year the way that leases are
accounted for changed for the Group with the underlying principle
being that all leases are now reported on the balance sheet. As a
result of these changes, the Group has recognised a right of use
asset for all the current operating leases above 12 months in
length and excluding those of low value and a lease liability
representing the present value of the lease payments to the end of
the lease life.
The impact of the changes on the financial statements are that
from the start of the year GBP9.2m of leasehold assets and GBP12.9m
of leasehold liabilities, together with GBP1.7m to reflect the
unwind of rent free periods and deferred tax movements, have been
added to the balance sheet with the GBP2.0m net balancing figure
reflected as an opening reserves adjustment. Following the
completion of the acquisition of Helmets & Armor an additional
GBP8.8m of leasehold assets and GBP8.8m of leasehold liabilities
were added to the balance sheet and subsequent to the divestment of
milkrite | InterPuls GBP2.3m of leasehold assets and GBP3.3m of
leasehold liabilities have been removed from the balance sheet.
GBP6.4m of new lease liabilities have been entered into during the
year.
The changes have also impacted the presentation of the income
statement as the lease payments are now included within finance
costs. As a result of these changes the results from the 2019
financial year have been restated to reflect the impact of IFRS 16
and to allow comparison to the current financial year performance .
There are no changes to the cash flow metrics as these are all
non-cash presentational changes.
FINANCIAL RISK MANAGEMENT
The Group has clearly defined policies for the management of
foreign exchange risk. Exposures resulting from sales and purchases
in foreign currency are matched where possible and net exposure may
be hedged by the use of forward exchange contracts.
The initial consideration of $91m for the agreement to acquire
Helmets & Armor exposed the Group to foreign exchange risk on
the US dollar equivalent of the Sterling net cash held on the
balance sheet and to match this risk the Group entered into a deal
contingent forward contract to hedge GBP35m of cash held at the
start of the year which was settled on completion of the
acquisition at the beginning of January.
Given the change in reporting currency for our 2021 financial
year, the agreement to divest milkrite | InterPuls for GBP178.5m
created an exposure from 1 October 2020 to foreign exchange risk on
the U.S. dollar equivalent of the Sterling cash proceeds. To manage
this risk the Group entered into a second deal contingent forward
contract to hedge GBP140m of the cash proceeds, which were not
matched against Sterling costs, which was settled at the point of
completion of the acquisition on 25 September. The Group does not
undertake foreign exchange transactions for which there is no
underlying exposure.
Credit and counterparty risk are managed through the use of
credit evaluations and credit limits. Cash deposits are made at
prevailing interest rates which are not generally fixed for more
than 1 or 2 months. Borrowings and overdrafts are at floating
interest rates. The Group does not carry out any interest rate
hedging.
CURRENCY EFFECT AND CHANGE OF REPORTING CURRENCY
The Group has translational exposure arising on the
consolidation of overseas company results into Sterling. Based on
the current mix of currency denominated profit, a one cent
appreciation of the U.S. dollar increases revenue by approximately
GBP0.9m and operating profit by approximately GBP0.2m.
Subsequent to the acquisition of Team Wendy, and following the
completion of the divestment of
milkrite | InterPuls, the GroupÕs activities will be
predominantly conducted in U.S. dollars, with approximately 90% of
revenues and the majority of GroupÕs net cash and net assets
denominated in U.S. dollars. As such, from 1 October 2020 the Group
will change its reporting currency to U.S. dollars for our 2021
financial year. Following the change in reporting currency,
dividends for the 2021 financial year and beyond will be set in
U.S. dollars and converted into pounds sterling for payment at the
prevailing exchange rate immediately prior to payment.
DIVIDS
The Board is recommending a final dividend of 18.06p per share
(2019: 13.89p) which together with the 9.02p per share interim
dividend gives a total dividend of 27.08p (2019: 20.83p), up 30% on
last year. The final dividend will be paid on 12 March 2021 to
shareholders on the register at 12 February 2021 with an
ex-dividend date of 11 February 2021.
Our policy is to maintain a progressive dividend policy
balancing dividend increases with the rates of adjusted earnings
per share growth achieved, taking into account potential
acquisition spend and the GroupÕs financing position. Over recent
years, we have grown the dividend per share by 30% per annum and we
expect to continue to grow dividends ahead of earnings over the
medium-term. Our policy is to maintain dividend cover (the ratio of
dividend per share to adjusted earnings per share) above two times.
This year dividend cover was 2.8 times (2019: 4.4 times). Once
dividend cover approaches two times we intend to increase dividends
in line with the growth in adjusted earnings per share.
Consolidated Statement of Comprehensive Income for the year
ended 30 September 2020
2019
2020 Restated
Note GBPm GBPm
---------------------------------------------------- ----- -------- ----------
Continuing operations
Revenue 2 168.0 128.4
Cost of sales (100.2) (78.6)
---------------------------------------------------- ----- -------- ----------
Gross profit 67.8 49.8
Selling and distribution costs (13.7) (11.1)
General and administrative expenses (48.2) (28.8)
---------------------------------------------------- ----- -------- ----------
Operating profit 5.9 9.9
---------------------------------------------------- ----- -------- ----------
Finance income - 0.4
Finance costs (1.9) (0.7)
Other finance expense (3.5) (0.9)
---------------------------------------------------- ----- -------- ----------
Net finance costs (5.4) (1.2)
Profit before taxation 0.5 8.7
Taxation 5 1.1 1.5
---------------------------------------------------- ----- -------- ----------
Profit for the year from continuing operations 1.6 10.2
---------------------------------------------------- ----- -------- ----------
Discontinued operations - gain on divestment 3 129.8 -
Discontinued operations - profit from discontinued
operations 3 5.4 3.9
---------------------------------------------------- ----- -------- ----------
Profit for the year 136.8 14.1
Consolidated Statement of Comprehensive Income for the year
ended 30 September 2020 (Continued)
2019
2020 Restated
Note GBPm GBPm
----------------------------------------------- --------- ------- ----------
Other comprehensive income/(expense)
Items that are not subsequently reclassified
to the income statement
Remeasurement (loss) recognised on retirement
benefit scheme (28.7) (10.3)
Deferred tax relating to retirement benefit
scheme 5 5.4 1.6
Deferred tax relating to change in tax
rates 5 1.1 -
Items that may be subsequently reclassified
to the income statement
Net exchange differences offset in reserves (0.8) 0.4
Tax relating to exchange differences offset
in reserves (0.1) (0.5)
Cash flow hedges 1.3 (0.9)
Deferred tax relating to cash flow hedges (0.2) 0.2
----------------------------------------------- --------- ------- ----------
Other comprehensive income/(expense) for
the year, net of taxation from continuing
operations (22.0) (9.5)
----------------------------------------------- --------- ------- ----------
Items that may be subsequently reclassified
to the income statement
----------------------------------------------- --------- ------- ----------
Translation reserve recycled on divestment (4.2) -
----------------------------------------------- --------- ------- ----------
Tax relating to exchange differences offset
in reserves (0.1) -
----------------------------------------------- --------- ------- ----------
Net exchange differences offset in reserves (1.5) 1.9
Other comprehensive income/(expense) for
the year, net of taxation from discontinued
operations (5.8) 1.9
Total comprehensive income for the year 109.0 6.5
----------------------------------------------- --------- ------- ----------
Earnings per share 4
Basic 447.4p 46.2p
Diluted 441.3p 45.8p
Earnings per share from continuing operations 4
Basic 5.2p 33.4p
Diluted 5.2p 33.1p
----------------------------------------------- --------- ------- ----------
Consolidated Balance Sheet
2019 2018
2020 Restated Restated
Note GBPm GBPm GBPm
---------------------------------------- ----- ------ ---------- ----------
Assets
Non-current assets
Intangible assets 70.2 35.3 41.5
Property, plant and equipment 51.7 30.6 31.1
Deferred tax assets 5 23.3 14.9 10.5
---------------------------------------- ----- ------ ---------- ----------
145.2 80.8 83.1
---------------------------------------- ----- ------ ---------- ----------
Current assets
Inventories 28.5 20.7 23.0
Trade and other receivables 36.1 35.4 24.2
Cash and cash equivalents 7 147.0 48.4 46.6
---------------------------------------- ----- ------ ---------- ----------
211.6 104.5 93.8
---------------------------------------- ----- ------ ---------- ----------
Liabilities
Current liabilities
Borrowings 33.5 1.4 1.2
Trade and other payables 31.0 29.9 33.1
Derivative financial instruments - 1.3 0.4
Provisions for liabilities and charges 10 7.6 - 0.3
Current tax liabilities 7.5 4.1 6.1
---------------------------------------- ----- ------ ---------- ----------
79.6 36.7 41.1
---------------------------------------- ----- ------ ---------- ----------
Net current assets 132.0 67.8 52.7
---------------------------------------- ----- ------ ---------- ----------
Non-current liabilities
Borrowings 20.3 11.6 11.1
Deferred tax liabilities 5 4.4 5.4 6.9
Retirement benefit obligations 62.5 54.1 40.5
Provisions for liabilities and charges 10 9.9 2.3 2.5
---------------------------------------- ----- ------ ---------- ----------
97.1 73.4 61.0
---------------------------------------- ----- ------ ---------- ----------
Net assets 180.1 75.2 74.8
---------------------------------------- ----- ------ ---------- ----------
Shareholders' equity
Ordinary shares 8 31.0 31.0 31.0
Share premium account 8 34.7 34.7 34.7
Other reserves 3.1 9.8 8.0
Retained earnings 111.3 (0.3) 1.1
---------------------------------------- ----- ------ ---------- ----------
Total equity 180.1 75.2 74.8
---------------------------------------- ----- ------ ---------- ----------
Consolidated Cash Flow Statement
2019
2020 Restated
Note GBPm GBPm
--------------------------------------------------- ----- ------- ----------
Cash flows from operating activities
Cash flows from continuing operations 6 22.8 16.3
Cash flows from discontinued operations 5.0 8.7
--------------------------------------------------- ----- ------- ----------
Cash flows from operations 6 27.8 25.0
Interest income received - 0.4
Retirement benefit deficit recovery contributions (21.8) (1.5)
Tax paid (2.7) (6.1)
--------------------------------------------------- -----
Net cash flows from operating activities 3.3 17.8
--------------------------------------------------- ----- ------- ----------
Cash flows used in investing activities
Proceeds from disposal of discontinued operations 11 172.9 -
Costs of divestment (7.9) -
Purchase of property, plant and equipment (6.1) (2.2)
Capitalised development costs and purchased
software (9.5) (3.5)
Acquisition of business 11 (71.8) -
Investing cash flows from discontinued operations 11 (1.4) (2.2)
--------------------------------------------------- -----
Net cash used in investing activities 76.2 (7.9)
--------------------------------------------------- ----- ------- ----------
Cash flows used in financing activities
Proceeds from loan drawdowns 50.5 -
Loan repayments (21.2) -
Finance costs paid in respect of bank loans
and overdrafts (0.9) (0.2)
Finance costs paid in respect of leases (0.9) (0.5)
Repayment of lease liability (1.5) (0.6)
Dividends paid to shareholders 9 (7.0) (5.4)
Purchase of own shares - (1.3)
Financing cashflows from discontinued operations 8 (0.7) (0.7)
--------------------------------------------------- -----
Net cash used in financing activities 18.3 (8.7)
--------------------------------------------------- ----- ------- ----------
Net increase in cash, cash equivalents and
bank overdrafts 97.8 1.2
Cash, cash equivalents, and bank overdrafts
at beginning of the year 48.4 46.6
Effects of exchange rate changes 0.8 0.6
--------------------------------------------------- -----
Cash, cash equivalents and bank overdrafts
at end of the year 7 147.0 48.4
--------------------------------------------------- ----- ------- ----------
Consolidated Statement in Changes in Equity
Share Share Other Retained Total
capital premium reserves earnings equity
Note GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ----- --------- --------- ---------- ---------- --------
At 30 September 2018 (previously
stated) 31.0 34.7 8.0 11.1 84.8
Change in accounting policy - - - (1.8) (1.8)
Prior year adjustment - - - (8.2) (8.2)
--------------------------------------- ----- --------- --------- ---------- ---------- --------
At 30 September 2018 (restated) 31.0 34.7 8.0 1.1 74.8
--------------------------------------- ----- --------- --------- ---------- ---------- --------
Profit for the year - - - 14.1 14.1
Net exchange differences offset
in reserves - - 2.3 - 2.3
Tax relating to exchange differences
offset in reserves - - (0.5) - (0.5)
Cash flow hedges - - - (0.9) (0.9)
Deferred tax relating to cash
flow hedges 0.2 0.2
Remeasurement loss recognised
on retirement benefit scheme - - - (10.3) (10.3)
Deferred tax relating to retirement
benefit scheme - - - 1.6 1.6
--------------------------------------- ----- --------- --------- ---------- ---------- --------
Total comprehensive income
for the year - - 1.8 4.7 6.5
Dividends paid - - - (5.4) (5.4)
Own shares acquired - - - (1.3) (1.3)
Fair value of share based payments - - - 0.4 0.4
Deferred tax relating to employee
share schemes - - - 0.2 0.2
--------------------------------------- ----- --------- --------- ---------- ---------- --------
At 30 September 2019 (restated) 31.0 34.7 9.8 (0.3) 75.2
--------------------------------------- ----- --------- --------- ---------- ---------- --------
Profit for the year - - - 136.8 136.8
Net exchange differences offset
in reserves - - (2.3) - (2.3)
Tax relating to exchange differences
offset in reserves - - (0.2) - (0.2)
Translation reserve recycled
to P&L on divestment - - (4.2) - (4.2)
Cash flow hedges - - - 1.3 1.3
Deferred tax relating to cash
flow hedges - - - (0.2) (0.2)
Remeasurement loss recognised
on retirement benefit scheme - (28.7) (28.7)
Deferred tax relating to retirement
benefit scheme 5 - - - 6.5 6.5
--------------------------------------- ----- --------- --------- ---------- ---------- --------
Total comprehensive income
for the year - - (6.7) 115.7 109.0
Dividends paid 9 - - - (7.0) (7.0)
Own shares acquired - - - - -
Fair value of share based payments - - - 1.8 1.8
Deferred tax relating to employee
share schemes 5 - - - 1.1 1.1
At 30 September 2020 31.0 34.7 3.1 111.3 180.1
--------------------------------------- ----- --------- --------- ---------- ---------- --------
Other reserves consist of the capital redemption reserve of
GBP0.5m (2019: GBP0.5m) and the translation reserve of GBP2.6m
(2019: GBP9.3m).
All movements in other reserves relate to the translation
reserve.
NOTES TO THE FINANCIAL STATEMENTS
1. General Information and Basis of Preparation
Basis of preparation
The financial information set out in this document does not
constitute the Group's statutory accounts for the year ended 30
September 2020 or 30 September 2019. Statutory accounts for the
year ended 30 September 2019 were approved by the Board of
Directors on 13 November 2019 and delivered to the Registrar of
Companies. The report of the auditors on those 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. Statutory accounts for the year ended 30 September 2020
have not yet been delivered to the Registrar nor have the auditors
yet reported on them. The expectation is that the report of the
auditors on these accounts will be unqualified.
This financial information has been prepared in accordance with
International Financial Reporting Standards as adopted by the EU
(Adopted IFRS) and with those parts of the Companies Act 2006
applicable to companies reporting under IFRS.
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.
Recent accounting developments
IFRS 16 Leases and IFRIC 23 Accounting for uncertain tax
positions both became applicable for the Group from 1 October
2019.
-- IFRS 16 Leases
IFRS 16 represents a significant change to lessee accounting by
introducing the principle that all leased assets should be reported
on the balance sheet of the lessee, recognising an asset for the
right to use the leased item and a liability for the present value
of its future lease payments.
The change in treatment became applicable for the Group from 1
October 2019 and impacts the balance sheet, the income statement
and related performance measures.
The Group has applied IFRS 16 using the full retrospective
approach. As a result the date of the initial application for the
Group is 1 October 2018 and comparative information has been
restated.
Applying IFRS 16 the Group now recognises right of use assets
and lease liabilities in the consolidated balance sheet in relation
to property leases previously treated as operating leases.
-- IFRIC 23 Accounting for uncertain tax positions
IFRC 23 is a new interpretation applying to both current and
deferred taxes.
Under the new regulation accounting for uncertain tax positions
is only permitted where the likelihood of a tax treatment being
challenged is greater than 50%, with new guidance around how a
value should be assigned to the uncertainty.
The application of this interpretation has not had a significant
impact on the level of provisions held in relation to uncertain tax
positions.
2. Revenue by geographic region
Revenue analysed by geographic origin
Year ended 30 September 2020
Europe U.S. Total
--------- ------- ------ ------
GBPm GBPm GBPm
Revenue 15.1 152.9 168.0
Year ended 30 September 2019
Europe U.S. Total
Restated Restated Restated
--------- ---------- ---------- ----------
GBPm GBPm GBPm
Revenue 16.1 112.3 128.4
3. Discontinued operations
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 and prior
periods have been restated to reflect this. The results of
discontinued operations are as follows:
2020 2019
GBPm GBPm
------------------------------------- ------- -------
Revenue 53.8 50.9
Cost of sales (28.0) (28.2)
------------------------------------- ------- -------
Gross profit 25.8 22.7
------------------------------------- ------- -------
Selling and distribution costs (9.4) (9.3)
General and administration expenses (10.1) (8.5)
------------------------------------- ------- -------
Operating profit 6.3 4.9
Finance costs (0.1) -
Profit before taxation 6.2 4.9
Taxation (0.8) (1.0)
------------------------------------- ------- -------
Profit for the period 5.4 3.9
Gain on divestment 139.0 -
Tax on gain on divestment (9.2) -
------------------------------------- ------- -------
Gain on divestment after tax 129.8 -
------------------------------------- ------- -------
Profit from discontinued operations 135.2 3.9
------------------------------------- ------- -------
Basic earnings per share 444.2p 12.8p
------------------------------------- ------- -------
Diluted earnings per share 436.1p 12.7p
------------------------------------- ------- -------
Cash flows from discontinued operations included in the cash
flow statement are as follows:
2020 2019
GBPm GBPm
--------------------------------------------- ------ ------
Net cash flows from operating activities 5.0 8.7
Net cash flows from investing activities 163.6 (2.2)
Net cash flows from financing activities (0.7) (0.7)
--------------------------------------------- ------ ------
Net cash flows from discontinued operations 167.9 5.8
--------------------------------------------- ------ ------
4. 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 removes the effect of the
amortisation of acquired intangible assets, exceptional items,
acquisition costs and defined benefit pension scheme costs,
reflecting the basis on which the business is managed and measured
on a day to day basis.
Reconciliations of the earnings and weighted average number of
shares used in the calculations are set out below.
Weighted average number of shares
2020 2019
Weighted average number of ordinary shares in
issue used in basic calculations (thousands) 30,576 30,516
Potentially dilutive shares (weighted average)
(thousands) 423 260
--------------------------------------------------- ------- -------
Fully diluted number of ordinary shares (weighted
average) (thousands) 30,999 30,776
--------------------------------------------------- ------- -------
Earnings
2020 2019
Basic 136.8 14.1
------------------------------- ------ -----
Basic - continuing operations 1.6 10.2
------------------------------- ------ -----
Earnings per share (pence)
2019
2020 Restated
Basic 447.4 46.2
-----------------------------------
Basic - continuing operations 5.2 33.4
-----------------------------------
Basic - discontinued operations 442.2 12.8
-----------------------------------
Diluted 441.3 45.8
----------------------------------- ------ ----------
Diluted - continuing operations 5.2 33.1
----------------------------------- ------ ----------
Diluted - discontinued operations 436.1 12.7
----------------------------------- ------ ----------
5. --Taxation
2020 2019
Restated
GBPm GBPm
------------------------------------------------ ------ ----------
U.K. current tax (0.4) 0.1
U.K. adjustment in respect of previous periods - 0.1
Overseas current tax (1.4) 4.5
Overseas adjustment in respect of previous
periods (1.2) (3.1)
------------------------------------------------
Total current tax charge (3.0) 1.6
------------------------------------------------ ------ ----------
Deferred tax - current year 2.2 (3.0)
Deferred tax - adjustment in respect of
previous periods (0.3) (0.1)
------------------------------------------------
Total deferred tax credit 1.9 (3.1)
------------------------------------------------ ------ ----------
Total tax (credit)/charge (1.1) (1.5)
------------------------------------------------ ------ ----------
The overseas adjustment in respect of the prior period of
GBP1.2m (2019: GBP3.1m) includes a GBP0.8m (2019: GBP2.9m) credit
in connection with the resolution of a number of prior year
uncertain tax provisions.
In the 11 March 2020 Budget it was announced that the UK tax
rate will remain at the current 19% and not reduce to 17% from 1
April 2020. The impact of this re-measurement is reflected in these
financial statements for all UK deferred tax assets.
The tax on the Group's profit before taxation differs from the
theoretical amount that would arise using the standard U.K. tax
rate applicable to profits of the consolidated entities as
follows:
2019
2020 Restated
GBPm GBPm
------------------------------------------------ ------ ----------
Profit before taxation 0.5 8.7
Profit before taxation at the average standard
rate of 19.0% (2019: 19.0%) 0.1 1.7
Tax allowances (U.K. and U.S.) (0.6) (0.4)
Non deductible expenses 0.2 0.1
Differences in overseas tax rates 0.7 0.2
Adjustment in respect of previous periods (1.5) (3.1)
------------------------------------------------
Tax (credit)/charge (1.1) (1.5)
------------------------------------------------ ------ ----------
The income tax charged directly to Other Comprehensive Income
during the year was GBPnil (2019: GBP0.3m).
The deferred tax credited directly to Other Comprehensive Income
during the year was GBP6.1m (2019: GBP1.4m charge).
The deferred tax credited directly to equity during the year was
GBP1.1m (2019: GBP0.2).
Deferred tax liabilities
Accelerated Other temporary
capital allowances differences Total
GBPm GBPm GBPm
At 1 October 2018 1.3 5.6 6.9
Charged/(credited) to profit for the
year 0.1 (1.8) (1.7)
Charged to Other Comprehensive Income - 0.2 0.2
At 30 September 2019 1.4 4.0 5.4
Charged/(credited) to profit for the
year 3.0 (1.2) 1.8
Charged to Other Comprehensive Income - 0.1 0.1
Removed on divestment - (2.9) (2.9)
At 30 September 2020 4.4 - 4.4
--------------------------------------- -------------------- ---------------- ------
Deferred tax assets have been recognised in respect of temporary
differences giving rise to deferred tax assets where it is probable
that these assets will be recovered.
Deferred tax assets
Retirement Accelerated
benefit capital Other temporary
obligation Share options allowances differences Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------- ------------ -------------- ------------ ---------------- ------
At 30 September 2018 (as previously
reported) 5.2 0.6 0.3 2.1 8.2
Change in accounting policy - - - 0.5 0.5
Prior year adjustment 1.8 - - - 1.8
At 30 September 2018 restated 7.0 0.6 0.3 2.6 10.5
Credited/(charged) to profit
for the year 0.6 0.1 (0.2) 1.9 2.4
Credited/(charged) to Other
Comprehensive Income 1.6 - - 0.2 1.8
Credited to equity - 0.2 - - 0.2
------------------------------------- ------------ -------------- ------------ ---------------- ------
At 30 September 2019 9.2 0.9 0.1 4.7 14.9
------------------------------------- ------------ -------------- ------------ ---------------- ------
Provided on acquisition - - - 0.3 0.3
Credited/(charged) against
profit for the year (3.8) 0.3 - 4.3 0.8
Credited to Other Comprehensive
Income 5.4 - - (0.3) 5.1
Impact of change in tax rates
credited to Other Comprehensive
Income 1.1 - - - 1.1
Credited to equity - 1.1 - - 1.1
------------------------------------- ------------ -------------- ------------ ---------------- ------
At 30 September 2020 11.9 2.3 0.1 9.0 23.3
------------------------------------- ------------ -------------- ------------ ---------------- ------
The standard rate of corporation tax in the U.K. is 19%. The
Group has GBP2.6m (2019: GBP2.6m) of unrecognised deferred tax
assets relating to capital losses where it is not considered that
there will be sufficient available capital profits to utilise these
losses.
6. Cash and cash equivalents
The Group generates cash from its operating activities as
follows:
2020 2019 Restated
GBPm GBPm
-------------------------------------------------------- -------- --------------
Continuing operations
Profit for the year 1.6 10.2
Adjustments for:
Taxation (1.1) (1.5)
Depreciation 5.1 2.5
Amortisation of intangible assets 9.6 4.2
Impairment of development costs - 3.8
Defined benefit pension scheme cost 0.7 4.0
Finance income - (0.4)
Finance costs 1.9 0.7
Other finance expense 3.5 0.9
Fair value of share based payments 1.4 0.4
Impairment of inventory and receivables re: exit Fire - 1.6
SCBA market
(Increase)/decrease in inventories (0.1) 0.1
(Increase)/decrease in receivables (5.6) (8.6)
(Decrease)/Increase in payables and provisions 5.8 (1.6)
--------------------------------------------------------
Cash flows from continuing operations 22.8 16.3
-------------------------------------------------------- -------- --------------
Discontinued operations
Profit for the year 135.2 3.9
Adjustments for:
Taxation 10.1 1.1
Depreciation 2.6 2.8
Property impairment - 1.1
Amortisation of intangible assets 3.0 3.2
Finance income 0.1 -
Finance costs - 0.2
Gain on divestment (139.0) -
Fair value of share-based payments 0.4 -
(Increase)/decrease in inventories (0.2) 0.7
(Increase)/decrease in receivables (6.5) (1.3)
(Decrease)/increase in payables and provisions (0.7) (3.0)
Cash flows from discontinued operations 5.0 8.7
--------------------------------------------------------
Cash flows from operations 27.8 25.0
-------------------------------------------------------- -------- --------------
7. 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 October Cash Non cash Exchange At 30 September
2019 Restated flow movements movements 2020
GBPm GBPm GBPm GBPm GBPm
-------------------------- --------------- ------- ----------- ----------- ----------------
Cash at bank and in hand 48.4 97.8 - 0.8 147.0
Bank loans due in less
than one year (0.1) (29.2) (1.2) (0.5) (31.0)
-------------------------- --------------- ------- ----------- ----------- ----------------
Interest due on loans - 0.9 (0.9) - -
Cash net of bank loans 48.3 69.5 (2.1) 0.3 116.0
Lease liabilities (12.9) 3.1 (12.7) (0.3) (22.8)
-------------------------- --------------- ------- ----------- ----------- ----------------
Net (debt) / cash 35.4 72.6 (14.8) - 93.2
-------------------------- --------------- ------- ----------- ----------- ----------------
At 1 October At 30 September
2018 Restated Cash Non cash Exchange 2019
flow movements movements Restated
GBPm GBPm GBPm GBPm GBPm
-------------------------- --------------- ------ ----------- ----------- ----------------
Cash at bank and in hand 46.6 1.2 - 0.6 48.4
Bank loans due in less
than one year (0.1) - - - (0.1)
Cash net of bank loans 46.5 1.2 - 0.6 48.3
Lease liabilities (12.2) 1.9 (1.5) (1.1) (12.9)
-------------------------- --------------- ------ ----------- ----------- ----------------
Net (debt) / cash (34.3) 3.1 (1.5) (0.5) 35.4
-------------------------- --------------- ------ ----------- ----------- ----------------
8. Equity
Share capital
No. of Ordinary Share No. of Ordinary Share premium
shares shares premium shares shares
2020 2020 2020 2019 2019 2019
GBPm GBPm GBPm GBPm
-------------------------- ----------- --------- --------- ----------- --------- --------------
Called up allotted
and fully paid ordinary
shares of GBP1 each
At the beginning
of the year 31,023,292 31.0 34.7 31,023,292 31.0 34.7
At the end of the
year 31,023,292 31.0 34.7 31,023,292 31.0 34.7
-------------------------- ----------- --------- --------- ----------- --------- --------------
Ordinary shareholders are entitled to receive dividends and to
vote at meetings of the Company.
At 30 September 2020, 398,560 (2019: 506,274) ordinary shares
were held by a trust in respect of obligations under the 2010
Performance Share Plan. Dividends on these shares have been waived.
The market value of the shares held in the trust at 30 September
2020 was GBP16.9m (2019: GBP8.4m). These shares are held at cost as
treasury shares and deducted from shareholders' equity.
No further shares were acquired by the trust during the period
(2019: 100,000 at a cost of GBP1.3m).
107,714 (2019: 92,990) shares were used to satisfy awards
following the vesting of shares relating to the 2010 Performance
Share Plan.
1,753 (2019: 3,364) ordinary shares of GBP1 each were awarded in
relation to the annual incentive plan.
9. Dividends
On 30 January 2020, the shareholders approved a final dividend
of 13.89p per qualifying ordinary share in respect of the year
ended 30 September 2019. This was paid on 13 March 2020 utilising
GBP4.2m of shareholdersÕ funds (2019: GBP3.3m).
The Board of Directors declared an interim dividend of 9.02p
(2019: 6.94p) per qualifying ordinary share in respect of the year
ended 30 September 2020. This was paid on 4 September 2020
utilising GBP2.8m (2019: GBP2.1m) of shareholdersÕ funds.
After the balance sheet date the Board of Directors proposed a
final dividend of 18.06p per qualifying ordinary share in respect
of the year ended 30 September 2020, which will absorb an estimated
GBP5.6m of shareholderÕs funds. Subject to shareholder approval the
dividend will be paid on 12 March 2021 to shareholders on the
register at the close of business on 12 February 2021. In
accordance with accounting standards the dividend has not been
provided for and there are no corporation tax consequences.
10. Provisions for liabilities and charges
Property Contingent
Obligations consideration Total
GBPm GBPm GBPm
------------------------------------------- ------------- --------------- ------
Balance at 30 September 2018 2.8 - 2.8
Provision reversed during the year (0.4) - (0.4)
Payments in the year (0.1) - (0.1)
------------------------------------------- ------------- --------------- ------
Balance at 30 September 2019 2.3 - 2.3
------------------------------------------- ------------- --------------- ------
Provision reversed during the year (0.2) - (0.2)
Provision released during the year
due to divestment (0.6) - (0.6)
Provision created during the year 0.2 - 0.2
Property provision assumed on acquisition 0.6 - 0.6
Provision for contingent consideration
created during the year - 15.2 15.2
Unwind of discount on provisions - 2.3 2.3
Payments in the year - (2.8) (2.8)
Foreign exchange movements (0.1) 0.6 0.5
------------------------------------------- ------------- --------------- ------
Balance at 30 September 2020 2.2 15.3 17.5
------------------------------------------- ------------- --------------- ------
2020 2019
Analysis of total provisions GBPm GBPm
Non-current 7.6 -
Current 9.9 2.3
------------------------------ ----- -----
17.5 2.3
------------------------------ ----- -----
Property obligations relate to leased premises of the Group
which are subject to dilapidation risks and are expected to be
utilised within the next ten years. Movements in respect of
dilapidations provisions during the year include release of
provisions on exit of lease (GBP0.2m), provisions released as a
result of the divestment of the milkrite | InterPuls business
(GBP0.6m), and provisions created on the acquisition of the Helmets
& Armor business (GBP0.6m), and in respect of other sites
GBP0.2m. Property provisions are subject to uncertainty in respect
of any final negotiated settlement of any dilapidation claims with
landlords.
The purchase consideration in relation to the Helmets &
Armor acquisition included contingent consideration up to a maximum
of $25m 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 GBP15.2m
($20m) based on the expected value and timing of those payments
after applying a discount rate of 12% to reflect the risk in the
cashflows at that date.
The contract that triggered the contingent consideration was
awarded shortly after the acquisition date and an initial order has
subsequently been received resulting in the first payment of
GBP2.8m ($3.4m) being made during the year. At the balance sheet
date, taking account of the change in fair value in relation to the
contingent consideration of GBP2.3m ($2.9m), the remaining
contingent consideration is presented as a provision with a fair
value of GBP15.3m ($18.7m) being the present value of the future
expected cashflows relating to the contract. Current expectations
are that the contingent consideration will be settled in full over
the next three years as the level of sales which triggers full
payment of the consideration ($240.5m) is considered to be very
achievable and therefore highly probable. The range of possible
outcomes is additional payments between nil and GBP17.0m ($21.6m),
there has been no change in the range of expected outcomes during
the period.
11. Acquisitions & Divestment
Acquisition - Helmet & Armor business
The acquisition of the Helmets & Armor business and the
rights to the Ceradyne brand completed on 2 January 2020. The
acquisition took the form of a trade and assets purchase.
The acquisition is considered a further step in line with the
Board's stated strategy; widening Avon Protection's product range
in the personal protection equipment segment, deepening our
presence in the US and relationship with the US DoD. and enhancing
the Group's research and development and manufacturing
capability.
The total estimated acquisition consideration of $107.2m
comprises initial consideration agreed of $91m less an initial
closing adjustment of $1.6m, resulting in a payment on completion
of $89.4m (GBP70.8m), a further post completion adjustment of $2.2m
(GBP1.7m) resulting from the closing inventory being lower than the
targeted level, plus fair value of contingent consideration of
$20.0m (GBP15.2m).
Set out below is an analysis of the assigned fair values of the
assets acquired and liabilities assumed relating to this
acquisition:
Fair value
GBPm
-------------------------------------------------------- -----------
Customer relationships 19.8
Brand 1.8
Other intangible assets 7.7
Property, plant and equipment 29.2
Inventories 14.1
Other assets 0.5
Lease liability (8.8)
Accruals (1.1)
Dilapidations provisions (0.6)
Deferred tax 0.3
-------------------------------------------------------- -----------
Net assets acquired 62.9
Goodwill 21.4
-------------------------------------------------------- -----------
84.3
-------------------------------------------------------- -----------
Cash paid excluding acquisition expenses 70.8
Post completion delivery inventory true up due from 3M (1.7)
Deferred contingent consideration payable* 15.2
-------------------------------------------------------- -----------
Total consideration 84.3
-------------------------------------------------------- -----------
* GBP2.8m of the deferred contingent consideration payable was
paid during the period subsequent to the acquisition. See Note 10
for further details.
Goodwill of GBP21.4m is recognised on these acquisitions,
representing the amount paid for future sales growth from both new
customers and new products, operating cost synergies and employee
know-how. The value of goodwill expected to be deductible for tax
purposes is GBP17.0m. The value attributable to goodwill has
changed from the value reported in the interim financial statements
from GBP18.7m to GBP21.4m as a result of finalising the fair values
attributed to certain other assets and liabilities.
A deferred tax asset of GBP0.3m was recognised on acquisition in
relation to the accruals and dilapidations provisions assumed. Any
further tax timing differences will be recognised in the period in
which they arise.
No receivables or deferred revenue were acquired and no
contingent liabilities were recognised on acquisition.
From the date of acquisition to 30 September 2020, the newly
acquired business contributed GBP40.8m to revenue and reported an
operating loss of GBP1.4m over the same period. As a trade and
asset purchase it is not possible to assess what the impact of the
acquisition would have been on revenues and profits on a full year
basis.
The reported cost of sales for the year includes a GBP6.0m
acquisition accounting adjustment to account for acquired inventory
at our underlying cost. A further GBP2.9m of deal costs and GBP2.4m
of transition costs were recognised in the year to 30 September
2020 and included within general and administrative expenses.
Acquisition - Team Wendy
The signing of an agreement to acquire Team Wendy, LLC was
announced on 9 September 2020. The acquisition was subject to U.S.
regulatory approvals and closed on 2 November 2020. The results of
the Team Wendy business are not consolidated within the 2020
financial statements as control did not transfer to the Group until
after the balance sheet date and at the time of signing the
financial statements the full business combinations exercise had
not yet been completed due to the fact the transaction completed
very recently after the balance sheet.
The acquisition ultimately completed on 2 November 2020 and
control transferred with the Group acquiring 100% of the equity for
a total consideration of $130m. The net assets acquired had a value
of $22.4m (GBP17.6m) before any fair value adjustments.
The acquisition has a limited impact on the 2020 financial
statements, however the acquisition related costs are expensed in
the periods in which the services are received, in line with
recognised accounting practices. GBP6.7m of such costs, including
legal, due diligence and tax advisory fees, have been recognised
during the year
Divestment - milkrite | InterPuls
In September 2020, the Group disposed of milkrite | InterPuls to
DeLaval Holding BV for a cash consideration of GBP178.5 million
after customary closing adjustments.
GBPm
--------------------------------------------------------------- -------
Total consideration received 178.5
Net assets disposed (34.8)
Costs of divestment (8.9)
Translation reserve recycled to profit and loss on divestment 4.2
--------------------------------------------------------------- -------
Gain on divestment 139.0
--------------------------------------------------------------- -------
Tax or gain on divestment (9.2)
--------------------------------------------------------------- -------
Gain on divestment after tax 129.8
--------------------------------------------------------------- -------
12. Post Balance Sheet Events
The acquisition of Team Wendy completed on 2 November with the
Group acquiring 100% of the equity for total consideration of
$130m.
On November 20, 2020, the High Court handed down a judgment
involving the Lloyds Banking Group's defined benefit pension
schemes on GMP equalisation for historic transfers. The judgment
confirmed the obligation on scheme trustees to top up historic cash
equivalent payments calculated on unequalised individual transfers
out of the scheme since May 1990. We are working with our actuarial
advisers, to understand the extent to which the judgment
crystallises any additional liabilities for the Group's UK defined
benefit pension scheme. We are early in the evaluation process, but
we estimate that the additional liability could be in the range of
GBP0.1m to GBP2.3m, with the upper end of the range dependent on
the legal interpretation of the judgement regarding the liability
for historic bulk transfers out of the scheme. Subsequent to
further assessment with our advisors, any necessary adjustment is
expected to be recognised in the first half of our 2021 financial
year.
13. Exchange rates
The following significant exchange rates applied during the
year:
Average Closing Average Closing
rate rate rate rate
2020 2020 2019 2019
------------- -------- -------- -------- --------
U.S. Dollar 1.275 1.274 1.276 1.232
------------- -------- -------- -------- --------
14. Annual Report & Accounts
Copies of the Directors' report and the audited financial
statements for the year ended 30 September 2020 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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