Avon Protection Regulatory News (AVON)

News Release

16 November 2016

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

FINANCIAL HIGHLIGHTS:

· Operating profit growth of 8%

· EBITDA growth of 13%

· Tax credit of £0.9m

· Diluted earnings per share increased 33%

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

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

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

· Dividend of 9.48p per share up 30%

OPERATIONAL HIGHLIGHTS:

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

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

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

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

(*) Note:

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

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

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

The adjustments comprise:

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

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

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

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

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

Further details are provided in note 3.

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

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

For further enquiries, please contact:

An analyst meeting will be held at 9.30am this morning at the offices of Weber Shandwick Financial, 2 Waterhouse Square, 140 Holborn, London, EC1N 2AE.

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

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

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

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

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

INTRODUCTION

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

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

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

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

ACQUISITION

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

GROUP RESULTS

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

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

SEGMENTAL PERFORMANCE

PROTECTION & DEFENCE PERFORMANCE

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

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

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

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

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

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

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

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

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

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

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

DAIRY PERFORMANCE

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

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

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

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

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

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

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

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

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

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

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

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

FINANCE EXPENSES

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

TAXATION

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

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

EARNINGS PER SHARE

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

NET CASH AND CASH FLOW

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

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

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

UK RETIREMENT BENEFIT OBLIGATIONS

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

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

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

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

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

RESEARCH AND DEVELOPMENT

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

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

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

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

FOREIGN EXCHANGE SENSITIVITY

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

DIVIDEND

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

OPPORTUNITIES

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

BOARD CHANGES

Rob Rennie joined as Chief Executive on 1 December 2015.

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

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

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

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

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

OUTLOOK

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

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

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

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

David Evans Rob Rennie

Chairman Chief Executive Officer

16 November 2016 16 November 2016 

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

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

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

All movements in other reserves relate to the translation reserve.

Notes to the Preliminary Financial Statements

for the year ended 30 September 2016

1. Basis of preparation

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

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

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

d) Recent accounting developments

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

The Group's approach to these is as follows:

i) Standards, amendments and interpretations effective in 2016:

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

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

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

§ IFRS 9, 'Financial instruments'

§ IFRS 14, 'Regulatory Deferral Accounts'

§ IFRS 15, 'Revenue from Customer Contracts'

§ IFRS 16, 'Leases'

§ Amendments to IAS 1, 'Disclosure Initiative'

§ Amendments to IAS 7, 'Disclosure Initiative'

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

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

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

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

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

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

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

§ Annual improvements cycle 2012-2014

2. Segment information

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

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

Business Segments

3. Adjustments and discontinued operations

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

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

The integration costs relate to the acquisition of the Argus thermal imaging camera business and the relocation of the manufacturing to our Melksham, UK site.

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

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

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

4. Taxation

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

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

5. Dividends

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

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

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

6. Earnings per share

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

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

7. Provisions for liabilities and charges

8. Share capital

9. Cash generated from operations

10. Analysis of net cash/(debt)

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

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

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

11. Exchange rates

The following significant exchange rates applied during the year.

Fair value of financial instruments

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

12. Acquisition

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

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

13. Annual Report & Accounts

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