IFC Introduction and Contents Who we are, where we are and what we do Chairman s Statement

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2 AN INTRODUCTION TO AVON RUBBER p.l.c. The Group has trasformed itself over recet years ito a iovative desig ad egieerig group, specialisig i two core markets, Protectio & Defece ad Dairy. With a strog emphasis o research ad developmet, we desig, test ad maufacture specialist products from a umber of sites i the US ad Europe, servig markets aroud the world. We achieve this through urturig the talet ad aspiratios of our employees to realise their highest potetial. Avo Protectio Systems is the recogised global market leader i advaced Chemical, Biological, Radiological ad Nuclear (CBRN) respiratory protectio systems for the world s military, homelad security, first respoder, fire ad idustrial markets. With a urivalled pedigree i mask desig datig back to the 1920 s, Avo Protectio Systems advaced products are the first choice for Persoal Protective Equipmet (PPE) users worldwide ad are placed at the heart of may iteratioal defece ad tactical PPE deploymet strategies. Our expadig global customer base ow icludes military forces, civil ad first lie defece troops, emergecy service teams ad idustrial, marie, mieral ad oil extractio site persoel. All put their trust i Avo s advaced respiratory solutios to shield them from every possible threat whether lad, air or sea based. Our world-leadig Dairy supplies busiess ad its Milkrite IterPuls brad has a global market presece. With a log history of maufacturig liers ad tubig for the dairy idustry, we have become the leadig iovator ad desiger for products ad services right at the heart of milkig. The acquisitio of IterPuls i 2015, a specialist i electro-mechaical milkig compoets, such as pulsators, milk meters, automatic cluster removers ad milkig clusters, has added sigificatly to our product rage, makig us the complete milkig poit solutios provider, improvig every farm we touch. Workig with leadig scietists ad health specialists i the global dairy idustry, we cotiue to ivest i techology to further improve the milkig process ad aimal welfare. Our products provide exceptioal results for both the aimal ad the milker, makig the milk extractio process more efficiet. As our market share ad milkig experiece cotiue to improve, so does our global presece. OVERVIEW OF THE YEAR CONTENTS HOW WE RUN OUR BUSINESS IFC Itroductio ad Cotets Who we are, where we are ad what we do Chairma s Statemet 42 Board of Directors Directors Report Corporate Goverace Strategic Report Evirometal ad Corporate Social Resposibility 52 Nomiatios Committee Report Audit Committee Report Remueratio Report H O W W E PERFORMED Fiacial Results Idepedet Auditors Reports Paret Compay Fiacial Statemets 133 Five year record Notice of Aual Geeral Meetig IBC Shareholder iformatio SHAREHOLDER INFORMATION IFC DELIVERING AND BUILDING GROWTH ANNUAL REPORT AND ACCOUNTS 2016

3 GROUP Reveue 142.9m 8.6m GROUP Diluted earigs per share (EPS)* 72.8p 18.2p OVERVIEW OF THE YEAR Operatig Profit* 72.8p 21.8m 1.6m Operatig Profit* ( m) 17.0m 20.2m 21.8m EPS (pece)* 54.6p 9.3m 11.1m 11.6m 14.2m 14.4p 23.3p 25.4p 34.0p 42.3p HOW WE RUN OUR BUSINESS PROTECTION & DEFENCE DAIRY Reveue 100.9m 2.1m Operatig Profit* 16.0m 0.1m Operatig Profit* ( m) Reveue 42.0m 6.5m Operatig Profit* 7.2m 0.8m Operatig Profit* ( m) HOW WE PERFORMED 15.9m 16.0m 13.6m 11.0m 6.5m m m m 6.4m 5.5m 5.7m 5.2m 4.6m * All profit ad earigs per share figures above relate to adjusted busiess performace as defied o page m 16 SHAREHOLDER INFORMATION ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 01

4 OUTLOOK 2017 SIGNIFICANT OPPORTUNITIES FOR 2017 INCLUDE PRODUCTION OF OUR AIRCREW MASK, FURTHER SALES OF OUR NEW CBRN/ CO ESCAPE HOOD AND ARGUS THERMAL IMAGING CAMERAS TOGETHER WITH A NUMBER OF NON-DOD MILITARY CONTRACTS. OUR 2016 MARKET CONDITIONS OUR DOD RELATIONSHIP PROVIDES OPPORTUNITIES TO EXPAND INTO AIRCREW AND NAVY PRODUCTS AND IS A FANTASTIC REFERENCE CUSTOMER AS WE TENDER FOR PROGRAMMES IN OTHER COUNTRIES. DOD DELIVERIES WERE ON SCHEDULE AND THE BUILDING BLOCKS FOR THE FUTURE HAVE BEEN PUT IN PLACE THROUGH PRODUCT DEVELOPMENT AND ROUTES TO MARKET. THE LARGE INSTALLED BASE OF GAS MASKS IN THE US CREATES SIGNIFICANT OPPORTUNITY BOTH FOR OUR EXISTING PRODUCTS AND OUR NEW UNIQUE CBRN/CO ESCAPE HOOD. MARKETS PRODUCTS WE HAVE A LONG- TERM SOLE-SOURCE CONTRACT WITH THE DOD FOR THE SUPPLY OF MASK SYSTEMS AND OUR RESPIRATORY PROTECTION PRODUCTS ARE SOLD TO FOREIGN MILITARY CUSTOMERS AROUND THE GLOBE. 02 MILITARY LAW ENFO

5 OVERVIEW OF THE YEAR THE ADDITION OF THE ARGUS THERMAL IMAGING CAMERA AND THE NIOSH APPROVAL OF OUR CBRN/CO ESCAPE HOOD HAVE BEEN THE HIGHLIGHTS OF THE YEAR. HOW WE RUN OUR BUSINESS OUR PRODUCTS HAVE EARNED A REPUTATION FOR QUALITY, COMFORT AND OPERATIONAL EFFECTIVENESS AND ARE SOLD TO LAW ENFORCEMENT AND FIRST RESPONDER USERS GLOBALLY. IN THE SCBA MARKET WE ARE A RELATIVELY SMALL PLAYER GIVING US OPPORTUNITY TO GROW. THE ARGUS THERMAL IMAGING CAMERA IS ONE OF THE MARKET LEADERS IN ITS CATEGORY. WE PROVIDE HIGH PERFORMANCE PERSONAL PROTECTION EQUIPMENT AND ADVANCED THERMAL IMAGING CAMERAS FOR THE FIRE SERVICE INDUSTRY. HOW WE PERFORMED SHAREHOLDER INFORMATION RCEMENT FIRE 03

6 OUR 2016 OUTLOOK 2017 IN A SOFT MARKET WE HAVE GROWN MILKRITE INTERPULS MARKET SHARE AND THE PROPORTION OF OUR OWN BRAND SALES. WE HAVE SEEN THE EARLY SIGNS THAT THE CYCLICAL DOWNTURN IN MILK PRICE WILL REVERSE IN 2017 AND EXPECT THE DEMAND FOR OUR PRODUCTS TO NORMALISE. MARKET CONDITIONS MARKETS PRODUCTS THE GENERAL MARKET CONDITIONS FOR DAIRY FARMERS HAVE BEEN WEAK AS MILK PRICES HAVE BEEN LOW. MILKRITE INTERPULS IS THE LEADING SUPPLIER AT THE INTERFACE BETWEEN THE ANIMAL AND THE MILKING MACHINE. OUR PRODUCTS RAISE THE QUALITY OF THE MILK, IMPROVE ANIMAL HEALTH AND MAXIMISE FARM EFFICIENCY. WE HAVE SEEN A CYCLICAL DOWNTURN IN MILK PRICES, REDUCING DEMAND FOR OUR CONSUMABLE AND SEMI- CONSUMABLE PRODUCTS AS FARMERS OVERUSE EQUIPMENT. 04 INTERFACE PRECISION, CONTROL

7 DEFERRED FARMER INVESTMENT DECISIONS WILL RESULT IN INCREASED DEMAND FOR INTERPULS PRODUCTS, ALONG WITH THE LAUNCH OF INTERPULS PRODUCTS IN THE US. OVERVIEW OF THE YEAR TOGETHER WITH THE INCREASED RANGE OF PRODUCTS AND DISTRIBUTION CHANNELS, WE WILL EXIT THIS DOWNTURN A MORE ROBUST BUSINESS. HOW WE RUN OUR BUSINESS THROUGH THE USE OF PRECISION, CONTROL AND INTELLIGENCE PRODUCTS, SUCH AS PULSATORS, FARMS CAN INCREASE THEIR PROFITABILITY AND EFFICIENCY THROUGH SYSTEMS INTEGRATION, CALIBRATION AND RELIABILITY. THE DIFFICULT MARKET CONDITIONS ARE LEADING TO FARM CONSOLIDATION AND THE CONSEQUENT PROFESSIONALISATION OF FARMING. OUR CLUSTER EXCHANGE MODEL, LAUNCHED THREE YEARS AGO, HAS BEEN WELL RECEIVED BY THE MARKET AND WE ARE PILOTING A WIDER FARM SERVICES CONCEPT WITH PULSATORS, LEG TAGS AND NECK TAGS. SHAREHOLDER INFORMATION HOW WE PERFORMED AND INTELLIGENCE FARM SERVICES 05

8 GLOBAL PRESENCE Avo Rubber p.l.c. Corporate Headquarters 4 Melksham, UK Avo Protectio Melksham, UK Avo Dairy Solutios Melksham, UK Avo Protectio Cadillac, MI 8 Avo Dairy Solutios Johso Creek, WI Avo Protectio Baltimore, MD Avo Protectio - AEF Picayue, MS Avo Protectio Kuala Lumpur, Malaysia Avo Protectio Brussels, Belgium Avo Electroics Cetre West Palm Beach, FL Milkrite IterPuls Modesto, CA Avo Dairy Solutios Rudik, Czech Republic Milkrite IterPuls Albiea, Italy Milkrite IterPuls Shaghai, Chia Milkrite IterPuls Castro, Brazil DELIVERING AND BUILDING GROWTH ANNUAL REPOR T AND ACCOUNTS 2016

9 OVERVIEW OF THE YEAR HOW WE RUN OUR BUSINESS SHAREHOLDER INFORMATION HOW WE PERFORMED 5 Agets ad Distributors 233 1,210 ANNUAL REPOR T AND ACCOUNTS 2016 Distributio coutries DELIVERING AND BUILDING GROWTH 07

10 CHAIRMAN S STATEMENT Avo s strategy has delivered strog earigs growth ad cash geeratio. Our busiess has proved to be resiliet i difficult market coditios ad we exit the year a more robust busiess with a rage of good opportuities for growth. David Evas, Chairma, Avo Rubber p.l.c. 33% INCREASE IN DILUTED EPS 152% OPERATING CASH CONVERSION I am pleased to report that Avo s strategy has delivered strog earigs growth ad cash geeratio resultig i the Group edig the year with et cash of 2.0m. Durig the year we have successfully itegrated the acquisitios made late i 2015 ad early 2016 ad, i difficult market coditios, both sides of our busiess have proved to be resiliet. We exit the year a more robust busiess with both a broader product rage ad icreased routes to market. We cotiue to maitai our focus o creatig a healthy ad sustaiable busiess ad, by ivestig i ad itegratig techology i both divisios, we are creatig excitig future iteratioal growth opportuities. Cotiuig soud fiacial ad operatioal maagemet has both protected our margis ad delivered strog operatig cash flows, eablig us to fud the recet acquisitios whilst reducig our debt by 15.2m, thus maitaiig a strog balace sheet. Reveue of 142.9m (2015: 134.3m) icreased by 8.6m or 6%. Operatig profit icreased by 8% to 21.8m (2015: 20.2m). Diluted earigs per share rose to 72.8p (2015: 54.6p). I Protectio & Defece we are growig i all our iteratioal market sectors ad ow have a rage of products for military ad first respoders wherever their threat may be, across lad, air or sea. Our mask systems productio has, as plaed, bee focused o fulfillig deliveries to the US Departmet of Defese (DOD) uder our te year sole-source cotract for the JSGPM M50 mask ad we still see several higher margi export opportuities for military masks although the timig of order receipt remais difficult to predict. However, these remai live ad are progressig, ad we expect to receive ad deliver them i our 2017 fiacial year. I the fial quarter of our fiacial year we aouced that our uique CBRN/CO (carbo mooxide) Escape Hood had received NIOSH approval ad that immediately after the lauch of this product we received a order worth $9m from the New York Police Departmet ( NYPD ), of which approximately a third is carried forward for delivery i the first quarter of This is a excitig ew ad uique product which we believe will be attractive to may customers i the future. I additio, we received a 15,000 o-dod mask order late i this fiacial year for delivery i the first quarter of I the Dairy busiess, the geeral market coditios for farmers were weak throughout the year as milk prices have bee low. This typically cyclical market dyamic has had the expected cosequece of reducig demad for our cosumable products as farmers exted the life through over-usig product. This has bee more oticeable i the IterPuls busiess which we acquired late i 2015, where the ature of the product is more capital/semi-cosumable tha cosumable. We are ecouraged that our ow brad Milkrite IterPuls products ad Cluster Exchage service have cotiued to gai market share leavig us well positioed as the cyclical dowtur i milk price reverses. We are extedig the exchage service cocept to iclude pulsators ad tags uder a ew Farm Services umbrella. The roll out programme of IterPuls products through Milkrite distributio i the US has commeced with the first reveues see i the fial quarter of our fiacial year. We have also see the early sigs of icreases i the global milk price which provides a ecouragig backdrop agaist which to start our ew fiacial year. I this cotext, the Board is cofidet of the Dairy busiess s ability to make progress i Acquisitio I October 2015 we acquired the Argus thermal imagig camera busiess from e2v techologies plc for 3.3m. The thermal imagig product is complemetary to our offerig i both fire service ad law eforcemet markets ad has bee successfully itegrated ito our sales ad distributio structure with good demad for the products. Protectio & Defece Protectio & Defece reveue icreased 2% to 100.9m. Uder our log-term DOD M50 mask cotract we supplied 189,000 mask systems durig the fiacial year, brigig the total to over 1.6m systems so far uder this cotract. Havig received orders for 169,000 mask systems durig the year, this left us with a order book of 30,000 systems as we etered our 2017 fiacial year. Sice the year ed we have received a further order for 131,000 mask systems from the DOD. 08 DELIVERING AND BUILDING GROWTH ANNUAL REPORT AND ACCOUNTS 2016

11 The filter requiremet has less short-term visibility, but we expect this cosumable item to be a good source of repeat reveue i the log term as more masks eter service. As expected, the DOD qualified a secod source to provide filters durig 2015 ad i 2016 we received orders uder this ew arragemet for 122,000 filter pairs, with 37,000 pairs carried forward for delivery i the first quarter of Durig the year the Joit Service Aircrew Mask (JSAM) programme desig, developmet ad testig work progressed well. This will provide respiratory protectio to a wide rage of operators o the DOD s fleet of fixed-wig aircraft. Durig 2016 the DOD cotiued to test the product o the aircraft platforms it will be deployed o. We cotiue to expect that whe this cocludes it should lead to a productio cotract which could be worth i excess of $70m, with the first reveues expected i The o-dod side of the busiess icludes the US first respoder market ad the Rest of World military ad law eforcemet market. Both markets are curretly beig drive by a icreasig eed to provide improved protectio agaist growig global CBRN threats as recetly see i several geographies aroud the world. I the US, while budgets remai costraied, we offer the respirator of choice for law eforcemet which eables us to displace icumbet product ad grow our market share, as less effective equipmet procured post 9/11 is replaced. I additio, our expaded product portfolio beig delivered uder Project Fusio is creatig further opportuities withi this sector, icludig the recetly approved CBRN/ CO Escape Hood which, with NYPD as a importat customer for, ad source of iformatio about, the Escape Hood, we believe could provide sigificat opportuities i large cities i the future. Whilst the timig of ed-user procuremet remais difficult to predict i the Rest of World markets, we are the CBRN respiratory protectio provider of choice ad we cotiue to build busiess, particularly i the Middle East. The umber of idividual opportuities i the Middle East cotiues to grow ad we have also see several NATO coutries commece their procuremet process to replace their legacy mask systems which will provide opportuities i the short to medium term. The closig order book i Protectio & Defece was 20m (2015: 20m), which, together with the 131,000 mask system order received i the ew year, provides good visibility for Dairy Dairy reveue icreased by 18% to 42.0m. Market coditios have bee weak durig the year as the milk price has bee cyclically low, causig farmers to overuse cosumables ad defer ivestmet. I the secod half of our fiacial year we saw milk prices stabilise as supply ad demad came back withi equilibrium ad i the last few moths we have see global milk prices icrease moth o moth which gives us cause for optimism as we eter Our focus i these cyclically challegig market coditios has bee to esure we exit the cycle well placed to beefit from the uptur we expect to come i We have focused o esurig the itegratio of IterPuls happeed successfully ad that our ow brad Milkrite IterPuls cotiued to develop. Our Dairy busiess has become substatially less depedet o origial equipmet maufacturers (OEMs) i recet years as we cotiue to grow sales of our ow higher margi Milkrite IterPuls braded products ad services. Six years ago our ow brad customers represeted 53% of our reveue; at the ed of this fiacial year this had rise to 80%, reflectig the growth of the higher margi Milkrite IterPuls brad ad some OEM re-sourcig. I recet years the busiess has demostrated through the lauch of our Impulse Air lier that the idustry is receptive to ew techology which improves farm efficiecy ad aimal health. This proprietary product ow ejoys a 29% market share i the US ad cotiues to gai tractio i the more fragmeted market i Europe with market share icreasig to 6% followig its lauch i this market late i Our Cluster Exchage service was lauched i the US ad Europe i 2013 ad growth rates sice lauch have exceeded our expectatios. Uder this programme farmers outsource their lier chage process to us through Milkrite IterPuls service cetres with the support of our dealers ad third-party logistics specialists. By the ed of the year it was servicig 467,000 cows o 1,530 farms i the US ad Europe. This added-value service ehaces the value of each direct lier sale we make ad has led to a more robust ad sustaiable busiess model, with the potetial to grow a sigificat recurrig reveue stream i the years to come as more farms cotiue to sig up. We are pilotig a extesio of the exchage cocept i 2017 to iclude pulsator, eck tag ad leg tag exchage schemes. These will fall uder the Farm Services baer as we cotiue to develop the cocept of deliverig farmers products that ehace their efficiecy i a maer that provides us with a diversified ad recurrig reveue stream. Huge potetial remais i emergig markets, especially i Brazil, Russia, Idia ad Chia where the growig demad for aimal protei i diets ad the expadig middle class has led to a icrease i demad for dairy products, drivig demad for our cosumable product. We opeed a sales ad distributio cetre i Brazil i 2015 to service Brazil ad the wider South America market followig the same model as our Chiese operatio where we established a sales ad distributio facility durig Sales i both regios have grow substatially ad these operatios are progressig to pla. The opportuity to take the high specificatio IterPuls products through our strog Milkrite US dealer etwork has bee developed durig the year. Our sales team ad dealers have bee traied, products demostrated to ed users ad we saw our first reveues i this area late i the fiacial year, layig the foudatios for delivery of sigificat sales syergies i Group results Group reveue icreased 6% to 142.9m (2015: 134.3m) with Protectio & Defece higher by 2% at 100.9m (2015: 98.8m) ad Dairy up 18% to 42.0m (2015: 35.5m). Operatig profit before depreciatio ad amortisatio (EBITDA) rose 13% to 30.8m (2015: 27.3m) ad operatig profit rose 8% to 21.8m (2015: 20.2m). The progressive stregtheig of the US dollar durig the year gave the Group a foreig exchage traslatio tailwid. The US $/ average rate was $1.42 (2015: $1.54) ad this 12 cet tailwid was equivalet to 9.4m at a reveue level ad 1.4m at a operatig profit level. EBITDA i Protectio & Defece grew 4% to 22.4m (2015: 21.6m) ad operatig profit was 16.0m (2015: 15.9m) reflectig cotributio from SHAREHOLDER INFORMATION HOW WE PERFORMED HOW WE RUN OUR BUSINESS OVERVIEW OF THE YEAR ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 09

12 CHAIRMAN S STATEMENT the CBRN/CO Escape Hood order ad the additio of the Argus product rage together with improved operatioal performace ad cotiuig better pricig o the DOD cotract. Dairy EBITDA ad operatig profit grew 27% ad 12% to 9.8m (2015: 7.7m) ad 7.2m (2015: 6.4m) respectively, reflectig the acquisitio of IterPuls, the success of our Cluster Exchage service ad the growth of the Milkrite IterPuls brad, offsettig lower volumes caused by the impact of the low milk price ad some OEM resourcig. Iterest costs were 0.2m (2015: 0.2m). Group tax resulted i a credit to the icome statemet of 0.9m (2015: charge of 2.9m) reflectig credits i relatio to the positive outcome of certai tax equiries ad the fialisatio of the 2015 tax returs i which we could take the beefit of certai deductios allowed by legislatio eacted after our 2015 fiacial statemets were approved, offset by the chage i geographic mix of profits. Post-tax profit for the year was 22.5m (2015: 16.9m). This equates to earigs per share of 74.2p (2015: 56.1p). O a fully-diluted basis, earigs per share rose 33% to 72.8p (2015: 54.6p). We cotiue to ivest i product developmet which is reflected i our expadig product rage i both sides of the busiess. Our total ivestmet i research ad developmet (capitalised ad expesed) amouted to 8.3m (2015: 7.1m), 6% of reveue, of which 4.3m (2015: 3.9m) was customer fuded. After completig the acquisitio of Argus for 3.3m, et cash at year ed was 2.0m (2015: 13.2m et debt), reflectig the strog operatig cash coversio from disciplied fiacial maagemet withi the busiess. Committed bak facilities of 30.9m ru to 30 November Divided Based o the Group s improved profitability, cash geeratio ad the cofidece the Board has i the Group s future prospects, the Board is pleased to propose a 30% icrease i the fial divided to 6.32p per ordiary share (2015: 4.86p). This, combied with the 2016 iterim divided of 3.16p, results i a full year divided of 9.48p (2015: 7.29p), up 30%. Employees Our employees have rise to the challege i supportig the Group s progressio from a traditioal maufacturig busiess to a customer ad techology drive, sales ad marketig led orgaisatio. We are succeedig i creatig a culture of iovatio to eable us to take full advatage of opportuities i developig ew techologies ad ew markets while maitaiig the maufacturig excellece for which the Group is so highly regarded. Our people have cotiued to respod positively, particularly i respect of the challeges of itegratig ew busiesses ad we have bee pleased to welcome the employees i Albiea, West Palm Beach ad Chelmsford to the Avo team. I thak everyoe for their valued cotributio o behalf of the Board. Opportuities I am pleased to report that the acquisitios we completed late i 2015 ad early 2016 have bee successfully itegrated ito the existig Group, ehacig our global market leadig positios ad deliverig further opportuities for growth. We will cotiue to ivest i iovative ew techologies ad products ad i buildig our brad ad market reach to brig these opportuities to fruitio. Board chages Rob Reie joied as Chief Executive o 1 December After servig as a No-Executive Director sice December 2012 Richard Wood stood dow at the AGM i Jauary Chloe Posoby was appoited o 1 March Chloe is a foudig parter at the Lazarus Partership, a idepedet equity research ad advisory firm. After eight years as Group Fiace Director, Adrew Lewis will step dow o 30 November The Board thaks Adrew for his sigificat cotributio to Avo s success. He has bee istrumetal i the successful trasformatio of the Group, helpig to build the foudatios that have led to the recet cosistet growth i profits. His stewardship of the Group s fiaces has placed it i a good positio to take advatage of the may opportuities ahead. The Board wishes him every success i the future. The Board is pleased to cofirm the appoitmet of Paul Rayer as Iterim Group Fiace Director with effect from 1 December Outlook Our strategy of itegratig ew techologies from product developmet ad acquisitios with our existig strog brads ad routes to market has created a busiess that is resiliet to adverse market coditios with strog foudatios for growth i both divisios. I our global Protectio & Defece busiess we cotiue to see a umber of higher margi export opportuities, have good visibility of DOD reveues for 2017 ad a strog uderlyig portfolio of o-dod busiess, which we expect to be ehaced by the icreasig impact of the recetly lauched ew products. I Dairy, after the weak market coditios i 2016, the acquisitio of IterPuls ad the ecouragig gais i Milkrite IterPuls market share provide us with sigificat opportuity as the milk prices improve i This, together with the sales ad distributio platforms we have established i Chia ad Brazil to service these rapidly growig emergig markets, meas we have a Dairy busiess with excellet short ad loger term growth prospects. The majority of the Group s earigs are US dollar deomiated ad hece the cotiued stregtheig of the US dollar agaist Sterlig provides a potetially sigificat foreig exchage traslatio tailwid i 2017 should it be maitaied throughout the year. David Evas Chairma 16 November DELIVERING AND BUILDING GROWTH ANNUAL REPORT AND ACCOUNTS 2016

13 STRATEGIC REPORT Strategic overview Group objectives The Group is committed to geeratig shareholder value through the developmet of ew products ad servig global markets that ca deliver log-term sustaiable reveues at higher tha average margis. Busiess overview The Group has trasformed itself over recet years ito a iovative desig ad egieerig group specialisig i two core busiesses, Protectio & Defece ad Dairy. With a strog emphasis o research ad developmet we desig, test ad maufacture specialist products from a umber of sites i the US ad Europe, servig markets aroud the world. We achieve this through urturig the talet ad aspiratios of our employees to realise their highest potetial. Avo Protectio Systems is the recogised global market leader i advaced CBRN respiratory protectio systems for the world s military, homelad security, first respoder, fire ad idustrial markets. With a urivalled pedigree i mask desig datig back to the 1920 s, Avo Protectio System s advaced products are the first choice for PPE users worldwide ad are placed at the heart of may iteratioal defece ad tactical PPE deploymet strategies. Our expadig global customer base ow icludes military forces, civil ad first lie defece troops, emergecy service teams ad idustrial, marie, mieral ad oil extractio site persoel. All put their trust i Avo s advaced respiratory solutios to shield them from every possible threat whether lad, air or sea based. Our world-leadig Dairy supplies busiess ad its Milkrite IterPuls brad has a global market presece. With a log history of maufacturig liers ad tubig for the dairy idustry, we have become the leadig iovator ad desiger for products ad services right at the heart of milkig. The acquisitio of IterPuls i 2015, a specialist i electro-mechaical milkig compoets, such as pulsators, milk meters, automatic cluster removers ad milkig clusters, has added sigificatly to our product rage, makig us the complete milkig poit solutios provider, improvig every farm we touch. Workig with leadig scietists ad health specialists i the global dairy idustry, we cotiue to ivest i techology to further improve the milkig process ad aimal welfare. Our products provide exceptioal results for both the aimal ad the milker, makig the milk extractio process more efficiet. As our market share ad milkig experiece cotiue to grow, so does our global presece. Group strategy We have two strategic priorities at Group level: Expadig our Protectio & Defece busiess i military, first respoder ad idustrial markets globally; ad Developig our Dairy operatio through its Milkrite IterPuls brad i traditioal ad emergig markets with both existig ad iovative ew products. We measure progress agaist our strategic priorities by referece to our fiacial performace (as show o page 19) ad a broader set of key performace idicators (KPIs) which are show o pages 26 to 27. OVERVIEW OF THE YEAR HOW WE RUN OUR BUSINESS HOW WE PERFORMED SHAREHOLDER INFORMATION ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 11

14 STRATEGIC REPORT Protectio & Defece strategy We have a world-leadig rage of military respirators, developed over may years ad fuded partially by our customers, where we ow the itellectual property. Our strategy is to build a strog positio i the US military market ad use this positio to sell to other govermets ad first respoder markets globally. We iitially demostrated this through our log-term sole-source mask systems cotract to supply the US military. Our status as a prime cotractor to the DOD, which regards us as experts i our field, has brought us a umber of other opportuities to replicate this with our recetly developed respiratory protectio products. Our product rage ad maufacturig capability is icreasig. Developig through-life reveues with greater cosumable sales ad service reveue, such as filters, is also a key objective. We believe that our expadig product rage ad customer base, together with our credibility ad developmet expertise, will put us i a market-leadig positio to supply ito all accessible global markets. Strategic imperatives for success i Protectio & Defece Leverage our relatioship with the DOD to aid ad facilitate ext geeratio products for commercialisatio. Successfully desig, develop ad lauch advaced respiratory protectio products which sustai our positio as the leader i our field. Develop a global operatig platform which is efficiet, stable, scaleable ad resposive to busiess demads. Itegrate techology across our product rage through parterships or acquisitios. Sustai orgaic growth through log-term quality relatioships with customers, agets ad distributors. Attract, retai ad develop our employees ad make Avo a Great Place to Work. Appretice egieers i Melksham Avo has recruited two appretices to joi its egieerig team i Melksham. Jack Alexader joied as a appretice CNC machiist ad is followig a BTEC L3 Diploma i Mechaical Egieerig qualificatio. Callum Demkiv joied as a appretice Maiteace Egieer o a City & Guilds 2850 L3 Diploma i Istallatio, Commissioig ad Maiteace (ICM) qualificatio. Jack ad Callum are cotiuig a family traditio, both havig gradfathers who worked at Avo for may years. 12 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

15 Dairy strategy Our strategy for log-term sustaiable profit growth is to be the complete milkig poit solutios provider, improvig every farm we touch. Our Dairy busiess comprises liers ad tubig, precisio ad cotrol compoets ad our service offerig. Our liers ad tubig are already established as market-leadig products i developed markets. Our growth strategy i developed markets is to cotiue to covert customers to more techical ow brad products. I emergig markets, as the automatio of the milkig process cotiues, our ivestmet i i-coutry distributio cetres leaves us well positioed to grow our market share. The acquisitio of IterPuls gives us a market leadig positio i Europe ad Asia i precisio ad cotrol systems, icludig pulsators, which will allow us to leverage our positio i liers ad tubig, combie our global distributio etworks ad maximise our sales of precisio ad cotrol systems by lauchig these products ito the US. The success of our iovative Cluster Exchage service has demostrated the beefits to the farmer of such a service offerig. We pla to expad the cocept further by pilotig exchage schemes for pulsators, eck tags ad leg tags i Iovative ew product ad service offerigs ad cotiued world class low cost maufacturig excellece should allow our ehaced Dairy busiess to sustai growth, profitability ad cash geeratio. Strategic imperatives for success i Dairy Expasio of our product ad service rage. Expasio of i-coutry sales presece icludig world class logistics. OVERVIEW OF THE YEAR HOW WE RUN OUR BUSINESS brad developmet ad positioig. Expasio of distributio ad dealer etwork. Leverage the beefit of our world class maufacturig operatios ad efficiet supply chai. Attract, retai ad develop our employees ad make Avo a Great Place to Work. HOW WE PERFORMED Movig o to bigger ad better thigs i Chia I July, Avo Dairy Solutios (ADS) Chia relocated to the Shaghai Jia Dig District i Chia ad moved to a larger facility. I this ew space, ADS Chia has doubled its warehouse storage capacity ad added a professioal traiig room with full istallatio of Milkrite IterPuls demostratio equipmet ready for customer visits. This was a big task for ADS Chia who are cotiuously workig to improve service levels ad optimise allocatio of resources. We expect a bright future for ADS Chia. SHAREHOLDER INFORMATION ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 13

16 STRATEGIC REPORT Group busiess model Our maagemet structure is decetralised ad decisio-makig is delegated to the appropriate executive team. Our Board maages overall cotrol of the Group s affairs ad is resposible for deliverig the Group s overall objective of geeratig shareholder value through developig ew products ad servig global markets that ca deliver log-term sustaiable reveues at higher tha average margis. The Group Executive team which comprises the Executive Directors ad four key members of our seior maagemet team is resposible for assistig the Chief Executive i implemetig our strategy ad the day-to-day maagemet of the Group. This team is supported by three executive teams coverig Protectio & Defece, Dairy ad Corporate activities. Protectio & Defece busiess model Markets Our respiratory protectio products are sold direct to military markets where our primary customer is the DOD (Army, Navy, Marie Corps, Coastguard ad Air Force) as well as a umber of approved govermets globally. Other sigificat markets are categorised uder the first respoder baer ad iclude law eforcemet ad other emergecy services ad are addressed either directly or through distributio chaels. Self Cotaied Breathig Apparatus (SCBA) ad thermal imagig equipmet is targeted at fire services ad other idustrial users, primarily through a distributio etwork. All of these products are safety-critical ad the markets are cosequetly highly regulated with the approval stadards creatig sigificat barriers to etry. Product life cycles are log ad stadardisatio to a particular product by users is typical. MILITARY FIRE We have a log-term sole-source cotract with the US DOD for the supply of mask systems. Our products have eared a reputatio for quality ad comfort ad the busiess is curretly developig a ew aircrew mask system fuded by the DOD. We provide a total solutios optio, maufacturig a broad portfolio of highperformace, timesavig respiratory persoal protectio equipmet ad thermal imagig cameras that employ the most advaced features i the fire service idustry. I 2014 we lauched Deltair, our completely redesiged fire SCBA which meets the latest NFPA regulatory stadard. LAW ENFORCEMENT AND FIRST RESPONDER AEF Our respiratory protectio products are sold to foreig military, law eforcemet ad first respoder customers i over 60 coutries aroud the globe. We cotiue to provide the US Army ad Navy with hovercraft skirtig assemblies. We also supply a wide rage of collapsible storage taks for static fuel ad water storage for military applicatios. 14 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

17 Products Our Protectio & Defece busiess cosists of a growig rage of respiratory products. The mai products are respirators or gas masks (product ames M50, C50, M53 ad FM12) together with a rage of spares ad accessories; the NIOSH-approved emergecy hood (NH15 ad NH15 CO); rebreathers for escape ad uderwater use; ad SCBA (primarily the Deltair product rage ad ST53). We also maufacture the cosumable filters used by these products ad thermal imagig camera equipmet. The respirators ad escape hoods offer breathig protectio to varyig degrees agaist CBRN threats while the SCBA equipmet offers protectio i oxyge depleted eviromets. We also have a flexible fabricatios busiess which maufactures hovercraft skirts ad fuel ad water storage taks. OVERVIEW OF THE YEAR MILITARY LAW ENFORCEMENT FIRE M50 MILCF50 The filter has a uique coformal shape providig a low profile close fit with the mask. The filter desig miimises sag ad pull hazards as well as reducig eck loadig. MI-TIC S The most advaced thermal imagig camera available which improves operatioal effectiveess i difficult coditios. The most advaced geeral service respiratory protectio mask to date, offerig advaced comfort, usability, operatioal effectiveess ad protectio. EEBD Our Emergecy Escape Breathig Device for which we recetly obtaied NIOSH certificatio has military applicatios o-board ship ad we are targetig applicatios i the miig ad commercial shippig idustries. C50 Developed usig the same platform as our M50 based US military mask. The iovative desig features optimise the user s time i the operatioal area for CBRN protectio i law eforcemet or couterterrorism operatios. DELTAIR As the firefightig idustry s first ew SCBA iovatio i years, Deltair offers superior air maagemet, sigle power supply, clearer commuicatio ad optimal weight distributio for firefighters ad other first respoders. HOW WE RUN OUR BUSINESS MCM100 We are desigig a uderwater product rage for military use icludig the MCM100, a multi-capability mie couter-measures rebreather. JSAM We are developig upgraded CBRN respiratory protectio equipmet for aircrew o the DOD s fleet of fixed wig aircraft. M61 Pioeerig coformal filter techology for closer itegratio ad desiged with bayoet quick fit for use oly with the M50 mask. NH15 CO The smallest NIOSH-certified CBRN/CO air purifyig escape respirator o the market is ideal for police, emergecy medical services ad fire officers seekig immediate or emergecy respiratory protectio i a CBRN/CO sceario. CS-PAPR Our latest product is the CS-PAPR, a combiatio system powered air purifyig respirator, which ca be used as a complete system or as idividual modules. It allows the wearer to switch seamlessly betwee purified air ad SCBA modes of protectio. AEF HOVERCRAFT SKIRTS Hovercraft skirts are used i military air cushioed vehicles which trasport equipmet ad persoel at sea ad oto lad. The US Navy have a large fleet of hovercraft which require skirt sets to be regularly replaced. STORAGE TANKS Storage taks are maufactured to provide a ideal collapsible ad flexible storage solutio for temporary or logterm storage of water ad most aqueous solutios icludig fuel. HOW WE PERFORMED SHAREHOLDER INFORMATION ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 15

18 STRATEGIC REPORT Product developmet Our product developmet combies the skills ad expertise of our desig ad egieerig teams to ehace our product rage for multiple users i differet threat scearios. Our uique CBRN/CO Escape Hood which received NIOSH approval durig the year provides protectio agaist both CBRN ad carbo mooxide i a small, lightweight ad portable package which has applicatios for a rage of customers across law eforcemet, idustrial ad corporate markets. We are developig a multi-capability mie couter-measures divig rebreather for use by the military. We cotiue to ehace our suite of modular persoal protectio comprisig smaller modules with multiple fuctioalities that ca be combied or used idepedetly. We expect this modular approach to further exted our market reach ito the military, law eforcemet ad first respoder protective equipmet market for air, lad or sea based users. Argus acquisitio Avo becomes the eyes of the firefighter Durig the year we acquired the trade ad assets of the Argus thermal imagig camera busiess from e2v techologies plc. Argus is a leadig desiger ad maufacturer of thermal imagig cameras for the first respoder ad fire markets. Argus is a strategic additio to our fire ad first respoder product rage, offerig the leadig camera to ehace sales i our US markets ad access to distributio i Europe ad Asia. The Argus team brigs a wealth of techical expertise i this area which will geerate loger-term product developmet opportuities for the Protectio & Defece busiess. Argus maufacturig has bee cosolidated ito our Melksham facility durig the year. 16 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

19 Dairy busiess model Markets Our Dairy busiess desigs, maufactures ad sells products ad services used i the automated milkig process. We are the complete milkig poit solutios provider, supplyig rubberware, such as liers ad tubig, ad electro-mechaical compoets, such as pulsators, milk meters, automatic cluster removers ad milkig clusters. Our cosumable products come ito direct cotact with the cow ad the milk ad are replaced regularly to esure product hygiee, aimal welfare ad to maximise milk quality. The electro-mechaical compoets form the basis of the cotrol system of a milkig parlour ad are replaced periodically, either through usage or to ehace farm efficiecy. We also have a rage of itelligece products that give farmers maagemet iformatio, allowig them to make more iformed decisios to drive farm efficiecy, improvig every farm we touch. Our customer base cosists maily of customers buyig our ow-brad Milkrite IterPuls products ad we also sell to OEMs. The global market is cocetrated i high cosumptio automated milkig markets i North America ad Wester Europe where we have sigificat market shares. Potetial exists outside these traditioal markets, i particular i Chia, South America, Russia, Easter Europe ad Idia, all of which are curretly experiecig rapidly icreasig demad for dairy products which is beig satisfied through mechaised milkig. To haress this potetial we have opeed sales ad distributio facilities i Chia ad Brazil. US CHINA OVERVIEW OF THE YEAR HOW WE RUN OUR BUSINESS Our Milkrite IterPuls brad has established a 51% market share i the lier market with a total Avo market share of 61%. Impulse Air has 29% share of the market. Our Milkrite IterPuls precisio, cotrol ad itelligece products were lauched i the last quarter of the fiacial year. Cluster Exchage is servicig 338,000 cows o 271 farms. Cotracts have bee secured with Chia s largest milk suppliers ad distributors, Megiu ad Yili. Our dealer etwork is growig. We have built a strog Milkrite IterPuls presece. HOW WE PERFORMED EU SOUTH AMERICA The rate of Milkrite IterPuls lier market share growth has accelerated with Milkrite IterPuls market share icreasig to 32% of which 6% represets Impulse Air, lauched i Total Avo market share is 73%. Our Milkrite IterPuls pulsator market share is 10% i the EU ad 30% i the rest of the world. Cluster Exchage is servicig 129,000 cows o 1,259 farms. We have opeed a sales ad distributio cetre i Brazil to service the wider South America market which will allow further opportuity for growth. Our dealer etwork has grow rapidly from 12 to 180 dealers. SHAREHOLDER INFORMATION ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 17

20 STRATEGIC REPORT Millios of cows Product developmet We have ivested cosiderably i the developmet of products ad services. Our Cluster Exchage service, recetly lauched i the US ad Europe, meas Milkrite IterPuls is a complete solutio provider, savig farmers time o low-value tasks, securig our relatioships with our customers ad maagig the lier chage cycle. Further opportuities are available for this excitig cocept. 5 0 Products EU NA Chia Brazil Russia Idia Avo market share Other machie milked Had milked Our products are sold through distributors uder our ow Milkrite IterPuls brad. We also maufacture for major OEMs. We excel i product desig, materials specificatio ad maufacturig efficiecy. We are workig to brig a wider rage of dairy products to market uder our ow brads, ehacig the farmer s view of us as the primary techical solutios provider i the milk extractio process. The success of the iovative mouthpiece veted lier, Impulse Air, cotiues ad this product has established a 29% market share i the US sice its lauch i 2010 ad a 6% market share i Europe sice its lauch there i Durig the year we completed our Impulse Air cluster offerig with the lauch of our Impulse Claw 300. This is a importat chapter for the Milkrite IterPuls brad ad completes the trasitio from lier expert to cluster expert. The lightweight ad ergoomic desig makes the claw easier to hadle ad reduces the overall weight of the cluster. I additio, the claw is a combiatio of quality compoets made from high quality material which makes it extremely durable. We also lauched our imilk600 durig the year, part of the ext geeratio of itelligece products. imilk600 is a state-of-the-art milk meter with advaced electroics ad reliable sesors. The user-friedly pael displays i real time: milk yield, temperature, milkig time, cow umber ad coductivity. This data ca be aalysed by the farmer to help maximise profit from the dairy herd. The acquisitio of IterPuls brigs capability i the fields of herd maagemet, sesor techology ad telemetry, all of which provide opportuities for itegratio with our existig product rage. INTERFACE LINERS The Impulse ad Impulse Air rage provides triagular liers desiged for less slip ad improved aimal health with their uique iterlockig ati-twist shell desig. Impulse Air takes iovatio oe step further usig a uique air flow to draw the milk away quickly. TUBING Ultraclea tubig is the first to combie a smooth saitary iterior surface with a durable, flexible rubber exterior, resultig i log-lastig tubig. CLAWS The Impulse Claw 300 completes our story from lier expert to cluster expert. The durable, lightweight ad ergoomic desig makes the claw easier for the operator to hold ad reduces the overall weight of the cluster therefore improvig cow comfort. PRECISION, CONTROL, INTELLIGENCE PULSATORS We are the world-leadig maufacturer of state of the art electroic pulsators desiged to facilitate getle, complete ad uiform milkig. MILK METERS We maufacture advaced electroics ad sesors placig us at the cuttig edge of milk aalysis. FARM SERVICES CLUSTER EXCHANGE SERVICE Uder this programme farmers outsource their lier chage process to us, which we deliver through service cetres established i our existig facilities, with the support of our dealers ad third-party logistics specialists. 18 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

21 Busiess review the year uder review I challegig market coditios, Avo has demostrated the robustess of our busiess i deliverig aother strog set of fiacial results, buildig o the solid foudatios laid by the ivestmets we have made i products ad routes to market. Strog operatig cashflow, demostratig the robust fiacial disciplies embedded i the busiess, meat we eded the year with et cash of 2.0m which gives the Group the ability to cotiue to pursue orgaic ad iorgaic growth opportuities. OVERVIEW OF THE YEAR The Group s key achievemets i 2016 have bee: Reveue growth of 6% to 142.9m EBITDA growth of 13% to 30.8m Operatig profit growth of 8% to 21.8m Operatig margis improved by 0.2% to 15.2% Profit before tax up 9% to 21.6m Diluted earigs per share up 33% to 72.8p Divided icrease of 30% to 9.48p Cash geerated from operatig activities of 33.1m, represetig 152% of operatig profit NOTE: The Directors believe that adjusted measures provide a more useful compariso of busiess treds ad performace. Adjusted results exclude discotiued operatios, exceptioal items, defied beefit pesio scheme costs ad the amortisatio of acquired itagibles. The term adjusted is ot defied uder IFRS ad may ot be comparable with similarly-titled measures used by other compaies. All profit ad earigs per share figures i the Chairma s Statemet ad this Strategic Report relate to adjusted busiess performace (as defied above) uless otherwise stated. Successful itegratio of the acquisitios of IterPuls, Hudstar ad Argus $9m order for recetly approved CBRN/CO Escape Hood Market share growth of Impulse Air to 29% i the US ad 6% i Europe i a soft dairy market Cluster Exchage servicig 467,000 cows o 1,530 farms across US ad Europe HOW WE RUN OUR BUSINESS A recociliatio of adjusted measures to statutory measures is provided below: Statutory Adjustmets Adjusted Statutory Adjustmets Adjusted Group EBITDA ( m) Group operatig profit ( m) Other fiace expese ( m) 0.7 (0.6) (0.7) 0.2 Group profit before taxatio ( m) Tax (credit)/charge ( m) (1.8) 0.9 (0.9) Group profit for the year ( m) Basic earigs per share (pece) Diluted earigs per share (pece) HOW WE PERFORMED Protectio & Defece EBITDA ( m) Protectio & Defece operatig profit ( m) Dairy EBITDA ( m) Dairy operatig profit ( m) The adjustmets comprise: Amortisatio of acquired itagibles of 3.3m (2015: 1.0m) Net defied beefit pesio scheme cost of 0.3m (2015: credit 0.3m), which relates to a scheme closed to future accrual ad therefore does ot relate to curret operatios Further details are provided i ote 3 of the fiacial statemets. Exceptioal items of 0.5m (2015: 0.6m) relatig to acquisitio itegratio costs (2015: executive search fees ad acquisitio costs) Tax effect of adjustmets of 0.9m (2015: 0.2m) Loss o discotiued operatios of 0.3m (2015: 1.5m) relatig to dilapidatios costs of former leased premises of a busiess disposed of i 2006 SHAREHOLDER INFORMATION ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 19

22 STRATEGIC REPORT Results Avo has ejoyed aother positive year, successfully itegratig our recet acquisitios which broade our product rage ad routes to market. Reveue icreased 6% to 142.9m (2015: 134.3m) with Protectio & Defece up 2% ad Dairy up 18%. Operatig profit icreased to 21.8m (2015: 20.2m) ad earigs before iterest, taxatio, depreciatio ad amortisatio (EBITDA) were 30.8m (2015: 27.3m). This represets a retur o sales (defied as EBITDA divided by reveue) of 21.6% (2015: 20.3%). The progressive stregtheig of the US dollar durig the year gave the Group a foreig exchage traslatio tailwid. The US $/ average rate was $1.42 (2015: $1.54) ad this 12 cet tailwid was equivalet to 9.4m at a reveue level ad 1.4m at a operatig profit level. After et iterest ad other fiace costs the profit before tax was 21.6m (2015: 19.8m). After tax, the profit for the year was 22.5m (2015: 16.9m). Fiace expeses Net iterest costs were 0.2m (2015: 0.2m) ad other (o-cash) fiace expeses associated with the uwidig of discouts o provisios were 0.1m (2015: 0.2m). Taxatio The statutory tax credit totalled 1.8m (2015: charge 2.7m) o 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%), reflectig the geographic split of taxable profits for 2016, the fialisatio of the 2015 tax returs ad the positive outcome of certai tax equiries. The adjusted effective tax rate, where the tax charge ad the profit before taxatio are adjusted for exceptioal items, the amortisatio of acquired itagibles ad defied beefit pesio scheme costs is a credit of 4% (2015: charge of 15%). I 2016 the US Federal tax rate was 34%, the UK rate was 20% ad the combied Federal ad Regioal Italia tax rate was 31%. The Group s curret year tax charge reflects a bleded rate of these jurisdictios which will vary over time depedig o the geographic mix of profits. Prior period adjustmets related to the positive outcome of certai tax equiries ad taxatio payable i the US where legislatio cocerig the timig of deductibility of certai expediture was passed by Cogress after the 2015 fiacial statemets were approved but before we filed our US tax returs. Hece we were able to take the beefit of this i our tax filigs but we had ot assumed such a beefit whe calculatig our tax liability at the time of approvig the 2015 fiacial statemets. Urecogised deferred tax assets i respect of tax losses i UK o-tradig compaies amouted to il (2015: 0.3m). Key factors impactig the future effective tax rate are as follows: Material chages i the geographic mix of profits Chages i tax rates i the jurisdictio i which the Group operates Resolutio of tax judgemets arisig from curret or future tax issues sice the Group ca be subject to a umber of challeges by tax authorities ad the outcome of these challeges is iheretly ucertai Earigs per share Basic earigs per share were 74.2p (2015: 56.1p) ad diluted earigs per share were 72.8p (2015: 54.6p). Fiace Director of the Year Wier Cogratulatios to Adrew Lewis who wo Fiace Director of the Year at the Quoted Compay Awards. The 12th aual Grat Thorto Quoted Compay Awards celebrate the huge cotributio that the small-cap commuity makes to the UK ecoomy. The awards celebrated the best PLCs, executive ad o-executive board directors, fud maagers ad advisers that drive the fast-growth sector. The judges commeted that they were impressed by Adrew s commercial mid-set, great ivolvemet with the operatios of the compay ad deep uderstadig of the idustry, which is reflected i the way he maages shareholder expectatios ad commuicates with ivestors. 20 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

23 Segmetal performace Protectio & Defece performace Protectio & Defece represeted 71% (2015: 74%) of total Group reveues. The busiess saw reveues icrease by 2% from 98.8m to 100.9m. Operatig profit grew to 16.0m (2015: 15.9m) ad EBITDA was up 4% to 22.4m (2015: 21.6m), represetig a retur o sales (as defied above) of 22.2% (2015: 21.9%). Our margis have improved due to the mix of product shipped, efficiecies, the careful maagemet of discretioary sped ad icreased prices uder our log-term DOD cotract. As expected, sales of mask systems ad filter spares to the DOD decreased from 44.5m to 40.1m as productio schedulig retured to ormal levels followig the higher level of DOD activity i We delivered 189,000 mask systems ad 122,000 pairs of filter spares, compared with 240,000 mask systems ad 92,000 pairs of filter spares i Havig received orders for 169,000 mask systems durig the year, this leaves us with a order book of 30,000 systems as we eter Sice the year ed we have received a further order for 131,000 mask systems from the DOD. Sales to US law eforcemet ad o-us military ad law eforcemet were 31.6m (2015: 27.7m) as a result of a good performace from the uderlyig portfolio ad a $9m order for our recetly approved CBRN/CO Escape Hood, the majority of which was delivered i the fial quarter of the year. We saw growth i sales to the fire market this year followig the acquisitio ad successful itegratio of the Argus thermal imagig camera busiess. AEF has experieced a softer year, reflectig the variability i timig of certai DOD procuremet programmes for fuel ad water storage taks. DOD spares sales have icreased this year, as expected give the icrease i the istalled base of masks. Log term, as the istalled base of masks cotiues to grow so will the DOD s requiremet to fill its supply chai % 11% 100.9m 8% 40% 10% 98.8m 31% 28% 13% 9% DOD DOD SPARES EMEA/NA FIRE AEF 45% OVERVIEW OF THE YEAR HOW WE RUN OUR BUSINESS HOW WE PERFORMED Fire Departmet Istructors Coferece (FDIC) Iteratioal 2016 Avo Protectio had aother great year at FDIC Iteratioal, the world s largest firefighter traiig coferece ad exhibitio. FDIC, which is held i Idiaapolis attracts firefighters from aroud the world to trai, etwork ad lear from the idustry s most elite istructors, icludig Avo, where we demostrated our award wiig Deltair SCBA. After the acquisitio of Argus i October 2015, this was the first chace to display the Mi-TIC rage of thermal imagig cameras uder the Avo Protectio brad at a major show ad this product was well received by firefighters ad distributors. SHAREHOLDER INFORMATION ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 21

24 STRATEGIC REPORT Dairy performace Dairy reveues icreased by 18% to 42.0m (2015: 35.5m) followig the acquisitio of IterPuls i August 2015 which US Cluster Exchage Mothly Reveue offset softer market coditios caused by low milk prices. A icreasig proportio of higher margi Milkrite IterPuls product ad service sales, together with disciplied maagemet of discretioary sped, cotributed to a icreased operatig profit of 7.2m (2015: 6.4m) EBITDA was 9.8m (2015: 7.7m), givig a retur o sales (as 200 defied above) of 23.3%, up from 21.7% i $ Retur o Sales % Dairy % % 0 Sep 2012 Mar 2013 Sep 2013 Mar 2014 Sep 2014 Mar 2015 Sep 2015 Mar 2016 Sep % 10.0% EU Cluster Exchage Mothly Reveue 5.0% % Market coditios for dairy farmers have bee weak as milk prices have bee low. This typically cyclical market dyamic has, as expected, reduced demad for our cosumable products as farmers exted the life through over-usig our products. The capital ature of the IterPuls products makes the replacemet cycle loger, meaig IterPuls is more affected by the cyclical market dyamics tha Milkrite cosumable products. Our Dairy busiess has become substatially less depedet o origial equipmet maufacturers (OEMs) i recet years as we cotiue to grow sales of our ow higher margi Milkrite IterPuls braded products ad services. I difficult market coditios we are ecouraged that our Milkrite IterPuls market share cotiues to icrease, meaig that we exit this cyclical dowtur with a more robust busiess Sep 2012 Mar 2013 Sep 2013 Mar 2014 Sep 2014 Mar 2015 Sep 2015 Mar 2016 Sep 2016 Milkrite IterPuls sales icreased as a proportio of total reveue, providig a richer sales mix. Oly six years ago OEM customers represeted 47% of our reveue; at the ed of this year this had falle to 20%, reflectig the success of the higher margi Milkrite IterPuls brad ad the decisio of certai OEMs to isource or dual source productio. 22 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

25 50 Dairy Reveue Aalysis by Year 30% US Market Share OVERVIEW OF THE YEAR 28% 40 26% 24% m 30 22% 20% 18% 20 16% 14% 0 OEM Milkrite IterPuls Total I Europe, where Avo-maufactured liers have a 73% market share, Milkrite IterPuls s lier market share has icreased to 32% due to growth i traditioal ow brad products ad the success of our Impulse Air mouthpiece veted lier, first lauched i Europe late i This product cotiues to gai tractio, with its market share icreasig to 6%. 6% 5.5% 5% 4.5% 4% 3.5% 3% 2.5% 2% 1.5% 1% 0.5% 0% 10 Mar Sep 2013 Mar 2014 Sep 2014 EU Market Share Mar 2015 Sep 2015 Mar 2016 Sep 2016 I the US, where Avo-maufactured liers have a 61% market share, the Impulse Air mouthpiece veted lier cotiued to perform well, with its market share icreasig to 29%. The total Milkrite IterPuls market share i the US is 51%. 12% 10% 8% 6% 4% 2% 0% Sep 2011 Mar 2012 Sep 2012 Mar 2013 Sep 2013 Mar 2014 Sep 2014 Mar 2015 Sep 2015 Mar 2016 Sep 2016 We are ecouraged that i poor market coditios retetio of existig farmers ad the take up by ew farmers of our iovative Cluster Exchage service remais strog i both North America ad Europe. By the ed of the year we were servicig 467,000 cows o 1,530 farms i the US ad Europe, up from 430,000 cows ad 1,262 farms at the same time last year. This added-value service ehaces the value of each direct lier sale we make ad has led to a more robust ad sustaiable busiess model, with the potetial to grow a sigificat recurrig reveue stream i the years to come, as more farms sig up. We are extedig the exchage service cocept to iclude pulsators ad tags uder a ew Farm Services umbrella. Milk prices i our major markets appear to have bottomed-out ad started to improve i the fial quarter of our fiacial year, a tred which has cotiued sice the year ed. We are pleased with the itegratio of IterPuls, acquired i August 2015, ito the wider Dairy busiess ad are o track to realise the log-term strategic beefits that have bee idetified, i particular the sales syergies available i the North America market. The programme for the roll out of IterPuls products through existig Milkrite distributio i the US has commeced, with the first reveues see i the fial quarter of the fiacial year. This, together with our expectatio that the recet improvemet i milk price will cotiue ad positively impact demad for our products, leaves the Board cofidet of the ability of the Dairy busiess to make progress i This success has give us the cofidece to ivest further i product developmet resource ad to commece work o the ext geeratio of products, the first of which, our Impulse Claw 300, was successfully lauched early i the year ad the ext geeratio of itelligece products, the imilk600, was lauched i HOW WE RUN OUR BUSINESS HOW WE PERFORMED SHAREHOLDER INFORMATION ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 23

26 STRATEGIC REPORT the fial quarter of the year. The IterPuls acquisitio further adds to our product portfolio ad product developmet capability, the beefits of which we expect to see i future years. I Chia, our customer base cotiues to grow, demostratig the cotiuatio of the idustrialisatio of the milkig process ad the stregth of the local presece we have established i this market. We remai ecouraged by the excellet log-term potetial for our products. I South America, where we opeed our sales ad distributio facility i the first half of 2015, we have started to make good progress i establishig a strog dealer etwork ad expect to see growth i this regio, with reveue growig i lie with our expectatios. I may other emergig markets, icludig Idia, the umber of dairy cows beig milked usig automated milkig processes is growig strogly. This is addig to the market potetial for the cosumable products we sell. We pla to haress this potetial usig the distributio etwork which IterPuls has already established i these regios. Group positio Acquisitio O 8 October 2015, the Group completed the acquisitio of the Argus thermal imagig camera busiess from e2v techologies plc for 3.3m from existig debt facilities. Net cash ad cash flow Net cash at the ed of the year was 2.0m (2015: et debt of 13.2m). At the year ed, our mai bak facility was 30.9m, which is US dollar deomiated ad committed to 30 November I the year we ivested 3.3m i the Argus acquisitio ad 6.8m (2015: 6.2m) i property, plat ad equipmet ad ew product developmet. I the Protectio & Defece busiess this focused o the completio of our ew product developmet programme, Project Fusio. I Dairy we ivested i the developmet of our imilk600 milk meter, the completio of our ew claw ad the hardware required to support our Cluster Exchage service offerig. Operatig activities geerated cash of 33.1m (2015: 24.1m), represetig 152% of operatig profit (2015: 119%). Through disciplied fiacial maagemet the Group has drive strog coversio of profits ito cash. The timig of shipmets to customers ca impact all aspects of workig capital ad at the 2016 year ed ivetory was higher from a combiatio of foreig exchage traslatio, the acquisitio of Argus ad beig mid-way through the maufacture of a large order. Receivables icreased due to a combiatio of foreig exchage traslatio ad the timig of shipmet o part of a large order prior to our year ed. Payables have icreased due to a combiatio of foreig exchage traslatio ad the timig of procuremet of materials for a large order. Three ew traiig rooms at our Dairy sites Three ew traiig cetres have bee istalled at our Wiscosi, Brazil ad Chia facilities. The traiig cetres cotai a suite of the latest Milkrite IterPuls product techology which ca be used to trai dealers, farmers ad also our ow team members. The traiig cetres are a importat step towards deliverig o the opportuity of sellig IterPuls products ito these markets. 24 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

27 UK retiremet beefit obligatios The balace, as measured uder IAS 19 (revised), associated with the Group s UK retiremet beefit obligatio, which has bee closed to future accrual, has moved from a 16.6m deficit at 30 September 2015 to a 40.0m deficit at 30 September This movemet has resulted from a icrease i liabilities as the AA corporate bod rate has falle, partially offset by strog performace from our retur-seekig assets ad Liability Drive Ivestmet. Durig 2016, the Group paid total cotributios of 0.7m (2015: 0.8m). The last trieial actuarial valuatio took place as at 31 March That valuatio showed the scheme to be 98.0% fuded o a cotiuig basis ad uder the deficit recovery pla, the paymets for the Group fiacial years edig 30 September are as follows: 2017: 0.7m ad 2018: 0.7m. These amouts iclude 0.3m p.a. i respect of admiistratio expeses. The Trustee is curretly udertakig the 31 March 2016 valuatio, the results of which are due by 30 Jue I Dairy we have started to expad our product rage uder the Milkrite IterPuls brad beyod liers ad tubig ito o-rubber goods such as lier shells, claws ad farm itelligece systems. We have started to see the beefits of these efforts, which uderpi the log-term prosperity of the Group, durig our 2016 fiacial year. Research ad developmet expediture Protectio & Defece Dairy Total m m m Total expediture Less customer fuded (4.3) - (4.3) Group expediture Capitalised (2.5) (0.6) (3.1) Icome statemet impact of curret year expediture Amortisatio OVERVIEW OF THE YEAR HOW WE RUN OUR BUSINESS Research ad developmet Total icome statemet impact Itagible assets relatig to developmet costs totallig 19.2m (2015: 16.2m) form a sigificat part of the balace sheet as we ivest i ew product developmet. This ca be see from our expadig product rage i both Protectio & Defece ad Dairy. The aual charge for amortisatio of developmet costs was 2.5m (2015: 1.9m). Our total ivestmet i research ad developmet (capitalised ad expesed) amouted to 8.3m (2015: 7.1m) of which 4.3m (2015: 3.9m) was customer fuded ad has bee recogised as reveue. Reveue R&D sped as % of reveue 7.4% 1.9% 5.8% HOW WE PERFORMED NH15 CO receives full NIOSH approval Our uique CBRN/CO Escape Hood received NIOSH approval i the fial quarter of our fiacial year. The NH15 CO is a revolutioary ew carbo mooxide resistat, extremely compact CBRN escape hood, based o Avo s widely acclaimed NH15. The NH15 CO offers usurpassed levels of respiratory protectio agaist the dual threat of carbo mooxide ad CBRN agets. It provides the user the protectio to escape from hazardous eviromets, particularly whe dagerously high levels of carbo mooxide are preset or likely i combiatio with other toxic materials ad gases such as foud i a smoke filled eviromet. SHAREHOLDER INFORMATION ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 25

28 STRATEGIC REPORT Key Performace Idicators (KPIs) The Group uses a variety of performace measures which are detailed below. m 12 MONTH MOVING TOTAL REVENUE REASON FOR CHOICE This looks at reveue for a cumulative 12 moth period ad is used to idetify the directioal tred i reveue. HOW WE CALCULATE This is measured at sales value. COMMENTS ON RESULTS Reveue has icreased i 2016, as both divisios have beefited from the traslatio effect of a stroger US dollar. Dairy also beefited from the acquisitio of IterPuls i August Sep 2015 Oct 2015 Nov 2015 Dec 2015 Ja 2016 Feb 2016 Mar 2016 Apr 2016 May 2016 Ju 2016 Jul 2016 Aug 2016 Sep 2016 INCREASED BY 6% PROTECTION & DEFENCE ORDERS IN HAND 33m 21m 20m 20m 14m 9m 12m 6m 11m DOD NON DOD REASON FOR CHOICE This demostrates the orders i had for fulfilmet ad future sales. HOW WE CALCULATE This is measured at sales value. COMMENTS ON RESULTS We focused o fullfillig our DOD order book i 2016, hece as expected our year ed DOD order book is lower tha i prior years. This is offset by a higher o-dod order book. NO CHANGE AT 20m RETURN ON SALES REASON FOR CHOICE This measure brigs together the combied effects of procuremet costs ad pricig as well as the leverage of our operatig assets. HOW WE CALCULATE Earigs before iterest, taxatio, depreciatio, amortisatio, discotiued operatios, defied beefit pesio scheme costs ad exceptioal items (EBITDA) divided by reveue. 18.4% 20.3% 21.6% COMMENTS ON RESULTS We have succeeded i growig profit i our Protectio & Defece busiess through operatioal efficiecies ad improved pricig o our log-term DOD cotract. I Dairy, a icreasig proportio of higher margi Milkrite IterPuls sales ad the careful maagemet of discretioary spedig cotributed to a icreased retur o sales INCREASED TO 21.6% 26 DELIVERING AND BUILDING GROWTH ANNUAL REPORT AND ACCOUNTS 2016

29 OVERVIEW OF THE YEAR TRADE WORKING CAPITAL TO REVENUE RATIO REASON FOR CHOICE Maagemet of workig capital esures that profit growth coverts ito cash geeratio. HOW WE CALCULATE Trade workig capital is defied as ivetory + trade receivables - trade payables ad advace receipts from customers, expressed as a percetage of reveue. 17.8% % % 2016 COMMENTS ON RESULTS Overall, workig capital was reasoably stable durig the year but was impacted at the year ed by the stregtheig of the US dollar. Had the year ed workig capital balaces bee traslated at average exchage rates the ratio would have bee lower at 18.1%. DECREASED TO 19.6% HOW WE RUN OUR BUSINESS DILUTED EARNINGS PER SHARE REASON FOR CHOICE This measure is desiged to iclude the effective maagemet of iterest costs ad the tax charge ad measure the total retur achieved for shareholders. HOW WE CALCULATE Profit after tax excludig the impact of discotiued operatios, the amortisatio of acquired itagibles, defied beefit pesio scheme costs ad exceptioal items divided by the fully diluted umber of ordiary shares. COMMENTS ON RESULTS Higher operatig profit ad a lower Group effective tax rate i 2016 have cotributed to a improved EPS positio. HOW WE PERFORMED 42.3p 54.6p 72.8p INCREASED TO 72.8p Our o-fiacial KPIs i relatio to health ad safety are detailed i our Evirometal ad Corporate Social Resposibility report o pages 34 to 41. SHAREHOLDER INFORMATION ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 27

30 STRATEGIC REPORT Pricipal risks ad ucertaities The Group has a established process for the idetificatio ad maagemet of risk across the two divisios workig withi the goverace framework set out i our corporate goverace statemet (see pages 47 to 51). Ultimately the maagemet of risk is the resposibility of the Board of Directors, ad the developmet ad executio of a comprehesive ad robust system of risk maagemet has a high priority at Avo. The Board s role i risk maagemet icludes promotig a culture that emphasises itegrity at all levels of busiess operatios, embeddig risk maagemet withi the core processes of the busiess, approvig appetite for risk, determiig the pricipal risks, esurig that these are commuicated effectively across the busiesses ad settig the overall policies for risk maagemet ad cotrol. The pricipal risks affectig the Group are idetified by the Group Executive team ad reviewed by the Board. Each risk has priority tasks allocated to it that are the resposibility of the members of the Group Executive to deliver durig the fiacial year. Regular sessios are held throughout the year to review progress i delivery of the priority tasks at a operatioal level. We idetify three mai risk areas: Strategic risks risks affectig the strategic aims of the busiess, or those issues that affect the strategic objectives faced by the Group Fiacial risks issues that could affect the fiaces of the busiess both exterally ad from the perspective of iteral cotrols Operatioal risks matters arisig from the operatioal activities of the Group relatig to areas such as procuremet, product developmet ad iteractio with commercial parters Risk maagemet withi the busiess ivolves: Idetificatio ad assessmet of idividual risk Desig of cotrols The pricipal risks idetified through the risk maagemet process i October 2015 are listed o the followig page i order of severity ad with the categorisatio give to them iterally show alogside. Mitigatio, where possible, is show by each idetified risk area. KEY LIKELIHOOD COLOUR INDICATOR: Testig of cotrols through iteral audits Formulatig a coclusio o the effectiveess of the cotrol eviromet i place MOST LIKELY LESS LIKELY ARROWS INDICATE WHETHER THE LEVEL OF RISK RELATIVE TO THE OTHER RISKS OF THE BUSINESS HAS INCREASED ( ), DECREASED ( ) OR REMAINED THE SAME ( ) DURING THE YEAR. 28 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

31 DUE TO THE ACQUISITION ACTIVITY, INTEGRATION RISK WAS CONSIDERED THE GROUP S HIGHEST RISK. TALENT MANAGEMENT IS CONSIDERED AN INCREASINGLY IMPORTANT PRIORITY FOR THE BUSINESS. THE REMAINING RISKS HAVE BEEN RE-ORDERED ACCORDINGLY. OVERVIEW OF THE YEAR 1 ACQUISITION INTEGRATION BUSINESS RISK MITIGATION LOSS OF KEY CUSTOMERS PREPARATION AND EXECUTION OF CROSS-FUNCTIONAL INTEGRATION PLANS LOSS OF KEY EMPLOYEES EARLY EMPLOYEE ENGAGEMENT BY ON-SITE EROSION OF INTELLECTUAL PRESENCE OF AVON MANAGEMENT PROPERTY BASE EARLY INTEGRATION INTO EXISTING INTERNAL FAILURE TO INTEGRATE CONTROL FRAMEWORK MANAGEMENT REPORTING STRUCTURES AND DISCIPLINES LIKELIHOOD IMPACT ON HOW WE RUN OUR BUSINESS SALES, COSTS & PROFITABILITY 2 TALENT MANAGEMENT HOW WE PERFORMED BUSINESS RISK INSUFFICIENT SKILLS OF EMPLOYEES POOR ENGAGEMENT AND MORALE DYSFUNCTIONAL ORGANISATIONAL STRUCTURE/REPORTING LINES MITIGATION FOCUS ON CELEBRATING AND REWARDING ACHIEVEMENTS AND PROMOTING POSITIVE ACTION BY EMPOWERING OUR PEOPLE AND ENGAGING AND INVOLVING THEM THROUGH EFFECTIVE COMMUNICATION LIKELIHOOD CONTINUE TO REALIGN TEAMS AND STRUCTURES, RECRUITING WHERE APPROPRIATE TO ENSURE THAT AS THE BUSINESS GROWS THE STRUCTURE REMAINS FIT FOR PURPOSE ACTIVE MANAGEMENT BY SUCCESSION PLANNING, THE ANNUAL PERFORMANCE MANAGEMENT PROCESS AND THE REWARD AND INCENTIVES STRUCTURE IMPACT ON MEDIUM-TERM COST & QUALITY ISSUES SHAREHOLDER INFORMATION ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 29

32 STRATEGIC REPORT Pricipal risks ad ucertaities (cotiued) 3 MARKET THREAT BUSINESS RISK LACK OF SALES GROWTH LOSS OF MAJOR CONTRACT OR BUSINESS TO COMPETITOR E.G. PRICE COMPETITION IN THE DAIRY MARKET AND THE IMPACT OF MILK PRICES AND FEED COSTS MITIGATION SAFETY APPROVALS AND SOLE-SOURCE SUPPLY CONTRACTS PROVIDE SIGNIFICANT BARRIERS TO ENTRY CONTINUED INVESTMENT IN PRODUCT DEVELOPMENT TO ENSURE COMPETITIVE ADVANTAGE SETTING THE STRATEGY FOR i) SECURING US GOVERNMENT FUNDING; ii) WINNING ADDITIONAL BUSINESS FROM EXISTING CUSTOMERS; AND iii) CAPTURING NEW CUSTOMERS AND REVENUE STREAMS CONTINUING RECRUITMENT OF SALES PERSONNEL LIKELIHOOD IMPACT ON SALES VOLUME & PROFITABILITY 4 PRODUCT DEVELOPMENT BUSINESS RISK FAILURE TO MEET REGULATORY PRODUCT/SYSTEM REQUIREMENTS LACK OF INVESTMENT IN NEW PRODUCTS FAILURE TO IDENTIFY AND IMPLEMENT NEW PRODUCTS MITIGATION PUBLICATION OF AND ADHERENCE TO AN INTELLECTUAL PROPERTY MANUAL AND NEW PRODUCT INTRODUCTION (NPI) PROCESS FOCUS ON DELIVERY OF PROJECTS IN THE ROADMAP ON TIME, TO BUDGET AND COST SALES AND PRODUCT DEVELOPMENT HAVE THE OBJECTIVE OF DELIVERING EXTERNAL FUNDING AND NEW REVENUE STREAMS LIKELIHOOD IMPACT ON SALES VOLUME & PROFITABILITY 5 BUSINESS INTERUPTION SUPPLY CHAIN BUSINESS RISK DEPENDENCY ON SOLE SUPPLIER/SUBCONTRACTOR AVAILABILITY/QUALITY OF RAW MATERIALS FAILURE TO MANAGE DISTRIBUTORS AND DEALERS CORRECTLY MITIGATION PROACTIVE APPROACH TO THE APPROVAL OF SECOND SOURCES AND REDUCING COST THROUGH PURCHASING INITIATIVES ROBUST SUPPLIER QUALITY MANAGEMENT PROCEDURES NEGOTIATIONS WITH CUSTOMERS TO PASS ON INCREASES IN RAW MATERIAL PRICES LIKELIHOOD IMPACT ON COSTS, SALES & PROFITABILITY 30 DELIVERING AND BUILDING GROWTH ANNUAL REPORT AND ACCOUNTS 2016

33 6 QUALITY RISKS AND PRODUCT RECALL OVERVIEW OF THE YEAR BUSINESS RISK MITIGATION POOR QUALITY SYSTEMS ALLOW FAULTY PRODUCT TO REACH CUSTOMER FOCUS ON SIX SIGMA MANUFACTURING DISCIPLINES, SITE QUALITY PROCEDURES AND EMPLOYEE ENGAGEMENT LIKELIHOOD PROCESS/MATERIAL/EQUIPMENT INADEQUACY E.G. OUR PROTECTION PRODUCTS ARE SAFETY CRITICAL THEREFORE ALL PRODUCT REACHING THE END CONSUMER MUST MEET SPECIFICATION FOCUS ON PRODUCT DEVELOPMENT TO IMPROVE DESIGN OF PRODUCTS CONTINUE WITH EQUIPMENT AND PROCESS IMPROVEMENTS IMPACT ON FINANCIAL LOSS, REPUTATIONAL DAMAGE HOW WE RUN OUR BUSINESS 7 CUSTOMER DEPENDENCY BUSINESS RISK OVER RELIANCE ON A FEW CUSTOMERS E.G. US GOVERNMENT POOR CUSTOMER RELATIONSHIPS AND COMMUNICATION DUE TO INCOMPLETE UNDERSTANDING OF CUSTOMERS OR FAILURE TO MEET EXPECTATIONS MITIGATION FOCUS ON CUSTOMER SERVICE GROWING SALES TO OTHER CUSTOMERS E.G. CONTINUING TO EXPAND PROTECTION SALES INTO NEW COUNTRIES AND MARKETS AND EXPANDING DAIRY SALES INTO DEVELOPING MARKETS SETTING AND REGULAR MONITORING OF SALES BUDGETS AND MAJOR SALES PROSPECTS BY THE GROUP EXECUTIVE AND THE BOARD LIKELIHOOD IMPACT ON SALES AND PROFITABILITY HOW WE PERFORMED 8 NON-COMPLIANCE WITH LEGISLATION BUSINESS RISK FAILURE TO COMPLY WITH EXPORT CONTROLS, THE INTERNATIONAL TRAFFIC IN ARMS REGULATIONS (ITAR), BRIBERY ACT AND PRODUCT APPROVALS MITIGATION REGULAR FOCUS AND REVIEW OF THE EXPORT AND ITAR CONTROL FRAMEWORK, NPI PROCESS AND THE INTERNAL CONTROL PROCEDURES INTERNAL AND EXTERNAL AUDIT LIKELIHOOD IMPACT ON FINANCIAL LOSS, REPUTATIONAL DAMAGE SHAREHOLDER INFORMATION ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 31

34 STRATEGIC REPORT Treds affectig the future Protectio & Defece DOD spedig Our Protectio & Defece busiess is well placed to meet the challeges of a cotiuig period of istability i the global defece market. Providig safety-critical equipmet to the war fighter uder a log-term sole-source cotract with the DOD provides a degree of certaity i our biggest market, while our rapid growth i homelad security ad military markets aroud the globe demostrates the success of our strategy of ivestig i sales, marketig ad product developmet. I May 2008 we were successful i obtaiig a sigle-source $112m, five year full rate productio (FRP) cotract from the DOD for the M50 military respirator at the supply rate of 100,000 mask systems per aum. The DOD also exercised its requiremets optio to exted the order for a further five years allowig it to take up to a further 200,000 mask systems per aum, resultig i total potetial quatities of up to 300,000 mask systems per aum over a te year period. Budget fudig for our te year sole-source respirator programme with the DOD has bee largely uaffected by the curret ecoomic istability although the procedural process of doig busiess with the US Govermet has slowed. Despite cotiued dowward pressure o military budgets globally ad i particular ucertaity about the size ad timig of the approval of DOD budgets, we expect sped o PPE for the war fighter to remai stable, although the timig of orders may agai be upredictable. At the year ed we carried forward orders for 30,000 M50 masks for delivery i Sice the year ed we have received a further order for 131,000 mask systems from the DOD. The buyig patter of filter spares has bee less stable ad predictable as is ofte the case whe a ew product is first fielded to the frot lie. The combiatio of fillig the logistics chai ad replacemet of filters which have bee used or where the shelflife has expired provides a log-term source of demad for filter spares. Avo is ow oe of two sources for filters for the DOD. Protectio & Defece timig of o-dod orders The opportuity to sell our Protectio & Defece products outside of the DOD exists, ad has bee a successfully executed part of our strategy ad growth. It is however difficult to predict the timig of whe these opportuities will arise ad how log the bid ad cotract award processes will take. The material ature of these opportuities meas the timig of shipmet ca positively or egatively impact ay give reportig period. Dairy market coditios The market for our cosumable products ca be affected by macro issues that impact farmers short-term cash flow ad thus their purchasig patters. Our semi-cosumable products are affected by these market cycles to a greater degree, although i this case we see sped deferred to a period whe market coditios are more favourable to the farmer. The milk price, which determies the farmer s reveue, is impacted by both short-term commodity markets (it is a traded item i the US) ad the medium-term cycle of cow populatio, as herds are bred or culled as well as global macro matters such as tradig sactios ad quotas. Feed is the farmer s major iput cost ad the price of feed is determied by the success or otherwise of the harvest ad competig demad for the crops. Argus maufacturig fully itegrated i Melksham The Argus maufacturig cell has bee successfully trasferred from the e2v site i Chelmsford to Melksham, with the first cameras comig off the lie i Jauary. Avo Protectio acquired Argus, world leaders i thermal imagig for firefighters ad law eforcemet officers, i October The maufacturig cell was up ad ruig i our existig facility i just four moths, demostratig our operatioal flexibility ad dedicatio of our people to quickly itegrate a acquired busiess. 32 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

35 Group treasury ad exchage rates The Group uses various types of fiacial istrumets to maage its exposure to market risks which arise from its busiess operatios, full details of which are icluded i ote 19 of the fiacial statemets. The mai risks cotiue to be movemets i foreig currecy ad iterest rates. The Group s exposure to these risks is maaged by the Treasury Committee who report to the Board. The Group faces traslatio currecy exposure o its overseas subsidiaries ad is exposed i particular to chages i the US dollar ad, followig the acquisitio of IterPuls i 2015, the euro. Brexit is ot expected to have a sigificat impact o the Group. Each busiess hedges sigificat trasactioal exposure by eterig ito forward exchage cotracts for kow sales ad purchases. The Group reports tradig results of overseas compaies based o average rates of exchage compared with sterlig over the year. This icome statemet traslatio exposure is ot hedged as this is a accoutig rather tha cash exposure ad as a result the icome statemet is exposed to the followig: Based o the 2016 results a 5 movemet i the average US dollar rate would have impacted reported operatig profit by 0.6m (2015: 0.7m) ad profit after tax by 0.6m (2015: 0.6m). Based o the 2016 results a 5 movemet i the average euro rate would have impacted reported operatig profit by il (2015: il) ad profit after tax by il (2015: il). The balace sheets of overseas compaies are icluded i the cosolidated balace sheet based o the local currecies beig traslated at the closig rates of exchage. Balace sheet traslatio exposure ca be partially hedged by matchig either with foreig currecy borrowigs withi the subsidiaries or with foreig currecy borrowigs which are held cetrally. At the ed of the year the US dollar asset exposure is ot hedged as there are o dollar borrowigs, the euro exposure is 9% hedged. (2015: 10% dollar, 9% euro). As a result of the remaiig balace sheet exposure, the Group was exposed to the followig: Based o the 2016 balace sheet a 5 movemet i the yeared US dollar rate would have impacted Group et assets by 2.2m (2015: 1.3m). Based o the 2016 balace sheet a 5 movemet i the yeared euro rate would have impacted Group et assets by 1.0m (2015: 0.8m). The Group is exposed to iterest rate fluctuatios but with et cash at the year ed (2015: et debt of 13.2m), a 1% movemet i iterest rates would ot impact the iterest costs (2015: 0.1m). The Group assesses the eed to obtai the best mix of fixed ad floatig iterest rates i cojuctio with the maturity profile of its debt. There were o fixed iterest borrowigs at the year ed (2015: il). Rob Reie Chief Executive Officer 16 November 2016 OVERVIEW OF THE YEAR HOW WE RUN OUR BUSINESS HOW WE PERFORMED Eric Fieldig: 50 years service Eric Fieldig joied Avo Rubber o 18 July 1966 as a traiee estimator, whe he was just 16 years old. As part of his job, he worked out the costs of supplyig products ad services. Eric commeted whe I got the job I was fortuate eough that there were ot may people who were as good at metal arithmetic as I was. Fast forward 50 years ad Eric has become the logest servig employee at Avo Rubber ad has watched the busiess trasform over the years. Presetig his award, Sarah Matthews-DeMers commeted Eric has bee a ivaluable, committed member of my team who has bee happy to tur his had to aythig the busiess eeded. Cogratulatios ad thak you for your hard work ad dedicatio Eric! SHAREHOLDER INFORMATION ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 33

36 ENVIRONMENTAL AND CORPORATE SOCIAL RESPONSIBILITY Aual report o evirometal ad corporate social resposibility The sustaiability of the busiess is directly impacted by the eviromet i which we operate. I order to secure the future of the busiess we are committed to cotributig to ecoomic, social ad evirometal sustaiability both locally ad globally. The Directors ackowledge that this ivolves balacig the iterests of shareholders, employees, customers, suppliers ad the wider commuities i which our busiesses operate. As we cotiue to work to stregthe our positio as the world leader i the markets i which we do busiess, we will also seek to hoour our obligatios to society. At may of our sites we remai oe of the largest employers i the local area. As a itegral part of these commuities we esure our impact is oe of beig a ecoomic, itellectual ad social asset. We are committed to miimisig the impact of our operatios o the eviromet. We ecourage all employees to thik about ways of modifyig their behaviour to reduce our impact o the eviromet by, for example, reducig waste, restrictig uecessary travel ad savig water ad eergy. As a compay with may maufacturig sites a forward thikig approach to the health ad safety of our employees is of paramout importace ad we costatly edeavour to improve our systems to maitai our excellet health ad safety record. We strive to: Maage the Group as a sustaiable busiess for the beefit of shareholders ad other stakeholders Develop ad motivate our employees, esurig they are fully egaged i the Group s strategy Miimise waste ad emissios that cotribute to climate chage Maitai our excellet stadards of health ad safety i the workplace Code of Coduct Our Code of Coduct ( The Code ) sets out the values ad stadards of behaviour expected from employees with a guide as to what is expected of them as represetatives of Avo ad provides iformatio o how to report cocers. All those workig for or o behalf of Avo are required to cofirm each year that they have read ad uderstood the Code. Ethics ad ati-corruptio The Code covers a wide rage of rules ad resposibilities for employees to esure they carry out their busiess activities i a way that will attract the respect of those they deal with ad will ot brig Avo s reputatio ito disrepute. This icludes complyig with the laws ad regulatios i the coutries i which we operate ad do busiess. The Code also cotais guidace o avoidig coflicts of iterest, cofidetiality, adherece to export cotrols, our approach to gifts ad hospitality, bribery ad corruptio ad maagig relatioships with third parties. We are committed to actig professioally, fairly ad with itegrity i all our busiess dealigs ad relatioships. We implemet ad eforce effective systems to uphold our zerotolerace approach to bribery ad corruptio. To esure we oly work with third parties whose stadards are cosistet with our ow, all agets ad third parties who act o behalf of the Group are obliged by writte agreemet to comply with the stadards set out i the Code. A programme of supplier audits exists to esure suppliers adhere to Avo s stadards. Upholdig the Code is the resposibility of all employees at Avo. We ecourage everyoe to report ay behaviour which may be a breach of the Code, or is uethical or illegal. This is achieved by fosterig a culture of opeess ad accoutability ad by providig a formal procedure that eables ay idividual workig Cotributig to local youth Adrew Lewis voluteers as a cricket coach at Goatacre Cricket Club, coachig the Uder 11 ad Uder 13 teams. I 2015 the Uder 11 team was ubeate, wiig both leagues they etered ad Adrew was hooured to be selected as Coach of the Year for Wiltshire by the Eglish Cricket Board. He is pictured receivig his award this summer from the Eglad team battig coach Graham Thorpe at a iteratioal match played i Southampto. 34 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

37 for the Group to raise breaches of policy or malpractice directly at the highest level. A copy of the Code is available to all employees i additio to beig available o the Group website. Melksham, UK Improved efficiecy i our use of compressed air by replacig site compressors with idepedet uits o each press, meaig they are utilised oly whe the press is ruig OVERVIEW OF THE YEAR Huma rights Heatig timers itroduced o ifrequetly used mouldig presses Avo is fully committed to respectig the huma rights of all those workig with or for us. We do ot accept ay form of child or forced labour ad we will ot do busiess with ayoe who fails to uphold these stadards. Moder slavery The Moder Slavery Act addresses the role of busiesses i prevetig moder slavery withi their orgaisatio ad dow ito their supply chai. The Compay has a zero-tolerace approach to moder slavery ad is committed to actig ethically ad with itegrity i all of its busiess dealigs ad relatioships ad to implemetig ad eforcig effective systems ad cotrols to esure moder slavery is ot takig place aywhere i its busiess or i ay of its supply chais. Our first Moder Slavery Act statemet is beig prepared ad will be published o our website. The statemet will show the steps Avo has take to esure slavery ad huma traffickig is ot takig place i ay part of our busiess or supply chais. Evirometal resposibility We cosider protectio of the eviromet ad the evirometal impact of our busiess to be a essetial part of our busiess operatios. We are committed to complyig with all relevat legislatio ad to operatig i a evirometally resposible maer. We are committed to miimisig the impact of our operatios o the eviromet ad ecourage all employees to thik about ways of modifyig their behaviour to reduce the impact o the eviromet by for example, reducig waste, restrictig uecessary travel, savig water ad by reducig eergy usage. At the start of each year we set sigificat evirometal improvemet goals. Each site has delivered a umber of improvemets icludig: Cadillac, US Istalled light sesors for eergy savigs Replaced lightig with LEDs Picayue, US Purchased ew liftig equipmet to improve the hadlig of chemicals, reducig the potetial of spillages Istalled a berm lier i our test site to elimiate the use of weed cotrol chemicals Replacemet of dated overhead lightig with fluorescet LEDs throughout the facility Recyclig At our UK sites we cotiue to recycle: Waste cardboard Waste polythee Paper Metal Used products WEEE Toers ad iks Evirometal cocers We have experieced o exteral evirometal icidets or cocers throughout 2016 at ay of our locatios. Eergy The three mai eergy sources of electricity, gas ad water used at our Melksham site are beig moitored o a weekly basis for treds which differ from the ormal distributio. The aim of this is to recogise spikes i usage ad implemet improvemets to reduce eergy cosumptio o these processes. It is hoped to roll this approach out to the US sites i due course. ISO Exteral auditors visited Avo i 2016 to coduct a re-certificatio of our ISO stadard. The audit was very successful with o deficiecies recorded. What is ISO 14001? ISO was developed to provide a maagemet system to help orgaisatios reduce their evirometal impact. The stadard provides the framework for orgaisatios to demostrate their commitmet to preservig ad protectig the eviromet by: Reducig harmful effects o the eviromet Providig evidece of cotiual improvemet of evirometal maagemet Evirometal maagemet system By achievig ISO certificatio Avo is able to clearly demostrate its commitmet to reducig waste ad recyclig materials where appropriate. The beefits to the orgaisatio are ot just i cost savigs; ISO accreditatio is also beeficial whe tederig for ew busiess. HOW WE RUN OUR BUSINESS HOW WE PERFORMED SHAREHOLDER INFORMATION ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 35

38 ENVIRONMENTAL AND CORPORATE SOCIAL RESPONSIBILITY Legislatio With evolvig evirometal legislatio withi the EU, US ad the UK, Avo esures compliace through regular evirometal updates from its membership to the Istitute of Evirometal Maagemet ad Assessmet (IEMA). Madatory carbo reductio scheme The Compaies Act 2006 (Strategic Report ad Directors Reports) Regulatios 2013 requires quoted compaies to iclude withi their aual report details of greehouse gas emissios for which they are resposible ad other evirometal matters for which key performace idicators are selected. Avo has employees i each of its facilities who are resposible for collectig ad actig o the data. The collected data allows the orgaisatio to moitor ad examie carbo emissio treds. Greehouse Gas (GHG) emissios Scope 1 Descriptio Greehouse gas emissios derived directly from our operatios icludig gas usage ad compay owed trasport. GHG emissios i tos 2014 GHG emissios i tos 2015 GHG emissios i tos ,378 2,340 2,198 Health ad Safety (H&S) Avo is committed to safeguardig the health ad safety of its employees ad cotractors. All employees are ecouraged to take a active role i esurig that our workig eviromet is a safe place to work ad visit by actively reportig all safety observatios, beig ivolved i safety audits, assessmets ad regular traiig sessios. Over the year mothly global H&S meetigs are held at the UK ad US sites. Through iformatio sharig, kowledge ad ideas we are able to implemet best practice across our global sites ad create positive safety attitudes. Mothly meetig reports are displayed i our facilities ad o our Avo Commuicatio Exchage (ACE) itraet site for all employees ad ivited visitors to view. Our maagemet teams put cosiderable focus o potetial hazard reportig. This reportig esures that ay potetial hazards are reported early ad appropriate actio take before they cause a icidet or a accidet. These actios are key to esure our facilities are safe places i which to work. Safety teams Safety teams have bee established at each of our facilities to coduct iteral audits, ispectios ad to lead by example, further icreasig the positive safety culture throughout our orgaisatio. The safety teams share best practice iitiatives, esurig they are embedded throughout the group. Scope 2 Madatory reportig of emissios from electricity usage. 6,146 7,068 5,351 Below are listed some examples of health ad safety improvemets implemeted at our sites durig 2016: Cadillac, US Total 8,524 9,408 7,549 First aid ad CPR traiig coducted Improved security by updatig all lock out procedures Facility Scope 2 tos CO² emissios average umber of employees Scope 2 tos CO² emissios average umber of employees Scope 2 tos CO² emissios average umber of employees Albiea 146 /a 48 /a 5 82 Belcamp 155 /a 148 /a Cadillac 1, , , West Palm Beach /a /a /a /a Johso Creek 1, , , Melksham 1, , , Picayue Total Aual Scope 2 Emissios 6, , , ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

39 Added ergoomic desks to allow computer operators to stad or sit Picayue, US Use of protective eyewear implemeted throughout the plat Bloodbore pathoges traiig coducted Plat-wide soud exposure level survey updated Melksham, UK Re-itroductio of mothly plat safety tours by maagemet Review of work processes ad itroductio of more ergoomic equipmet for employees Lowest umber of recorded accidets for five years West Palm Beach, US Safety Kaizes completed throughout the factory Istallatio of roll up doors with swigig doors ad paic bars employees by matchig the right people to the right roles ad by esurig professioal developmet opportuities are available throughout their employmet withi the Group. We strive to make Avo a great place to work ad are committed to providig a workig eviromet where everyoe feels respected ad valued ad we pursue equality of opportuity i all employmet practices, policies ad procedures regardless of race, atioality, geder, age, marital status, sexual orietatio, disability ad religious or political beliefs. A formal diversity policy is i place, settig out our approach to diversity. A copy ca be foud i the corporate goverace sectio of our website. We operate group-wide employee share plas to ecourage our staff to participate i the future of the Group through share owership. All UK employees are etitled to participate i the Share Icetive Pla (SIP) whilst US employees are ivited to joi the Employee Stock Purchase Pla (ESPP). Both provide the opportuity to purchase shares through payroll deductios. The geder of our staff at 30 September 2016 was as follows: Male Female OVERVIEW OF THE YEAR HOW WE RUN OUR BUSINESS Improved lightig throughout No-Executive Directors 2 1 Corporate social resposibility Ivestig i our people Executive Directors 2 - Seior Maagers 16 5 Our success depeds o our people. The Group recogises the importace of our employees i helpig us to achieve our corporate goals. The Group aims to support all employees to develop to their full potetial ad we are committed to recogisig, ecouragig ad developig talet across our busiess. We ecourage taleted Other Employees Total Six of the seior maagers (four male, two female) are also Directors or officers of subsidiary udertakigs. HOW WE PERFORMED Learig Eglish at IterPuls To help with the itegratio of IterPuls, we provided Eglish laguage traiig to staff with the aim of stregtheig the laguage skills iside the compay. The traiig ivolved 12 employees from differet departmets, with varyig levels of laguage capability. It was a challegig course with over 60 hours of traiig ivolved which has improved commuicatio with their colleagues i the UK ad the US ever sice. SHAREHOLDER INFORMATION ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 37

40 ENVIRONMENTAL AND CORPORATE SOCIAL RESPONSIBILITY Recogitio All employees have a part to play i esurig Avo remais a great place to work. Oe of our corporate values is to motivate our people through appropriate recogitio ad reward programmes. Great Place to Work Great Place to Work is a framework that gives every employee a opportuity to cotribute towards a culture that truly does make Avo a great place to work. The framework is made up of five key areas: Recogitio, Commuicatio, Traiig & Developmet, Wellbeig ad Commuity. The Group s core values are embodied by the acroym CREED, a set of priciples ad cultural values which are rigorously pursued ad adhered to across the Group. Uder our CREED reward programme, employees ca omiate colleagues whom they believe embody oe or more of the CREED values i their job performace. Each moth all those omiated receive a recogitio award from the Group, with a quarterly ad aual wier selected from those omiated. The Melksham Aual Site wier, Ross Heard, is pictured below with Rob Wills, Plat Maager ad Rob Reie, Chief Executive Officer. Our core values C Uderstadig ad deliverig our customer (iteral/exteral) eeds ad expectatios. R E E D Motivatig our people through appropriate recogitio ad reward programmes. Providig resposibility through meaigful employee empowermet. Esurig a friedly ad egaged eviromet that embraces worthwhile commuicatios where iovatio is ecouraged. Recogisig the value of cultural diversity ad talet across our busiess. Commuicatio We recogise the importace of employee egagemet, ad effective commuicatio throughout the busiess is vital i achievig this. We regularly commuicate our strategy, performace ad busiess priorities to all employees i a variety of ways, icludig through our itraet sites, ad regular ewsletters as well as through regular employee meetigs at all levels of the orgaisatio. We also ecourage employees to commuicate ad feed back to the busiess, either face to face or through discussio boards o our itraet. All employees have the ability to make suggestios directly to the CEO. Part of the commuicatio programme is our employee opiio survey. The survey gives employees the opportuity to give aoymous feedback to maagemet, which we assess ad use to ispire improvemet plas. The survey helps to esure Avo listes to its employees ad strives for cotiuig improvemet. The resposes are evaluated by each level of maagemet ad it will cotiue to be a platform that helps Avo ivest i its people ad drive success. 38 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

41 Traiig ad Developmet We wat to attract, retai ad develop taleted idividuals. We strive to provide a eviromet which offers the right traiig ad developmet to esure we retai our employees, providig the support eeded to eable them to achieve their potetial ad become the future leaders of our busiess. We provide a combiatio of formal traiig opportuities ad o the job experiece. Our flagship global Professioal Developmet Programme has just fiished its secod cycle (pictured below). The programme eables participats across our busiess to maage their ow career developmet through settig self-learig objectives with the help ad guidace of a metor from the seior leadership team ad a exteral facilitator. We will be rollig out this style of learig o a wider basis throughout our 2017 fiacial year. Through a ew iitiative, employees ca apply for traiig grats for qualificatios they wish to work towards. Avo fuds half of the tuitio fees ad loas the other half to the employee, to be paid back over time. So far, the iitiative has helped the cotiued developmet of our marketig, PR ad egieerig departmets. O top of this we also offer umerous positios for placemet studets i our egieerig team, both i the US ad the UK. The studets help us tackle real-world egieerig problems as they lear about the egieerig professio as well as havig the potetial for log-term employmet withi Avo. A umber of our studet placemets have take up full time employmet with the Group followig their graduatio ad cotribute sigificatly to Group achievemets. We also offer work experiece placemets. Our graduate recruitmet scheme is ow i its secod year, with two further idividuals joiig the compay i September to support the growig eed of our busiess. The scheme is based o a two year work ad lear programme desiged to brig ew talet to our orgaisatio. Wellbeig Uder our wellbeig iitiative, we offer healthy lifestyle support ad advice, with the aim of ecouragig better health ad wellbeig for all employees. We believe wellbeig works best whe the experiece is a shared oe, we have regular global welless challeges for our employees to take part i to help stimulate small chages to improve their overall health. These iclude challeges related to icreasig activity levels, eatig healthier ad drikig more water. We also had our first global welless week earlier i the year. There were a variety of activities o offer at all of our sites icludig healthy eatig optios i our catees, a welless fair ad health quizzes. Commuity We aim to work with ad for the commuities i which we operate, recogisig our role as a major employer i our geographical site locatios. We are aware of the impact the Group has o its local eviromet ad seek to cotribute to its ecoomic, social ad evirometal sustaiability. Our commuity programme is led from the bottom up rather tha top dow, which meas each site is empowered to create their ow iitiatives to help beefit their local commuity. Egagig with, ad givig back positively to, the local commuity esures that we are supportig our employees, their frieds ad families. We also work with may charitable orgaisatios who are ivolved i some way with the areas of busiess i which we operate. We recogise the value provided to local ad wider commuities by members of the reserve forces ad those i public service. We are proud to have employees servig ad a umber of our employees are part of service families. We support their commitmet ad dedicatio to serve. It s ot just about supportig our local commuities, it s also about creatig a commuity at work. That s why we offer opportuities for our employees to establish relatioships with each other outside of their day to day job. From football matches to bake sales ad eve a few charity drives, we wat our employees to feel embedded withi the culture of the orgaisatio. SHAREHOLDER INFORMATION HOW WE PERFORMED HOW WE RUN OUR BUSINESS OVERVIEW OF THE YEAR ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 39

42 ENVIRONMENTAL AND CORPORATE SOCIAL RESPONSIBILITY Listed below are just a few examples of the orgaisatios we have helped this year across our US ad UK sites: Wiltshire Commuity Foudatio The Compay established a fud with a local commuity charity i Wiltshire, the Wiltshire Commuity Foudatio (WCF), i This fud was ivested by the WCF ad the iterest eared to date has bee used to support a wide rage of charities ad groups i the Wiltshire area. Sice 2001, 42,858 has bee doated from this fud to the local commuity surroudig the Melksham headquarters. Iai s mad mask dash I March, Iai Thomso, our Traiig ad Cosultacy Maager from Avo Protectio, ra, jogged ad walked the eight miles from his home to our head office i Melksham wearig Avo s CS-PAPR to raise fuds for Sport Relief. He raised a fatastic achievemet - ad proved the capabilities of our CS-PAPR! Iai also helped to raise awareess for combat veteras sufferig from PTSD by completig the 22 day push-up challege whilst wearig Avo respirators. I total 46 projects have bee supported. Here are a few examples: Alzheimer s Support is a idepedet charity offerig a rage of services to people livig with all types of demetia ad their family carers i East ad West Wiltshire. A grat helped to fud Art Projects for people with Alzheimer s ad their carers to eable them to both ejoy takig part i creative activities together. Dorothy House Hospice offers ed of life care ad support, as well as therapies ad cliics for life-limitig illesses. Fudig wet towards the overhead costs of staff for the Trowbridge outreach cetre over three years. Hope Nature Cetre provides educatio, traiig ad support of adults with special eeds to promote idepedece ad persoal developmet through employmet ad leisure opportuities. A grat cotributed to the purchase of play equipmet for childre with disabilities. Splash Pad project at the Friedship Park Jamie Rogers, AEF Geeral Maager, preseted a doatio o behalf of AEF employees to cotribute to the costructio of the Splash Pad project at the Friedship Park i Picayue. The Lower Pearl River Valley Foudatio grated $50,000 for the project but the total cost of costructio was $77,280 so the city had to raise the differece by commuity doatio. The purpose of the Splash Pad is to brig people ito the local area, icrease reveues for local busiesses ad to provide family cetered etertaimet. Avo celebrates its first global welless week As part of the Great Place to Work Programme, Avo celebrated its first global welless week across all sites i March Employees were ivited to take part i various activities which all ecouraged a healthy lifestyle. Some of the highlights icluded a welless fair at Belcamp, where our employees were educated o fiacial health, spial wellbeig ad relaxatio techiques, ad a health quiz at our Melksham site, the wiers of which (pictured) were preseted with a selectio of fruit ad vegetables. 40 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

43 Jefferso Couty Humae Society Johso Creek has bee givig back to the local commuity by participatig i multiple doatio drives this year. Oe of these drives was for the Jefferso Couty Humae Society whose missio is to care for the lost, homeless ad abused aimals of Jefferso Couty ad help place them i forever homes. Over five boxes of food, toys ad cleaig supplies for pets were collected. FC Chippeham Youth Girls With a focus o fu, log-term player developmet ad a friedly, iclusive team spirit, FC Chippeham Youth Girls are a FA Charter Stadard football club that play competitive league ad cup games i the Wiltshire Couty Womes & Girls League. There are more tha 65 girls affiliated over five teams ragig from Uder 10s to Uder 12s - Emeralds, Oyx, Amethyst, Sapphires ad Diamods. To support the girls to play football, develop their skills, make ew frieds ad just have a great time, Avo Protectio are pleased to have sposored the teams for the seaso to help fud kit as well as directly providig coachig support. Project Christmas APS Cadillac doated a total of 3,442lbs of food to the Project Christmas program. Project Christmas has had the privilege of servig Wexford couty sice 1989 ad is built o the guidig priciple to provide a Christmas for families that otherwise might ot have oe by joiig together i a collaborative effort. With the carig support of idividuals, orgaizatios ad churches they were able to serve 974 families i Other orgaisatios Listed below are a few more examples of the orgaisatios we have helped this year across our US ad UK sites: Wiltshire Citizes Advice West Wilts Multi Faith Forum Carer Support Wiltshire Wiltshire Music Cetre SPLITZ Support Services Red Nose Day Wiltshire Air Ambulace Macmilla Cacer Support Stehouwer Free Cliic Back Pack Programme Uited Way The Salvatio Army Michiga Advaced Techicia Traiig OVERVIEW OF THE YEAR HOW WE RUN OUR BUSINESS HOW WE PERFORMED City of Picayue Commuity Splash Pad Cadillac Chamber of Commerce Leadership Cacer Research UK Royal Maries Charity Melksham & Corsham Gateway Club Miles Igrey-Couter Compay Secretary 16 November 2016 SHAREHOLDER INFORMATION ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 41

44 BOARD OF DIRECTORS DAVID EVANS CHAIRMAN Aged 70. David took up the positio of Chairma of the Board i February 2012 havig served o the Board from the time of his appoitmet i Jue He has bee workig i the defece sector for over 30 years ad has extesive kowledge of the US market. David spet 17 years with GEC-Marcoi before joiig Chemrig Group PLC i 1987 ad was appoited Chief Executive i He remaied o the Chemrig Board as a No-Executive Director followig his retiremet i April 2005 but stood dow from this role durig 2012 to focus o his role as Chairma of Avo Rubber p.l.c. He was previously a No-Executive Director of Whitma PLC. ROB RENNIE CHIEF EXECUTIVE OFFICER Aged 52. Rob joied as Chief Executive i December 2015 from the global egieerig compay Ivesys p.l.c. where he worked for more tha 20 years. As a member of the Executive Team at Ivesys, Rob was Presidet of the Eergy Cotrols Divisio which operated iteratioally uder the Eurotherm, Residetial Cotrols, IMServ, ad Eliwell brads. Previous Executive roles icluded resposibility for Foxboro M&I, Eckhardt ad the EURA regio for Ivesys operatios maagemet. He bega his career o the shop floor the moved through to sales ad marketig roles before takig up busiess leadership positios. ANDREW LEWIS GROUP FINANCE DIRECTOR Aged 45. Adrew joied Avo i September 2008 as Group Fiace Director. He holds a first class joit hoours degree i Mathematics ad Accoutig from the Uiversity College of North Wales, Bagor ad is a Fellow of the ICAEW. He was awarded the Fiace Director of the Year Award at the Quoted Compay Awards i 2016 ad Youg Fiace Director of the Year Award at the ICAEW Fiacial Directors Excellece Awards i May He gaied a wide rage of iteratioal experiece as a Director at PricewaterhouseCoopers i Bristol ad New Zealad before joiig Rotork p.l.c. as Group Fiacial Cotroller. PIM VERVAAT NON-EXECUTIVE DIRECTOR Aged 51. Pim joied the Board i March 2015 ad chairs the Audit Committee. Pim is Chief Executive of RPC Group Plc, the UK based maufacturer of rigid plastic packagig ad a FTSE 250 listed compay. Pim was appoited RPC s CEO i 2013, havig previously bee their Fiace Director sice Prior to this, Pim worked for Dutch metals producer, Hoogoves Groep, before joiig Dutch ship propulsio producer Lips Group as Chief Fiacial Officer i I 1999 he retured to Hoogoves Groep (acquired by Corus) ad i 2004 became divisioal Fiace Director of the 3b turover Corus Distributio ad Buildig Systems Divisio. CHLOE PONSONBY NON-EXECUTIVE DIRECTOR Aged 40. Chloe joied the Board i March 2016 ad chairs the Remueratio Committee. Chloe is a foudig parter at The Lazarus Partership, a idepedet equity research ad advisory firm based i Lodo. Prior to Lazarus, Chloe was a seior corporate broker at stockbrokers Oriel Securities ad Altium Capital, where she set up ad maaged the Corporate Brokig ad Ivestor Relatios teams. Chloe started her career as a fud maager at Jupiter Asset Maagemet. 42 DELIVERING AND BUILDING GROWTH ANNUAL REPORT AND ACCOUNTS 2016

45 DIRECTORS REPORT The Directors submit the aual report ad audited fiacial statemets of Avo Rubber p.l.c. ( the Compay ) ad the Avo Rubber group of compaies, ( the Group ) for the year eded 30 September The Compay is registered i Eglad ad Wales with compay registratio umber The Compay s pricipal subsidiary udertakigs ad braches, icludig those located outside the UK, are listed i ote 27 to the fiacial statemets. Strategic Report The Strategic Report, which cotais a review of the Group s busiess (icludig by referece to key performace idicators), a descriptio of the pricipal risks ad ucertaities facig the Group, ad commetary o likely future developmets is set out o pages 11 to 33 ad is icorporated ito this Directors report by referece. Fiacial results ad divided The Group statutory profit for the year after taxatio amouts to 18,279,000 (2015: 13,666,000). Full details are set out i the Cosolidated Statemet of Comprehesive Icome o page 74. A iterim divided of 3.16p per share was paid i respect of the year eded 30 September 2016 (2015: 2.43p). The Directors recommed a fial divided of 6.32p per share (2015: 4.86p) resultig i a total divided distributio per share for the year to 30 September 2016 of 9.48p (2015: 7.29p). Share capital As at 16 November 2016, the issued share capital of the Compay was 31,023,292 ordiary shares of 1 each. Details of the shares i issue durig the fiacial year are set out i ote 20 of the fiacial statemets. The rights ad obligatios attachig to the Compay s shares are set out i the Compay s Articles of Associatio (Articles), copies of which ca be obtaied from Compaies House or by writig to the Compay Secretary. Shareholders are etitled to receive the Compay s reports ad accouts, to atted ad speak at geeral meetigs, to exercise votig rights i perso or by appoitig a proxy ad to receive a divided where declared or paid out of profits available for that purpose. There are o restrictios o the trasfer of issued shares or o the exercise of votig rights attached to them, except where the Compay has suspeded their votig rights or prohibited their trasfer followig a failure to respod to a otice to shareholders uder sectio 793 of the Compaies Act 2006, or where the holder is precluded from trasferrig or votig by the Fiacial Services Authority s Listig Rules or the City Code o Takeovers ad Mergers. The 718,789 shares held i the ames of the two Employee Share Owership Trusts o a joitly owed basis or as a hedge agaist awards previously made or to be made pursuat to the Performace Share Pla are held o terms which provide votig rights to the Trustee ad, i certai circumstaces uder the terms of joit owership awards, to the recipiet of the awards. The Compay is also ot aware of ay agreemets betwee its shareholders which may restrict the trasfer of their shares or the exercise of their votig rights. The oly exceptio to this beig the Trustees of the two Employee Share Owership Trusts have waived their rights to divideds. At the Compay s last aual geeral meetig (AGM) held o 26 Jauary 2016, shareholders authorised the Compay to make market purchases of up to 4,653,492 of the Compay s issued ordiary shares. No shares were purchased uder this authority durig the year. A resolutio will be put to shareholders at the forthcomig AGM to reew this authority. The Directors require authority to allot uissued share capital to the Compay ad to disapply shareholders statutory pre-emptio rights. Such authorities were grated at the 2016 AGM ad resolutios to reew these authorities will be proposed at the 2017 AGM, see explaatory ote o page 136. No shares were allotted uder this authority durig the year. Substatial shareholdigs At 7 November 2016, the followig shareholders held 3% or more of the Compay s issued ordiary share capital: BlackRock Ivestmet Maagemet 10.36% Schroder Ivestmet Maagemet 9.85% Hargreave Hale & Co 4.46% JPMorga Asset Maagemet 4.30% Frakli Templeto Ivestmets 4.16% Hederso Global Ivestors 3.55% River & Mercatile Asset Maagemet LLP 3.30% SHAREHOLDER INFORMATION HOW WE PERFORMED HOW WE RUN OUR BUSINESS OVERVIEW OF THE YEAR ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 43

46 DIRECTORS REPORT Sigificat Agreemets chage of cotrol The oly sigificat agreemets to which the Compay is a party which take effect, alter or termiate upo a chage of cotrol of the Compay followig a takeover bid are: the Compay s revolvig credit facility agreemet; ad the Performace Share Pla. The usecured revolvig credit facility of $40 millio provided by Barclays Bak PLC ad Comerica Bak Ic., cotais a provisio which, i the evet of a chage of cotrol of the Compay, gives the ledig baks the right to cacel all commitmets to the Compay ad to declare all outstadig credit ad accrued iterest immediately due ad payable. A chage of cotrol will be deemed to have occurred if ay perso or persos actig i cocert (as defied i the City Code o Takeovers ad Mergers) gais direct or idirect cotrol of the Compay. Uder the rules of the Performace Share Pla, o a takeover a proportio of each outstadig grat will vest. The umber of shares that vest is to be determied by the Remueratio Committee, icludig by referece to the extet to which the performace coditio has bee satisfied ad the umber of moths that have passed sice the award was made. The Compay does ot have agreemets with ay Director or employee that would provide compesatio for loss of office or employmet resultig from a chage of cotrol, except i relatio to the Performace Share Pla as described above. Directors The ames of the Directors as at 16 November 2016 are set out o page 42 alog with their photographs ad biographies. The Compay s rules about the appoitmet ad replacemet of Directors, together with the powers of Directors, are cotaied i the Articles. Chages to the Articles must be approved by special resolutio of the shareholders. Durig the year there have bee three chages to the membership of the Board. Mr R. Reie assumed the role of Chief Executive o 1 December 2015 followig the retiremet of Mr P. Slabbert o 30 September Mr R. Wood retired from the Board with effect from the coclusio of the AGM o 26 Jauary 2016 ad Miss C. Posoby was appoited as his replacemet as Director ad Chair of the Remueratio Committee o 1 March Mr P. Vervaat replaced Mr R. Wood as the Seior Idepedet Director. O 18 October 2016 the Compay aouced that Mr A. Lewis, Group Fiace Director, will step dow o 30 November Mr P. Rayer will be appoited Iterim Group Fiace Director o 1 December The Board is satisfied that Mr D. Evas, Mr P. Vervaat ad Miss C. Posoby are idepedet No-Executive Directors. I accordace with the UK Corporate Goverace Code ad the Compay s Articles, all Directors are subject to electio by shareholders at the first AGM after their appoitmet, ad to reelectio thereafter at itervals of o more tha three years. No- Executive Directors who have served loger tha ie years are subject to aual re-electio. Mr D. Evas retires by rotatio ad, beig eligible, offers himself for re-electio. The Board cofirms that Mr D. Evas has cotributed substatially to the performace of the Board. Mr P. Vervaat, the Seior Idepedet No-Executive Director, gives his full support to Mr D. Evas offer of re-electio ad draws the attetio of shareholders to his profile o page 42. Mr R. Reie retires by rotatio ad, beig eligible, offers himself for re-electio. The Board cofirms that Mr R. Reie has cotributed substatially to the performace of the Board sice his appoitmet ad the Chairma gives his full support to Mr R. Reie s offer of reelectio ad draws shareholders to his profile o page 42. Miss C. Posoby, who, havig bee appoited sice the Compay s last AGM, retires i accordace with Article 79 of the Articles ad, beig eligible, offers herself for re-electio. The Board cofirms that Miss C. Posoby has cotributed substatially to the performace of the Board sice her appoitmet ad the Chairma gives his full support to Miss C. Posoby s offer of reelectio ad draws shareholders to her profile o page 42. All Executive Directors service cotracts with the Compay require oe year s otice of termiatio. Neither Mr A. Lewis or Mr R. Reie is curretly appoited as a No-Executive Director of ay compay outside the Group. Noe of the Directors have a beeficial iterest i ay cotract to which the Compay or ay subsidiary was a party durig the year. Beeficial iterests of Directors, their families ad trusts i ordiary shares of the Compay ca be foud o page 70. Directors ad Officers idemity isurace I accordace with the Compay s Articles ad subject to the provisios of the Compaies Act 2006 ( the Act ), the Compay maitais at its expese, Directors ad Officers isurace to provide cover i respect of legal actio agaist its Directors. The Compay s Articles allow the Compay to provide the Directors with fuds to cover the costs icurred i defedig legal proceedigs. The Compay is therefore treated as providig a idemity for its Directors ad Compay Secretary which is a qualifyig third party idemity provisio for the purposes of the Act. 44 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

47 Coflicts of iterest Durig the year o Director held ay beeficial iterest i ay cotract sigificat to the Compay s busiess, other tha a cotract of employmet. The Compay has procedures set out i the Articles for maagig coflicts of iterest. Should a Director become aware that they, or their coected parties, have a iterest i a existig or proposed trasactio with the Group, they are required to otify the Board as soo as reasoably practicable. Research ad developmet The Group cotiues to utilise its techical ad materials expertise to further advace its products ad remai at the forefrot of techology i the fields of respiratory protectio, dairy milkig techology ad polymer egieerig. The Group maitais its liks to key uiversities i the US ad UK ad cotiues to work with ew ad existig customers ad suppliers to develop its kowledge ad product rage. Total Group expediture o research ad developmet i the year was 8,341,000 (2015: 7,139,000) further details of which are cotaied i the Strategic Report o pages 11 to 33. Through ARTIS, the Group s research ad developmet arm, the Group is recogised as a world leader i uderstadig the compositio ad use of polymer products. Corporate goverace The Compay s statemet o corporate goverace ca be foud i the Corporate Goverace Report o pages 47 to 51. The Corporate Goverace Report forms part of this Directors Report ad is icorporated ito it by cross-referece. Evirometal ad corporate social resposibility Matters relatig to evirometal ad corporate social resposibility icludig referece to our policy o diversity are set out o pages 34 to 41. Greehouse gas emissios The disclosures cocerig greehouse gas emissios required by law are icluded i the Eviromet ad Corporate Social Resposibility Report, o page 36. Political ad charitable cotributios No political cotributios were made durig the year or the prior year. Cotributios for charitable purposes amouted to 15,528 (2015: 17,053) cosistig exclusively of umerous small doatios to various commuity charities i Wiltshire, Marylad, Michiga, Wiscosi ad Mississippi. Post balace sheet evets There have bee o material evets from 30 September 2016 to the date of this report. Fiacial istrumets A explaatio of the Group policies o the use of fiacial istrumets ad fiacial risk maagemet objectives are cotaied i ote 19 of the fiacial statemets. Statemet of Directors resposibilities i respect of the Aual Report ad the Fiacial Statemets The Directors are resposible for preparig the Aual Report ad the Group ad Paret Compay fiacial statemets i accordace with applicable law ad regulatios. Compay law requires the Directors to prepare Group ad Compay fiacial statemets for each fiacial year. The Directors have prepared the Group fiacial statemets i accordace with Iteratioal Fiacial Reportig Stadards (IFRSs) as adopted by the Europea Uio, ad the paret compay fiacial statemets i accordace with Fiacial Reportig Stadard 101 Reduced Disclosure Framework (FRS 101). I preparig the Group fiacial statemets, the Directors have also elected to comply with IFRSs issued by the Iteratioal Accoutig Stadards Board (IASB). Uder compay law the Directors must ot approve the fiacial statemets uless they are satisfied that they give a true ad fair view of the state of affairs of the Group ad the Compay ad of the profit or loss of the Group for that period. I preparig these fiacial statemets, the Directors are required to: Select suitable accoutig policies ad the apply them cosistetly Make judgemets ad accoutig estimates that are reasoable ad prudet State whether IFRSs as adopted by the Europea Uio ad IFRSs issued by the IASB ad applicable UK Accoutig Stadards have bee followed, subject to ay material departures disclosed ad explaied i the Group ad paret compay fiacial statemets respectively Prepare the fiacial statemets o the goig cocer basis uless it is iappropriate to presume that the Compay will cotiue i busiess The Directors are resposible for keepig adequate accoutig records that are sufficiet to show ad explai the Compay s trasactios ad disclose with reasoable accuracy at ay time the fiacial positio of the Compay ad the Group ad eable them SHAREHOLDER INFORMATION HOW WE PERFORMED HOW WE RUN OUR BUSINESS OVERVIEW OF THE YEAR ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 45

48 DIRECTORS REPORT to esure that the fiacial statemets ad the Remueratio Report comply with the Compaies Act 2006 ad, as regards the Group fiacial statemets, Article 4 of the IAS Regulatio. They are also resposible for safeguardig the assets of the Compay ad the Group ad for takig reasoable steps for the prevetio ad detectio of fraud ad other irregularities. Uder applicable law ad regulatios, the Directors are also resposible for preparig a Strategic Report, Directors Report, Directors Remueratio Report ad Corporate Goverace Statemet that comply with that law ad those regulatios. The Directors are resposible for the maiteace ad itegrity of the corporate ad fiacial iformatio icluded o the Compay s website. Legislatio i the Uited Kigdom goverig the preparatio ad dissemiatio of fiacial statemets may differ from legislatio i other jurisdictios. RETURN ON SALES INCREASED TO 21.6% Idepedet auditors Each of the Directors who held office at the date of approval of this Directors Report cofirm that, so far as they are aware, there was o relevat audit iformatio of which the auditors are uaware; ad each Director has take all the steps they ought to have take as a Director i order to make themselves aware of ay relevat audit iformatio ad to establish that the Compay s auditors are aware of that iformatio. The auditors, PricewaterhouseCoopers LLP, have idicated their willigess to cotiue i office ad a resolutio cocerig their reappoitmet will be proposed at the aual geeral meetig. PROFIT BEFORE TAX UP 9% Aual geeral meetig Havig take advice from the Audit Committee, the Board cosiders that the Aual Report ad Accouts, take as a whole, are fair, balaced ad uderstadable ad provide the iformatio ecessary for shareholders to assess the Compay s performace, busiess model ad strategy. Each of the Directors, whose ames ad fuctios are listed o page 42 cofirm that, to the best of their kowledge the Group fiacial statemets, which have bee prepared i accordace with IFRSs as adopted by the EU, give a true ad fair view of the assets, liabilities, fiacial positio ad profit of the Group; ad the Strategic Report cotaied o pages 11 to 33 icludes a fair review of the developmet ad performace of the busiess ad the positio of the Group, together with a descriptio of the pricipal risks ad ucertaities that it faces. The Compay s aual geeral meetig will be held at our Hampto Park West facility, Semigto Road, Melksham, Wiltshire SN12 6NB o 2 February 2017 at 10.30am. The Notice of Meetig ca be foud o pages 134 to 139. Registratio will be from 10:00am. Miles Igrey-Couter Compay Secretary 16 November ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

49 CORPORATE GOVERNANCE Statemet of compliace with the UK Corporate Goverace Code The Board of Directors believes i high stadards of corporate goverace, otwithstadig the Compay s size ad status as a member of the FTSE SmallCap idex, ad is accoutable to shareholders for the Group s performace i this area. This statemet describes how the Group is applyig the relevat priciples of goverace, as set out i the UK Corporate Goverace Code (the Code) which is available o the website of the Fiacial Reportig Coucil (FRC). OVERVIEW OF THE YEAR The Compay is a smaller compay for the purposes of the Code ad i cosequece certai provisios of the Code either do ot apply to the Compay or may be judged to be disproportioate or less relevat i its case. The Board cosiders that throughout 2016, Avo has complied with the Code, save i the followig three respects. Firstly, the Seior Idepedet Director does ot atted meetigs with the major shareholders to liste to their views (which is explaied further below). Secodly, the aual performace review of the Board has bee postpoed to take place i March 2017, outside the curret fiacial year to allow the ew Board members sufficiet time i their roles before udertakig a formal evaluatio. Fially, our ew Chief Executive, Mr R. Reie, was appoited o 1 December Uder the Code, Directors are required to retire ad be re-appoited at the first AGM after their appoitmet. As Mr R. Reie was appoited after the otice of AGM had bee circulated, Mr R. Reie did ot retire ad offer himself for reappoitmet ad will istead retire at this year s AGM. This statemet will address the mai subject areas of the Code amely leadership, effectiveess, accoutability ad relatios with shareholders. Remueratio is dealt with i the Remueratio Report o pages 55 to 73. The Board has a established framework of iteral cotrols coverig both fiacial ad o-fiacial cotrols. I additio, there is a ogoig process for idetifyig, evaluatig ad maagig sigificat busiess risks faced by the Group. This process was i place throughout the 2016 fiacial year ad accords with the Revised Guidace for Directors o Iteral Cotrol (formerly called the Turbull Guidace). The Board Durig the year there have bee three chages to the membership of the Board. Mr R. Reie assumed the role of Chief Executive o 1 December 2015 followig the retiremet of Mr P. Slabbert o 30 September Mr R. Wood retired from the Board with effect from the coclusio of the AGM o 26 Jauary 2016 ad Miss C. Posoby was appoited as his replacemet as Director ad Chair of the Remueratio Committee o 1 March The Board comprises the Chairma, two No-Executive Directors ad two Executive Directors who are the Chief Executive ad the Group Fiace Director. The Board treats the two No-Executive Directors as idepedet. Followig the retiremet of Mr R. Wood from the Board at the coclusio of last year s AGM, Mr P. Vervaat was appoited Seior Idepedet Director. Rules cocerig the appoitmet ad replacemet of Directors of the Compay are cotaied i the Articles of Associatio. Amedmets to the Articles must be approved by a special resolutio of shareholders. Uder the Articles all Directors are subject to electio by shareholders at the first aual geeral meetig followig their appoitmet, ad to re-electio thereafter at itervals of o more tha three years. The Board is aware of the FRC s suggestio that compaies outside the FTSE 350 should cosider the aual re-electio of all Directors. O the basis that this is ot a requiremet of the Code ad it has ot bee raised as a issue by ay shareholders the Board has chose ot to chage its existig practice. No-Executive Directors submit themselves for aual re-electio if they have served for more tha ie years sice first electio. Additioally, the No-Executive Directors are appoited by the Board o terms which allow for termiatio o three moths otice. Biographies of the Directors appear o page 42. These illustrate the rage of busiess ad fiacial experiece upo which the Board is able to call. The itetio of the Board is that its membership should be balaced betwee executives ad o-executives ad have the appropriate skills ad experiece. The special positio ad role of the Chairma uder the Code is recogised by the Board ad a writte statemet of the divisio of resposibilities of the Chairma ad Chief Executive has bee agreed. The Chairma is resposible for the leadership of the Board ad esurig its effectiveess o all aspects of its role ad the Chief Executive maages the Group ad has the prime role, with the assistace of the Board, of developig ad implemetig busiess strategy. Oe of the roles of the No-Executive Directors uder the leadership of the Chairma is to udertake detailed examiatio ad discussio of strategies proposed by the Executive Directors, so as to esure that decisios are i the best log-term iterests of shareholders ad take proper accout of the iterests of the Group s other stakeholders. The Chairma esures that meetigs of No-Executive Directors without the Executive Directors are held. SHAREHOLDER INFORMATION HOW WE PERFORMED HOW WE RUN OUR BUSINESS ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 47

50 CORPORATE GOVERNANCE How the Board operates The Chairma esures through the Compay Secretary that the Board ageda ad all relevat iformatio is provided to the Board sufficietly i advace of meetigs ad that adequate time is available for discussio of all ageda items, i particular strategic issues. The Chief Executive ad the Compay Secretary discuss the ageda ahead of every meetig. At meetigs the Chairma esures that all Directors are able to make a effective cotributio throughout meetigs ad every Director is ecouraged to participate ad provide opiios for each ageda item. The Chairma always seeks to achieve uaimous decisios of the Board followig due discussio of ageda items. The No-Executive Directors fully review the Group s operatioal performace ad the Board as a whole has, with a view to reiforcig its oversight ad cotrol, reserved a list of powers solely to itself which are ot to be delegated to maagemet. This list icludes appropriate strategic, fiacial, orgaisatioal ad compliace issues, icludig the approval of high level aoucemets, circulars ad the report ad accouts ad certai strategic ad maagemet issues. Examples of strategic ad maagemet issues iclude the followig: Approval of the aual operatig budget ad the three year pla The extesio of the Group s activities ito ew busiess ad geographic areas (or their cessatio) Chages to the corporate or capital structure Fiacial issues, icludig chages i accoutig policy, the approval of divideds, bak facilities ad guaratees Each Director has full ad timely access to all relevat iformatio ad the Board meets regularly with appropriate cotact betwee meetigs. All Directors receive a tailored iductio to the Group from the Compay Secretary o joiig the Board. Whe appoited, No-Executive Directors are made aware of ad ackowledge their ability to meet the time commitmets ecessary to fulfil their Board ad Committee duties. Procedures are i place, which have bee agreed by the Board, for Directors, where ecessary i the furtherace of their duties, to take idepedet professioal advice at the Compay s expese ad all Directors have access to the Compay Secretary. The Compay Secretary is resposible to the Board for esurig that all Board procedures are complied with. The removal of the Compay Secretary is a decisio for the Board as a whole. Committees of the Board Of particular importace i a goverace cotext are the three committees of the Board, amely the Remueratio Committee, the Nomiatios Committee ad the Audit Committee. The members of the Committees comprise the Chairma ad all the No-Executive Directors. The No-Executive Directors cotiue to regard the Chairma as addig sigificat value to the deliberatios of the Audit Committee ad his membership is ratified by Provisio C.3.1. of the Code, which permits listed compaies outside the FTSE 350 to allow the Chairma to sit o the audit committee where he or she was cosidered idepedet o appoitmet as Chairma. Mr P. Vervaat is Chairma of the Audit Committee. The Board is satisfied that Mr P. Vervaat has recet relevat fiacial experiece ad his profile appears o page 42. Mr D. Evas is Chairma of the Nomiatios Committee ad Miss C. Posoby is Chairma of the Remueratio Committee. Chages to the costitutio of the Board The approval of sigificat cotracts, for example the acquisitio or disposal of assets worth more tha 1,000,000 or the exposure of the Compay or the Group to a risk greater tha 1,000,000 The approval of ubudgeted capital expediture exceedig 250,000 The approval of quotatios ad sale cotracts where the sales commissio payable to a itermediary exceeds 10% of the et ivoice price Cosideratio ad approval of all proposed acquisitios ad mergers The Remueratio Committee s pricipal resposibilities are to decide o remueratio policy o behalf of the Board ad to determie remueratio packages ad other terms ad coditios of employmet, icludig appropriate performace related beefits for the Executive Directors ad other seior executives. The Chief Executive ad the Compay Secretary atted meetigs of the Committee by ivitatio, but are abset whe issues relatig to each of them are discussed. More details of the activities of the Remueratio Committee are set out i the Remueratio Report o pages 55 to 73. Copies of the terms of referece of the Nomiatios, Remueratio ad Audit Committees ad the terms ad coditios of appoitmet of the No-Executive Directors are available o the Compay s website or from the Compay Secretary. 48 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

51 Attedace at meetigs The Board schedules eight regular meetigs per year. This year two further meetigs were held o a ad hoc basis, by telephoe coferece, i coectio with the timig of the release of the Compay s 2015 results ad to provide a update to the 2016 tradig positio. All Committee ad Board meetigs held i the year were quorate. Directors attedace durig the year eded 30 September 2016 was as follows: Meetigs durig year eded 30 September 2016 Board Audit Remueratio Nomiatios Committee Committee Committee D. Evas R. Wood** R. Reie *** 6 2* 2* 2* A. Lewis 7 3* 2* - P. Vervaat C. Posoby **** * Attedace by ivitatio ** R. Wood retired from the Board o 26 Jauary 2016 *** R. Reie was appoited to the Board o 1 December 2015 **** C. Posoby was appoited to the Board o 1 March 2016 Performace evaluatio The formal performace evaluatio of the Board is scheduled to take place i March 2017, fallig outside the fiacial year uder review. The review was delayed util after the ed of the fiacial year to eable the ew appoitees to the Board, Mr R. Reie (appoited 1 December 2015) ad Miss C. Posoby (appoited 1 March 2016) to have sufficiet time i their roles before takig part i a formal evaluatio. Relatios with shareholders The Directors regard regular commuicatios with shareholders as extremely importat. All members of the Board receive copies of aalysts reports of which the Compay is made aware. The Board reports formally to its shareholders i a umber of ways, icludig: regulatory ews aoucemets or press releases i respose to evets or routie reportig obligatios, issuig a detailed Aual Report ad Accouts ad, at the half year, a iterim report. Regular dialogue takes place with istitutioal shareholders icludig presetatios after the Compay s prelimiary aoucemets of the half ad full year results. The Board receives commets from aalyst meetigs ad shareholder meetigs after both iterim ad fial results ad at other times durig the year. Shareholders have the opportuity to ask questios at the AGM ad also have the opportuity to leave writte questios with the Compay Secretary for the respose of the Directors. The Directors also make themselves available after the AGM to talk iformally to shareholders, should they wish to do so ad respod throughout the year to ay correspodece from idividual shareholders. At the AGM o 2 February 2017, the Board will be followig the recommedatios i the Code regardig the costructive use of aual geeral meetigs; as usual, the ageda will iclude a presetatio by the Chief Executive o aspects of the Group s busiess ad a opportuity for shareholders to ask questios. The level of proxies received for each AGM resolutio is declared after the resolutio has bee dealt with o a show of hads providig o poll has bee called for. The Board has o plas to itroduce poll votig o all busiess at geeral meetigs as a substitute for usig proxy votes, as this is ot a requiremet of the Code. The No-Executive Directors, havig cosidered the Code with regard to relatios with shareholders, are of the view that it is most appropriate for the shareholders to have regular dialogue with the Executive Directors. The results of all dialogue with shareholders are commuicated to the Board ad reviewed by all No-Executive Directors. However, should shareholders have cocers, which they feel caot be resolved through ormal shareholder meetigs, the Chairma, Seior Idepedet No- Executive Director ad the remaiig No-Executive Director may be cotacted through the Compay Secretary. Accoutability ad audit The Code requires that Directors review the effectiveess of the Group s system of iteral cotrols o a cotiuig basis. The scope of this review covers all cotrols icludig fiacial, operatioal ad compliace cotrols as well as risk maagemet. As idicated earlier, the Board has put i place a framework of iteral cotrols ad the Audit Committee has resposibility to review, moitor ad make policy ad recommedatios to the Board upo all such matters. The Directors ackowledge their resposibility for the Group s system of iteral cotrol. The Board, through the Audit Committee, keeps this system uder cotiuous review ad formally cosiders its cotet ad its effectiveess o a aual basis. Such a system ca provide oly reasoable, ad ot absolute, assurace agaist material misstatemets or losses. 152% OF OPERATING PROFIT CONVERTED TO CASH OVERVIEW OF THE YEAR SHAREHOLDER INFORMATION HOW WE PERFORMED HOW WE RUN OUR BUSINESS ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 49

52 CORPORATE GOVERNANCE The sectio o iteral cotrol i the Audit Committee Report o pages 53 to 54 ad the followig paragraphs describe relevat key procedures withi the Group s systems of iteral cotrol ad the process by which the Directors have reviewed their effectiveess. Systems exist throughout the Group which provide for the creatio of three year plas ad aual budgets; mothly reports eable the Board to compare performace agaist budget ad to take actio where appropriate. Procedures are i place to idetify all major busiess risks ad to evaluate their potetial impact o the Group. These risks are described withi the Strategic Report o pages 28 to 31. OPERATING Risk maagemet PROFIT UP 8% Risk is maaged by the Group Executive team durig the year, led by the Compay Secretary ad the Chief Executive. The Group Executive team sets its key priorities for successfully maagig the Group s busiesses. This process iheretly addresses risk ad the Compay Secretary sposors a exercise that esures the kow risks to the busiesses, together with ay ewly idetified risks, are assessed ad aalysed effectively ad that the priorities elimiate, miimise, cotrol or trasfer risk (or the effect thereof) as appropriate. The Compay Secretary also sposors a review of the cotiuig effectiveess of other aspects of the cotrol eviromet by the executive team. The risk maagemet process There is a clearly defied delegatio of authority from the Board to the busiess uits, with appropriate reportig lies to idividual Executive Directors. There are procedures for the authorisatio of capital expediture ad ivestmet, together with procedures for post-completio appraisal. Iteral cotrols are i existece which provide reasoable assurace of the maiteace of proper accoutig records ad the reliability of fiacial iformatio used withi the busiess or for publicatio. The Group fiace departmet maages the fiacial reportig process to esure that there is appropriate cotrol ad review of the fiacial iformatio icludig the productio of the cosolidated aual accouts. Group Fiace is supported by the operatioal fiace maagers throughout the Group, who have the resposibility ad accoutability for providig iformatio i keepig with our policies, procedures ad iteral best practices as documeted i the iteral cotrol maual. The Board has issued a Code of Coduct which reiforces the importace of a robust iteral cotrol framework throughout the Group. The Board recogises that a ope ad hoest culture is key to uderstadig cocers withi the busiess ad to ucoverig ad ivestigatig ay potetial wrogdoig. The Code sets out the procedure whereby idividuals may raise cocers i matters of fiacial reportig or ay other matter of cocer with maagemet ad directly with the Chairma of the Audit Committee to esure idepedet ivestigatio ad appropriate follow up actio. The Code is reviewed aually. ASSESSMENT IDENTIFICATION AND ANALYSIS The Board carried out quarterly reviews of the key risks facig the Group durig the year, followig the quarterly reviews coducted by the Group Executive maagemet team. The Board also carried out a aual review of the major busiess risks affectig the Group, icludig the macro risks. I the year uder review, the risk assessmets carried out both at busiess level ad at Board level cotiue to be reviewed ad stregtheed as part of the Board s ogoig respose to the FRC s Revised Guidace o Iteral Cotrol: Guidace to Directors. REVIEW OF EFFECTIVENESS OF CONTROL RISK REGISTER ELIMINATION / MINIMISE / CONTROL OR TRANSFER 50 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

53 Although the Board itself retais the ultimate power ad authority i relatio to decisio makig, the Audit Committee meets at least three times a year with maagemet ad, o two occasios, exteral auditors to review specific accoutig, reportig ad fiacial cotrol matters. This Committee also reviews the iterim, prelimiary ad aual statemets ad has primary resposibility for makig a recommedatio o the appoitmet, reappoitmet ad removal of exteral auditors. Disclosure ad trasparecy rules ( DTR ) Disclosures i respect of the DTR requiremets uder DTR are give i the Directors Report o pages 43 to 46 ad have bee icluded by referece. Goig cocer After makig appropriate equiries, the Directors have, at the time of approvig the fiacial statemets, formed a judgemet that there is a reasoable expectatio that the Compay ad Group have adequate resources to cotiue i operatioal existece for the foreseeable future. For this reaso, the Directors cotiue to adopt the goig cocer basis i preparig the fiacial statemets. This coclusio is based o a review of the resources available to the Group, takig accout of the Group s fiacial projectios together with available cash ad committed borrowig facilities. I reachig this coclusio, the Board has cosidered the magitude of potetial impacts resultig from ucertai future evets or chages i coditios, the likelihood of their occurrece ad the likely effectiveess of mitigatig actios that the Directors would cosider udertakig. Log-term viability statemet The Directors have assessed the viability of the Group over a three year period to September 2019, takig accout of the Group s curret positio ad the potetial impact of the pricipal risks documeted i the Strategic Report. Based o this assessmet, the Directors have a reasoable expectatio that the Compay will be able to cotiue i operatio ad meet its liabilities as they fall due over the period to September I makig this statemet the Directors have cosidered the resiliece of the Group, takig accout of its curret positio, the pricipal risks facig the busiess i severe but reasoable scearios, ad the effectiveess of ay mitigatig actios. This assessmet has cosidered the potetial impacts of these risks o the busiess model, future performace, solvecy ad liquidity over the period. The Directors have determied that the three-year period to September 2019 is a appropriate period over which to provide its viability statemet. I makig their assessmet, the Directors have take accout of the Group s et cash positio (see ote 19), its ability to raise ew fiace i most market coditios ad other potetial mitigatig actios such as restrictig divided paymets. Pim Vervaat Chairma of the Audit Committee 16 November 2016 OVERVIEW OF THE YEAR SHAREHOLDER INFORMATION HOW WE PERFORMED HOW WE RUN OUR BUSINESS ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 51

54 NOMINATIONS COMMITTEE REPORT The Nomiatios Committee, to which the Chief Executive is ormally ivited, reviews the Board structure, leads the process for Board appoitmets ad makes recommedatios to the Board, icludig o Board successio plaig. The Nomiatios Committee evaluates the balace of skills, kowledge ad experiece o the Board ad, i the light of this evaluatio, prepares a descriptio of the role for ew appoitmets. I idetifyig potetial cadidates for positios as No-Executive Directors, the Committee has full regard to the priciples of the Code regardig the idepedece of No-Executive Directors. The Committee met twice durig the year i coectio with idetifyig a replacemet for Mr R. Wood who retired o 26 Jauary Mai resposibilities The mai resposibilities of the Committee are as follows: To lead the process for idetifyig ad omiatig cadidates for the approval of the Board, to fill Board vacacies as ad whe they arise To put i place plas for successio To regularly review the Board s structure, size ad compositio takig ito accout the challeges ad opportuities facig the Group ad the skills, kowledge ad experiece eeded by the Board ad make recommedatios to the Board with regard to ay chages The Board s diversity policy ca be foud i the Corporate Goverace sectio of the Compay s website. Further iformatio, icludig the umber of wome i seior maagemet ad withi the orgaisatio is show i the Evirometal ad Corporate Social Resposibility Report o pages 34 to 41. Recet appoitmets to the Board Durig the year, the Committee recommeded to the Board the appoitmet of Miss C. Posoby as No-Executive Director ad Chair of the Remueratio Committee. The Committee iitiated the recruitmet process followig the retiremet of Mr R. Wood i Jauary The Committee re-visited the list of potetial cadidates provided to them by exteral recruitmet cosultats, Kor Ferry i coectio with the appoitmet of Mr P. Vervaat i 2015 ad cosidered some suggested cadidates put forward by the Group Executive team. The potetial cadidates were cosidered o the basis of their skills ad experiece i the cotext of the rage of skills ad experiece of the existig Board as a whole ad shortlisted for iterview with members of the Nomiatios Committee ad the Chief Executive. O the recommedatio of the Nomiatios Committee, the Board approved the appoitmet of Miss C. Posoby with effect from 1 March Kor Ferry have o other coectio with the Compay ad are a idepedet provider of services to the Compay. The Committee s terms of referece are available withi the Corporate Goverace sectio of the Compay s website All Directors are appoited by the Board followig a rigorous selectio process ad subsequet recommedatio by the Committee. Board appoitmets are made o merit, agaist criteria idetified by the Committee havig regard to the beefits of diversity o the Board, icludig geder. David Evas Chairma 16 November 2016 The Nomiatios Committee is also resposible for the Board s policy o diversity. The Board recogises the beefits of diversity. Diversity of skills, backgroud, kowledge, iteratioal ad idustry experiece, ad geder, amogst may other factors, will be take ito cosideratio whe seekig to appoit ew Directors to the Board. Notwithstadig the foregoig, all Board appoitmets will always be made o merit. 52 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

55 AUDIT COMMITTEE REPORT Mai resposibilities Reviewig the effectiveess of the Compay s fiacial reportig, iteral cotrol policies ad procedures for the idetificatio, assessmet ad reportig of risk Reviewig sigificat fiacial reportig issues ad judgemets Moitorig the itegrity of the Compay s fiacial statemets Keepig the relatioship with the auditors uder review, icludig their terms of egagemet, fees ad idepedece Moitorig the role ad effectiveess of the iteral audit fuctio Advisig the Board o whether the Committee believes the Aual Report ad Accouts, take as a whole, is fair, balaced ad uderstadable ad provides the iformatio ecessary for shareholders to assess the Compay s performace, busiess model ad strategy Activities durig the year The Audit Committee meets three times a year. Meetigs are also atteded by the Executive Directors ad o at least two occasios by represetatives of the Group s exteral auditors. At meetigs atteded by the exteral auditors time is allowed for the Audit Committee to discuss issues with the exteral auditors without the Executive Directors beig preset. A aual rollig ageda is reviewed to esure that all matters withi the Audit Committee s Terms of Referece durig the year are appropriately covered. The Committee operates uder formal terms of referece ad these are reviewed aually. The Committee cosiders that it has discharged its resposibilities as set out i its terms of referece to the extet appropriate durig the year. Fiacial reportig Durig the year the Committee reviewed the appropriateess of the Group s half year ad full year fiacial statemets icludig cosiderig sigificat fiacial reportig judgmets made by maagemet, takig ito accout reports from maagemet ad the exteral auditors. The mai areas of focus cosidered by the Committee durig 2016 were as follows: The presetatio of the fiacial statemets ad, i particular, the presetatio of adjusted performace ad the adjustig items. The Committee reviewed a paper prepared by maagemet ad reviewed the disclosure of adjusted items withi the Group s full year ad half year results, agreeig that the positio take i the fiacial statemets is appropriate Review of the key judgemets made i estimatig the Group s tax charge. The review ad discussio icluded a update o the curret positio ad the status of discussios with the relevat tax authorities. The Committee agreed that the positio take i the fiacial statemets is appropriate The eed to perform a impairmet review i respect of itagible assets ad goodwill o acquisitio. Followig review of a report summarisig the key issues i relatio to impairmet, the Committee cocurred with maagemet s assessmet that there were o triggerig evets i 2016 requirig a impairmet review except for goodwill arisig o acquisitios where such a review is madated by IFRS. The Committee cocurred with maagemet s assessmet that the carryig value of goodwill was ot impaired Review of the value ascribed to the itagible assets of the acquisitio made durig the year. The Committee reviewed a paper prepared by maagemet summarisig the key judgemets ad agreed that the positio take i the fiacial statemets is appropriate Review of the ogoig fudig level of the defied beefit pesio scheme. As the costs, assets ad liabilities are regularly reviewed ad advice is take from a idepedet actuary o the appropriateess of the assumptios used, the Committee agreed this was beig maaged appropriately At the request of the Board, the Committee cosidered whether the 2016 aual report was fair, balaced ad uderstadable ad whether it provided the ecessary iformatio for shareholders to assess the Compay s performace, busiess model ad strategy. Havig take accout of the other iformatio provided to the Board throughout the year, the Committee was satisfied that, take as a whole, the aual report was fair, balaced ad uderstadable The Committee was cotet, after due challege ad debate, with the assumptios made ad the judgemets applied i the accouts ad agreed with maagemet s recommedatios. I additio the Committee reviewed ad recommeded the approval of the statemets o corporate goverace, iteral cotrol ad risk maagemet i the aual report ad the half year ad tradig statemets. Exteral auditors The Committee oversees the relatioship with the exteral auditors ad moitors all services provided by ad fees payable to them, to esure that potetial coflicts of iterest are cosidered ad that a objective ad professioal relatioship is maitaied. OVERVIEW OF THE YEAR SHAREHOLDER INFORMATION HOW WE PERFORMED HOW WE RUN OUR BUSINESS ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 53

56 AUDIT COMMITTEE REPORT I particular the Committee reviews ad moitors the idepedece ad objectivity of the exteral auditors ad the effectiveess of the audit process. At the outset of the audit process, the Committee receives from the auditors a detailed audit pla, idetifyig their assessmet of the key risks ad their iteded areas of focus. This is agreed with the Committee to esure coverage is appropriately focused. Feedback o the audit process is requested from maagemet. For the 2016 fiacial year maagemet were satisfied that there had bee appropriate focus ad challege o the primary areas of audit risk ad assessed the quality of the audit process as satisfactory. The Committee cocurred with the view of maagemet. The Committee also keeps uder review the ature, extet, objectivity ad cost of o-audit services provided by the exteral auditors. PricewaterhouseCoopers LLP (PwC) have bee the Compay s exteral auditors for over 20 years. The Committee last reviewed the exteral audit madate i 2012 ad cofirmed the cotiuig appoitmet of PwC. This was o the basis that the Committee was comfortable that the PwC audit team remaied objective ad idepedet o the basis of the regular rotatio of the audit parter, which occurred i 2015 ad specific assurace provided by PwC to the Committee o the arragemets it has i place to maitai its idepedece. The provisio of exteral audit ad tax compliace are separated with tax compliace services provided by BDO i the US ad Tax Parter i the UK. The Committee cosiders the reappoitmet of the exteral auditor ad their idepedece o a aual basis. The ew regulatory requiremet to rotate the exteral audit madate does ot affect the Compay util 2020, after which date the Compay will udertake a full teder process. However, i order to esure the idepedece ad objectivity of the exteral auditors ad avoid a situatio where the auditor s familiarity with the Group s affairs results i excessive trust, the Committee maitais a formal Auditor Idepedece Policy. This policy provides clear defiitios of services that the exteral auditors ca ad caot provide. They may oly provide oaudit services where those services do ot coflict with their idepedece. A formal authorisatio policy is i place for the provisio of o-audit services to esure that appropriate preapproval is obtaied as ecessary. The latest versio provides that o-audit services with a value of more tha 50,000 or which cumulatively exceed the aual audit fee require the approval of the Board. This approach was preferred to cappig the value of o-audit services performed by the exteral auditor by referece to the exteral audit fee. The policy also establishes guidelies for the recruitmet of employees or former employees of the exteral auditor. To esure compliace with this policy the Audit Committee carried out a review durig the year of the remueratio received by PwC for audit services, audit-related services ad o-audit work. The breakdow of the fees paid to the exteral auditor, icludig the split betwee audit ad o-audit fees, is icluded i ote 5 o page 86 of the fiacial statemets. No o-audit services were carried out by PwC durig the year. These reviews esure a balace of objectivity, value for moey ad compliace with this policy. The outcome of these reviews was that o coflicts of iterest existed betwee such audit ad o-audit work. Iteral cotrol The Committee regularly reviews the effectiveess of the Group s system of iteral cotrols ad risk maagemet. This ivolves the moitorig ad reviewig of the effectiveess of iteral audit activities, which icluded a review of the audits carried out ad the results thereof, the maagemet respose ad the programme ad resourcig for 2016 ad The Committee believes it is appropriate that the iteral audit process is udertake by members of the fiace team who coduct fiacial reviews of the sites o a rotatioal basis. I additio, site cotrollers ad plat maagers are obliged to positively cofirm, o a bi-aual basis, that the cotrols as documeted i the iteral cotrol maual are i place ad are beig adhered to, with specific referece to key cotrols such as bak ad cotrol accout recociliatios. This process has bee i place for the year uder review ad up to the date of approval of the aual report ad fiacial statemets. It has bee reviewed by the Board ad cotiues to be moitored by the Committee, which remais satisfied with the arragemets. No sigificat failigs or weakesses were idetified by the iteral audit process but several mior improvemets were idetified ad implemeted. As part of its work, ad i lie with its terms of referece, the Committee also cosiders the discharge of the Board s resposibilities i the areas of corporate goverace, fiacial reportig ad iteral cotrol, icludig the iteral maagemet of risk, as idetified i the FRC s revised guidace o Iteral Cotrol: Guidace to Directors. Risk maagemet activities are dealt with i more detail i the Corporate Goverace Report o pages 47 to 51. Pim Vervaat Chairma of the Audit Committee 16 November ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

57 REMUNERATION REPORT Letter from the Chairma of the Remueratio Committee O behalf of the Board, I am pleased to preset my first Directors Remueratio Report for the year eded 30 September 2016 followig my appoitmet to the Board ad as Chair of the Remueratio Committee o 1 March The Remueratio Report is split ito three sectios: This Aual Statemet summarisig the work of the Remueratio Committee i 2016; The Directors Remueratio Policy (the Policy ) as approved at the last AGM; ad The Aual Report o Remueratio, which provides details of the remueratio eared by Directors i the year eded 30 September 2016 uder the Policy. This will be the subject of a advisory vote at the forthcomig AGM Performace As set out i the Strategic Report, the results for the year eded 30 September 2016 reflect a good performace for the year, i what have bee challegig market coditios. Icreases were see i reveue (6%) adjusted operatig profit (8%) ad adjusted earigs per share (33%). Strog fiacial maagemet has produced excellet cash coversio, meaig we eded the year with et cash of 2.0m. I additio, we have successfully itegrated our recet acquisitios, which broade our product rage ad routes to market. Remueratio Committee activities i 2016 The key decisios made by the Remueratio Committee ( the Committee ) i respect of 2016 remueratio were as follows: I accordace with our Policy, the basic salary for each Executive Director is reviewed ad bechmarked every three years, with icreases oly implemeted if curret salary levels were foud to be below the media of a comparator group. The previous review was i 2013 ad therefore a review ad bechmarkig exercise was coducted durig this fiacial year. No-Executive Director fees were reviewed i 2014 ad are froze uder the terms of the existig Policy util October The bous outcomes for the Executive Directors were determied by referece to performace agaist the agreed fiacial ad strategic busiess targets, as well as the Committee s assessmet of their idividual performace ad delivery of persoal objectives. The Compay s fiacial performace for the year, together with the assessmet of idividual performace ad cotributio, resulted i bous awards for the Executive Directors at 67% of maximum for Mr A. Lewis ad 52% of maximum for Mr R. Reie. Vestig of the 2010 Performace Share Pla (PSP) i December 2015, based o the agreed measures of relative Total Shareholder Retur (TSR) ad Earigs Per Share (EPS) growth over the three years to 30 September The overall vestig level achieved for these awards was 100%. The Directors Remueratio Policy was approved by shareholders at the Aual Geeral Meetig o 26 Jauary 2016 ad will remai i effect for three years or util shareholders are asked to approve a ameded versio. Although the Policy was comfortably approved, we received some feedback from shareholders i relatio to the oe off bous ad disclosure of actual bous targets ad have therefore icluded some clarificatio o these matters i the existig Policy to address these commets. The Policy Report is ot subject to a shareholder vote this year. Lik betwee remueratio ad Compay strategy The Committee seeks to support the delivery of the Group s strategy through establishig appropriate remueratio arragemets. The Policy is desiged to alig the Executive Directors iterests with those of shareholders, ad to icetivise the Executive Directors to meet the Compay s fiacial ad strategic objectives by makig a sigificat proportio of remueratio performace-related. The Group s fiacial ad strategic objectives are set out i the Strategic Report o pages 11 to 33. The Committee reviews the applicatio of the Policy regularly, to esure it remais appropriate. No amedmets are proposed to the Policy this year ad it is ot subject to a shareholder vote. Commuicatio with shareholders I welcome all shareholder feedback o this report. We ackowledge the support we have received i the past from our shareholders ad hope that we will cotiue to receive your support at the forthcomig AGM. Should you have ay queries i relatio to this report please do ot hesitate to cotact me through the Compay Secretary. Chloe Posoby Chairma of the Remueratio Committee 16 November 2016 OVERVIEW OF THE YEAR SHAREHOLDER INFORMATION HOW WE PERFORMED HOW WE RUN OUR BUSINESS ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 55

58 REMUNERATION REPORT Remueratio Policy Report The Compay s Remueratio Policy was approved by shareholders at the AGM o 26 Jauary 2016 ad took effect from that date. The Policy Report is ot subject to a shareholder vote this year but has bee reproduced here for ease of referece. Remueratio Committee The Remueratio Committee is resposible for developig ad implemetig remueratio policy ad for determiig the Executive Directors idividual packages ad terms of service together with those of the other members of the Group Executive maagemet team. Guidig policy The Remueratio Committee s terms of referece are available o the Compay s website ad iclude: Determiig ad agreeig with the Board the policy for the remueratio of the Compay s Chief Executive, Group Fiace Director, Chairma, the Compay Secretary ad such other members of the seior maagemet team as it chooses to cosider or is desigated to cosider (curretly the Group Executive maagemet team) Withi the terms of the agreed policy, determiig the total idividual remueratio package of each Executive Director icludig, where appropriate, bouses, icetive paymets, share optios ad pesio arragemets. The remueratio of No- Executive Directors is a matter for the Chairma ad the Executive Directors Reviewig the desig of all share icetive plas for approval by the Board ad shareholders. For ay such discretioary plas, determiig each year whether awards will be made, the overall amout of such awards, the idividual awards to Executive Directors ad the Group Executive maagemet team (ad others) ad the performace targets to be used Determiig the targets for ay performace-related bous schemes operated by the Compay Reviewig remueratio treds across the Group, icludig the salary icreases proposed aually for all Group employees Agreeig termiatio arragemets for seior executives The Committee aims to provide a remueratio structure that supports the achievemet of the Compay s performace objectives ad, i tur, icreases shareholder value. The Compay s guidig policy o executive remueratio is that: Executive remueratio packages should take ito accout the likage betwee pay ad performace by both rewardig effective maagemet ad by makig the ehacemet of shareholder value a critical success factor i the settig of icetives, both i the short ad the log term The overall level of salary, icetives, pesio ad other beefits should be competitive whe compared with other compaies of a similar size ad global spread to attract, retai ad motivate Executive Directors of superior calibre i order to deliver cotiued growth of the busiess Performace related compoets should form a sigificat proportio of the overall remueratio package, with maximum total potetial rewards beig eared through the achievemet of challegig performace targets based o measures that represet the best iterests of shareholders Approach to recruitmet remueratio The Committee s policy o recruitmet remueratio is that ew Executive Directors will be offered a base salary below the media level i the applicable bechmarkig report util prove, at which poit they will receive a uplift to the bechmark media salary level determied ad maitaied by referece to idepedet bechmarkig studies carried out every three years. Aual bous awards, performace share pla awards ad pesio cotributios would ot be i excess of the curret levels stated for the Chief Executive ad the Group Fiace Director. This is the approach that has bee followed i settig the remueratio package for the ew Chief Executive. I uusual circumstaces it may be ecessary to pay a joiig icetive to secure the right cadidate. The Committee might cosider payig up to 2.5 times base salary i these circumstaces with the actual amout beig defied by market requiremets at the time. However, ay such paymet would be subject to performace coditios ad a claw back o uderperformace durig the first two years of employmet. The Committee would be very cautious before usig such flexibility ad would do so oly whe absolutely ecessary to secure the right cadidate. Ay proposed buyout would take accout of remueratio give up at the idividual s former employer ad would be capped at the value foregoe. No joiig icetives were paid i coectio with the recruitmet of the ew Chief Executive, Mr R. Reie, except for relocatio expeses of 22, ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

59 Cosideratio of coditios elsewhere i the Compay The experiece of Committee members ad a idepedet experts bechmarkig report have bee relied upo i settig the remueratio packages for the Executive Directors ad this remueratio policy. Employees have ot bee specifically cosulted i this regard. I lie with other small to mid-sized compaies there is o works coucil ad therefore there is o established process or platform to cosult employees i relatio to executive remueratio. Cosistet with this approach aual cost of livig icreases grated to the wider workforce are ot paid to the Executive Directors or to the other members of the Group Executive maagemet team. The Committee moitors the remueratio of the wider workforce ad, i particular, the divisioal maagemet teams as well as other key employees. As with the curret policy for the Executive Directors, geeral practice across the Group is to recruit employees at market rates ad this teds to be at the media salary level or above to attract them to the Group. Because of the umbers ivolved ad the eed to absorb ew recruits at salaries comparable with those already employed, salaries are ormalised upwards over time to the media salary level so that the pay level of the workforce is always kept close to the media level ad maitaied at that level by the cost of livig icreases. Employees are the able to ear aual bouses i excess of the mid-market rate i retur for deliverig exceptioal performace. I additio, the Group Executive maagemet team maitais a bechmarkig database of all maagemet employees i the Group with the aim of esurig that each is beig paid at or ear the media local bechmark level for their role ad that, where applicable, each has a career ad associated salary progressio pla. It is possible that some of the more seior persoel withi that group will be brought withi the Committee s remit but the Committee remais comfortable that the Group Executive maagemet team sets the remueratio for the divisioal maagemet levels beeath it i the orgaisatio structure. Cosideratio of shareholder views Last year the the Chairma of the Committee cosulted with the three largest Compay shareholders o the proposed amedmets to the Policy ad the chages to the Performace Share Pla. We received some feedback from our shareholders i relatio to the itroductio of the oe off bous ad disclosure of bous targets ad have icluded further iformatio to clarify our positio o these poits withi the existig policy. OVERVIEW OF THE YEAR SHAREHOLDER INFORMATION HOW WE PERFORMED HOW WE RUN OUR BUSINESS ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 57

60 REMUNERATION REPORT Policy Table Set out below is a summary of the mai compoets of the remueratio policy for Directors, together with further iformatio o how these aspects of remueratio operate. The Directors Remueratio Policy was approved by shareholders at the Aual Geeral Meetig o 26 Jauary 2016 ad will remai i effect for three years or util shareholders are asked to approve a ameded versio. The Remueratio Committee has discretio to amed remueratio ad beefits i 2017 to the extet described i the table ad the writte sectios that follow it below. Elemet of remueratio Purpose ad lik to strategy Operatio Maximum potetial value* Performace targets Base Salary To provide competitive fixed remueratio. To attract ad retai Executive Directors of superior calibre i order to deliver growth for the busiess. Iteded to reflect that paid to seior maagemet of comparable compaies. Reflects idividual experiece ad role. Reviewed every three years by the Remueratio Committee. Idividual salary adjustmets take ito accout each Executive Director s performace agaist agreed challegig objectives ad the Group s fiacial circumstaces, as well as relative to the exteral market as idetified i a bechmarkig study based o a appropriate comparator group. A Executive Director may be paid a salary supplemet for fulfillig the role of aother higher paid Executive Director whe that Executive Director retires or leaves the Compay. No prescribed maximum trieial icrease. Basic salary should reflect the media of a suitable comparator group. Salary supplemet is capped at the leavig Director s base salary. Not applicable. Beefits As above. Executive Directors are etitled to medicals every two years ad private health isurace. Cash for car paymets were phased out i Life assurace is a beefit uder the pesio scheme but paid for by the Compay. Small loas have bee made i coectio with the joitly owed equity awards uder the Performace Share Pla. Full cost of healthcare beefits is circa 2k per Executive Director. Life assurace is provided as part of a group-wide policy ad therefore a specific cost caot be attributed to the Executive Director. Not applicable. Aual Bous Rewards the achievemet of aual fiacial ad strategic busiess targets ad delivery of persoal objectives. Maximum bous oly payable for achievig demadig targets. Deferred elemet ecourages log- term shareholdig ad discourages excessive risk takig. Paid i cash except 25% is deferred ito shares to be held for two years. Not pesioable. Deferral does ot apply to the percetage award relatig to achievemet of persoal objectives. Claw back applies if the fiacial results which led to the bous beig paid are restated due to a error i the subsequet two years. CEO ad FD: 150% of salary. The first 100% is based upo a combiatio of Group profit budget achievemet (Group PBITE), year o year PBITE growth ad Group cash geeratio (ratio of operatig cash flow to operatig profit) plus specific persoal performace targets. Bous i excess of 100% of salary is based upo EPS growth occurrig i excess of 20% over the previous year. Performace Share Pla Desiged to alig Executive Directors iterests with both the strategic objectives of deliverig sustaiable earigs growth ad the iterests of shareholders. The Compay has oe Performace Share Pla, which was origially approved by shareholders i 2010 ad most recetly ameded ad approved i Aual grats of coditioal share awards which vest after a three year performace period, subject to achievemet of performace targets ad cotiued service. Uder the rules of the PSP, Executive Directors may receive a ormal award of up to 100% of salary ad up to a further 100% i exceptioal circumstaces. For the ormal 100% award: 50% TSR (of which 25% vests for media icreasig to 100% vestig for upper quartile of the FTSE SmallCap Idex excludig ivestmet trusts). For awards after 1 October 2015, the FTSE All-Share Idex is used as the comparator group. 50% EPS (which starts vestig at il for RPI +3% risig to 100% at RPI +8%). For awards after 1 October 2015, CPI is used istead of RPI. For the additioal 100% exceptioal award: Fiacial performace coditios depedet o circumstaces of award, measured over a three year period. 58 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

61 SHAREHOLDER INFORMATION HOW WE PERFORMED HOW WE RUN OUR BUSINESS OVERVIEW OF THE YEAR Elemet of remueratio Purpose ad lik to strategy Operatio Maximum potetial value* Performace targets Share owership guidelies Pesio Oe off bous Chairma ad No- Executive Directors fees To icrease aligmet betwee executives ad shareholders. To reward sustaied cotributio by providig retiremet beefits. To mitigate cotiuity risk amogst Executive Directors associated with the departure of other Executive Directors by retaiig their services ad to reward extra work ad resposibility durig the recruitmet ad trasitio period. To provide compesatio i lie with the demads of the roles at a level that attracts high calibre idividuals ad reflects their experiece ad kowledge. Executive Directors are required to retai a proportio of their et of tax vested awards util the guidelie is met. The Compay fuds cotributios to a Director s pesio as appropriate, through cotributio to the Compay s moey purchase scheme or through the provisio of salary supplemets. Executive Directors may be awarded a oe off bous capped at oe year s base salary, payable i istalmets over a defied period ad subject to a adjustmet factor based o the Compay s TSR compared to a comparator group TSR over the defied period. Base fee for Chairma ad No- Executive Directors. Additioal fees are paid to No- Executive Directors for additioal services, such as chairig a Board Committee ad sittig o a Board Committee. Fee levels are determied by the Board i light of market research ad bechmarkig advice provided by a exteral advisor. Fees are bechmarked every three years ad adjusted to the media level of the comparator group. The first icreases pursuat to this bechmarkig were made o 1 October 2014 ad fees are ow fixed util October Executive Directors are required to build up ad maitai a shareholdig worth 200% of salary. A additioal two year holdig period applies for awards made i excess of 100% of salary. Compay cotributio fixed at 15% of salary. Oe year s base salary. No maximum fee or maximum fee icrease. Fees are bechmarked every three years ad adjusted to the media level of the comparator group. Not applicable. Not applicable. Paymet to be multiplied by a adjustmet factor set by referece to the Compay s relative TSR performace whe compared to the FTSE All-Share Idex excludig ivestmet trusts over the previous 12 moths. If Avo tracks the FTSE All Share exactly over the period the adjustmet factor is 1. For example, if Avo uderperforms by 10% the adjustmet factor is 0.9, if it outperforms by 10% the adjustmet factor is 1.1. Not applicable. ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 59

62 REMUNERATION REPORT There are o elemets of remueratio other tha basic salary, beefits ad pesio that are ot subject to performace requiremets. Illustratio of the applicatio of the Policy The chart below illustrates for both the Chief Executive ad Group Fiace Director how the Policy would fuctio for miimum, o target ad maximum performace for each Executive Director. 100% 80% 60% 40% 20% 0% 27% 41% 32% 100% of variable pay vests (maximum award) 21% 31% 48% 50% of variable pay vests (target) 100% 0% of variable pay vests Salary, beefits ad pesio Bous Performace shares Basic salary ad beefits The basic salary for each Executive Director is reviewed every three years by the Remueratio Committee. It is iteded that basic salary levels should reflect the media of a suitable comparator group selected accordig to size, idustry sector or locatio as a suitable bechmark group for the Compay ad will be paid subject to the Group s wider fiacial circumstaces. The Group s employees have received a icrease of approximately 8% over the same period, icludig aual cost of livig, promotioal icreases ad icreases based o exceptioal performace. The Compay has the ability to pay a salary supplemet where ay Executive Director takes o aother Executive Director s role i additio to their ow. The amout of supplemet will always be capped at the salary level of the Executive Director beig replaced. Aual cash bous The Executives aual bous arragemets are focused o the achievemet of the Compay s short ad medium-term fiacial objectives. Before the start of each year, the Remueratio Committee sets fiacial performace targets for the year. These are desiged to be stretchig. Bous paymets are ot pesioable. R. Reie A. Lewis 1. FINANCIAL TARGETS (a) Group profit budget achievemet (Group PBITE) 25% 25% Less tha 90% of budget pays othig. Bous is eared from 90% of budget pro rata up to 110% of budget o a straight lie basis. Measured (for foreig exchage traslatio) at budget exchage rates. (b) Profit growth o previous year (year o year PBITE growth) 25% 25% Bous will be eared for growth o the previous year betwee 0% ad 10% o a straight lie basis. Measured (for foreig exchage traslatio) at prior year exchage rates (i.e. costat currecy measure). (c) Group cash geeratio (ratio of operatig cash flow to operatig profit) 20% 20% As reported i the Aual Report ad Accouts each year. Pays o a straight lie basis where the ratio exceeds 80% up to a maximum of 100%. Excludes exceptioal items ad other adjustmets from both measures. (d) Earigs per share growth i excess of 20% over the previous year 50% 50% Calculated accordig to a ratchet mechaism set out i more detail below. 2. PERSONAL PERFORMANCE TARGETS A portio of bous ca be eared based o a idividual reviewer s assessmet of persoal performace agaist persoal performace targets set at the begiig of the fiacial year. 30% 30% TOTAL potetial bous 2016 as a percetage of basic salary 150% 150% 60 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

63 2016 For the year eded 30 September 2016, 120% of the Executive Directors bous potetial, capped at 150% of salary, was based o the achievemet of Group fiacial targets. The remaiig 30% was based o achievig measurable persoal performace targets, as show at the bottom of page 60. Performace measures (a) to (d) were the same as i previous years ad closely alig the performace of the Executive Directors with the strategy of the Compay s busiess ad shareholder value creatio. The persoal performace targets are a set of o-fiacial persoal targets which also support the delivery of the strategy. For a additioal 10% of EPS growth above 20% over the previous fiacial year s EPS (i.e. up to a maximum of 30% EPS growth over the previous fiacial year s EPS) additioal bous ca be eared o a pro rata basis up to the maximum as follows: R. Reie A. Lewis EPS measure 5% 5% for the first 2.5% of additioal growth 10% 10% for the secod 2.5% of additioal growth 15% 15% for the third 2.5% of additioal growth 20% 20% for the fourth 2.5% of additioal growth EPS meas, i relatio to ay year, the fully diluted earigs per share of the Group as adjusted to exclude the charge/credit i respect of discotiued operatios, exceptioal items, the revaluatio or impairmet of assets, the charge or credit related to IAS 19 (revised) ad the amortisatio of acquired itagible assets. % Additioal bous i excess of 100% of salary % Additioal bous eared v EPS growth % EPS growth % The maximum bous percetages were reviewed ad cofirmed as part of the trieial bechmarkig exercise durig 2016 ad the Committee decided ot to chage them. The Committee believes it cotiues to be ecessary to retai the ability to icetivise the Executive Directors to deliver truly exceptioal performace. The Committee has decided to review aually whether to iclude the 50% elemet for excess earigs per share growth. A claw back rule applies if the Group s fiacial results are restated due to a error durig the two years followig their release ad a deferral rule provides for 25% of aual bous paymets to be deferred ito shares to be held for two years, the treated as shares which are ot subject to the executive shareholdig guidelies. Oe off bous arragemets I order to mitigate cotiuity risk associated with the departure of a Executive Director ad to recogise ay extra work ad resposibility carried out durig this period, Executive Directors may be awarded a oe off bous capped at oe year s base salary, payable i istalmets over a defied period ad subject to a adjustmet factor based o the Compay s TSR compared to a comparator group TSR over the defied period. The Compay ameded its Remueratio Policy last year to iclude the ability to make such paymets, due to the specific circumstaces surroudig the departure of Mr P. Slabbert. Although the ameded Policy was approved by shareholders, the Committee recogises that shareholders may have cocers i relatio to such paymets ad the Committee cofirms it is ulikely to agree a further paymet of this type durig the term of this Policy. A oe off bous arragemet was implemeted for Mr A. Lewis i coectio with the retiremet of Mr P. Slabbert, i order to retai his services while the recruitmet ad trasitio to a ew CEO was completed. The paymet was also desiged to reflect the extra work ad resposibility Mr A. Lewis had to carry out durig this period. OVERVIEW OF THE YEAR SHAREHOLDER INFORMATION HOW WE PERFORMED HOW WE RUN OUR BUSINESS ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 61

64 REMUNERATION REPORT Log-term icetive pla Performace Share Pla (the Pla ) The Remueratio Committee itroduced the Pla with shareholder approval at the AGM i 2002 ad i 2010 ad 2016 shareholders approved a updated pla. The existig versio of the Pla therefore came ito effect from 26 Jauary 2016, with the aim of motivatig Executive Directors ad other seior executives to achieve performace superior to the Compay s peers ad to maitai ad icrease earigs levels whilst at the same time esurig that it is ot at the expese of loger-term shareholder returs. This is reflected i the Pla s performace coditios which are based o total shareholder retur (TSR) ad earigs per share (EPS). The Pla will expire i The curret fiacial performace coditios remai appropriate for a growig busiess ad the expectatios of shareholders over the life of the curret policy. They will therefore be applied to the ext cycle of awards i December No-fiacial performace coditios are ot cosidered appropriate at the curret stage i the developmet of the Group although this will be kept uder review. The TSR measure takes the total retur received by the Compay s shareholders i terms of share price growth ad divideds over a three-year period ad compares it with the total returs received by shareholders i compaies withi a predetermied ad appropriate comparator group. The EPS measure is based o real growth i earigs over the performace period where real growth is expressed as a percetage above iflatio. Uder the Pla, Executive Directors ad a limited umber of other seior executives ad employees receive coditioal share awards (which may be i the form of il-cost optios) i respect of the Compay s shares. The awards are split so that 50% vests i accordace with the TSR target ad 50% i accordace with the EPS target. The Committee cosidered as part of its 2015 review whether to make the targets apply cocurretly but decided agaist this, preferrig the balace of measures relatig to earigs growth ad log-term strategic performace that are assessed idepedetly of each other. The actual umber of shares that each participat receives depeds o the Compay s performace over a three-year performace period agaist the combied EPS/TSR target. The Committee believes followig its review that a three-year performace period remais appropriate for the Compay ad i lie with market practice. A exteded retetio period of two years applies for exceptioal awards i excess of 100% of salary. For the TSR measure, the performace of the Compay s shares over the performace period is compared with the TSR performace withi a comparator group comprisig the FTSE Small Cap Idex, excludig ivestmet trusts. For awards after 1 October 2015, the comparator group is the FTSE All Share idex (excludig ivestmet trusts). Over the three-year period: If the Compay s TSR performace is below the media TSR of the comparator group, o shares will vest If the Compay s TSR performace is equal to the media TSR of the comparator group, 25% of the shares may vest If the Compay s TSR performace is equal to, or exceeds, the upper quartile TSR of the comparator group, 100% of the shares may vest If the Compay s TSR performace is betwee the media ad upper quartile TSR of the comparator group, shares may vest o a pro rata basis The above schedule reflects the Remueratio Committee s itetio to reward oly TSR performace which outperforms the comparator group ad the Committee s view is that measurig this by referece to media ad upper quartile placig remais appropriate. Vestig accordig to the rakig of the Compay s TSR i the peer group Below media % of award vestig Media 25% Upper quartile 100% For the EPS measure, earigs per share over the performace period are compared with a scale which provides for il vestig at RPI +3% ad maximum vestig at RPI +8%, with vestig o a pro rata basis for performace betwee these two figures. This rage was first itroduced for the awards made i December 2011 ad remais appropriate, but the Committee will keep it uder review. It remais difficult to lik the EPS target to broker forecasts which oly look out oe year, but if iflatio is assumed to be 3%, the uder the EPS measure the Group has to grow profits by 20% over three years to achieve miimum vestig ad by 35% to achieve maximum vestig. These targets are ahead of the expectatios for those busiesses i the Compay s sector where loger-term forecasts are published. For all PSP awards from 1 October 2015, the Committee has ameded the calculatio of the EPS performace coditio to CPI istead of RPI o the basis that RPI is o loger a approved atioal statistic. EPS growth targets At or less tha RPI/CPI +3% il % of award vestig At or greater tha RPI/CPI +8% 100% I additio, the Committee has discretio to reduce the umber of shares which will vest or decide that o shares will vest if it cosiders that the fiacial performace of the Compay or the performace of the participat does ot justify vestig. il 62 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

65 The maximum value that ca curretly be grated uder the Pla rules i ay year for a ormal award is 100% of salary ad up to a further 100% i exceptioal circumstaces, if a appropriate busiess challege warrats such treatmet e.g. a major acquisitio or strategic iitiative. The performace coditios for special awards will be fiacial ad will be set at the time the awards are made. They are likely to be a more challegig versio of the existig TSR/EPS coditios, but the Committee may decide to use a differet fiacial performace coditio if appropriate i the circumstaces. The Committee has o curret plas to issue ay exceptioal awards. The Committee has discretio to allow good leaver status o a case by case basis. I additio, for added flexibility, the rules allow for a clea break whe a executive leaves. This permits vestig to be triggered at the poit of leavig by referece to performace at that date, rather tha waitig util the ed of the performace period if the Committee so decides. This, i tur, will allow vestig at rates appropriate to the Board s strategy for maagig a exit, for example to offset cash compesatio by allowig earlier vestig coditios. The curret remueratio policy is that both the Chief Executive ad Group Fiace Director should receive ormal awards of up to 100% of salary, beig the media level origially idetified i the 2011 EY bechmarkig report ad recofirmed i the 2016 EY bechmarkig report. O a chage of cotrol, ay vestig of awards will be pro-rated by referece to time ad performace. Uder the Pla as ameded i 2010, joit owership awards were permitted for the first time ad have bee issued to UK residet employees ever sice. I the Compay s case util 2016, savigs i employer Natioal Isurace Cotributios resultig from this were ot offset by the loss of corporatio tax credits because of the presece of historic corporatio tax losses i the UK. The Compay loas recipiets the small up-frot cost of purchasig their iterest i the joit owership award shares. For cosistecy the Executive Directors have bee treated i the same way as other recipiets ad have therefore received small loas i coectio with their outstadig awards. The total value of the loas received by the Executive Directors is capped at 10,000. As aouced to shareholders i December 2015, joit owership awards, il cost optios ad coditioal awards of shares were grated uder the 2010 Pla to the Executive Directors, members of the Group Executive maagemet team ad other valued employees. A further award will be made i December 2016 withi the existig parameters of the Pla as described above ad at 100% of salary for the Chief Executive. Shareholdig guidelies Executives participatig i the Performace Share Pla are required to build up ad retai a shareholdig i the Compay. For Executive Directors, the shareholdig requiremet is two times base salary. For other recipiets the shareholdig requiremet is equivalet to oe times base salary. The Executive Directors ad other members of the Group Executive maagemet team are required to retai a portio of ay awards that vest uder the Pla util their respective shareholdig guidelie is met. Oce the shareholdig guidelie is met executives are ot required to retai ay portio of future awards that vest. For the ew special awards i excess of 100% of salary, a two year madatory holdig period applies followig the three year performace period for such awards. At the ed of this period the shares subject to the award will ot be subject to the shareholdig guidelies for ormal awards ad may be sold. Dilutio The Compay reviews the awards of shares made uder the all employee ad executive share plas i terms of their effect o dilutio limits i ay rollig te-year period. The curret positio is set out o page 71 of this report ad o chage to this is proposed. I summary, i 2011 shareholders approved a 15% dilutio limit for all employee schemes which is i excess of the 10% recommeded by the ABI, ad a 10% dilutio limit for discretioary (executive) schemes which is i excess of the 5% recommeded by the ABI. At the time the Compay committed to cosult with certai istitutioal shareholders before exceedig the 10% limit but has ever had cause to do this ad has o plas to exceed 10% i future. I practice there is therefore a 10% dilutio limit o all schemes which the Compay will cotiue to operate withi, icludig whe utilisig the higher salary cap proposed uder the Performace Share Pla ad the ew CSOP ad ISO plas. Other share plas Shareholders approved the itroductio of the Avo Rubber p.l.c. Share Icetive Pla (the SIP ) at the AGM i February All UK tax residet employees of the Compay ad its subsidiaries are etitled to participate. Uder the SIP, participats purchase shares i the Compay mothly usig deductios from their pre-tax pay. The maximum cotributio each moth uder the SIP is 150, a sum which is set by the Govermet. Mr A. Lewis participated i the SIP at the maximum level durig the year, Mr R. Reie is ot curretly a member. Shareholders also approved the itroductio of the Avo Rubber p.l.c. Employee Stock Purchase Pla (the ESPP ) at the AGM i February The ESPP is ope to all US tax residet employees ad allows participats to accumulate deductios from their post-tax pay over a offerig period of 12 moths. The maximum cotributio for each 12 moth period is $3,000. At the coclusio of the offerig period the accumulated fuds are used to purchase the Compay s shares at a discout. Executive Directors were ot eligible to participate i the ESPP. Last year shareholders approved the itroductio of two ew share optio schemes, the Avo Rubber p.l.c Share Optio Pla (the CSOP ) i the UK ad the Avo Rubber p.l.c Icetive ad No- Qualified Stock Optio Pla (the ISO ) i the US. Awards uder both schemes are targeted at juior maagemet ad may be supplemeted by uapproved share optios. Neither Mr A. Lewis or Mr R. Reie will be grated awards uder the CSOP ad either will be etitled to participate i the ISO. OVERVIEW OF THE YEAR SHAREHOLDER INFORMATION HOW WE PERFORMED HOW WE RUN OUR BUSINESS ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 63

66 REMUNERATION REPORT Pesio Uder the Policy, UK-based Executive Directors joiig the Compay are offered defied cotributio arragemets. Uder the Compay s moey purchase scheme, members receive a pesio based upo the size of their retiremet accout o retiremet from age 65. Membership of the pesio scheme etitles members to life assurace which pays a lump sum of four times pesioable salary o death, together with a spouse s pesio of oe quarter of the member s pesioable salary. The Compay fuds cotributios to a Executive Director s pesio as appropriate, through cotributio to the Compay s moey purchase scheme or through the provisio of salary supplemets. Both Mr R. Reie ad Mr A. Lewis receive a compay pesio cotributio equal to 15% of aual salary. Service cotracts ad policy o paymets for loss of office The Compay s policy is that Executive Directors should ormally be employed uder a cotract which may be termiated by either the Compay or the Executive Director givig 12 moths otice. The Compay may termiate the cotract with immediate effect with or without cause by makig a paymet i lieu of otice by mothly istalmets of salary ad beefits to a maximum of 12 moths, with reductios for ay amouts received from providig services to others durig this period. There are o obligatios to make paymets beyod those disclosed elsewhere i this report. The Remueratio Committee may vary these terms if the particular circumstaces surroudig the appoitmet of a ew Executive Director demad it but this would be exceptioal ad has ever occurred. The parameters for varyig the cotractual terms o recruitmet are described i the guidig policy sectio above. The Remueratio Committee strogly edorses the obligatio o a Executive Director to mitigate ay loss o early termiatio ad will seek to reduce the amout payable o termiatio where it is appropriate to do so. The Committee will also take care to esure that, while meetig its cotractual obligatios, poor performace is ot rewarded. The Executive Directors cotracts cotai early termiatio provisios cosistet with the policy outlied above. Other appoitmets Neither Mr R. Reie or Mr A. Lewis is curretly appoited as a No-Executive Director of ay compay outside the Group. The Remueratio Committee will cosider its approach to the treatmet of ay fees received by Executive Directors i respect of No-Executive roles as they arise. Chairma ad No-Executive Directors No-Executive Directors are ot employed uder service cotracts ad do ot receive compesatio for loss of office. All No-Executive Directors are appoited o a rollig aual basis, which may be termiated o givig three moths otice at ay time. Chairma ad No-Executive Director appoitmets are subject to Board approval ad electio by shareholders at the aual geeral meetig followig appoitmet ad, thereafter, re-electio by rotatio every three years. Ay No-Executive Director who has served for more tha ie years sice first electio is subject to aual re-electio by shareholders. This will apply to Mr D. Evas from this year. The date of each appoitmet is set out below, together with the date of their last re-electio by shareholders. Date of iitial appoitmet Date of last re-electio D. Evas 1 Jue Jauary 2016 C. Posoby 1 March 2016 /a P. Vervaat 1 March Jauary 2016 R. Wood 1 December Jauary 2015 (retired 26 Jauary 2016) The table below summarises key details i respect of each Executive Director s cotract. Cotract Compay Executive date otice period otice period A. Lewis 28 September moths 12 moths R. Reie 30 September moths 12 moths 64 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

67 Aual report o remueratio Role ad compositio of the Remueratio Committee The Remueratio Committee is resposible for developig ad implemetig remueratio policy ad for determiig the Executive Directors idividual packages ad terms of service together with those of the other members of the Group Executive maagemet team. The Committee comprises Miss C. Posoby, who became Chair of the Committee o her appoitmet o 1 March 2016, Mr D. Evas ad Mr P. Vervaat. The Committee uses exteral idepedet professioal advisers whe eeded. KPMG are the Compay s idepedet actuarial advisor o pesio matters ad will provide the Committee with iformatio o executive pesio arragemets whe this caot be provided by the pesio scheme actuary AoHewitt. EY provide aual performace moitorig data ad share award valuatios for review by the Committee i relatio to the Performace Share Pla. EY also provide remueratio bechmarkig of the reward packages received by the Executive Directors, the Group Executive ad the fees received by the Chairma ad the other No-Executive Directors as well as more geeral advice o executive remueratio. The Compay s solicitors, TLT LLP, provide advice o remueratio goverace ad all share plas. The Committee addressed the followig mai issues durig the last year: Approved the aual bous paymets to the Executive Directors i November 2015 Approved the aual bous pla for the Executive Directors for the 2016 fiacial year Reviewed ad cofirmed the vestig of the 2013 Performace Share Pla awards i December 2015 Reviewed ad approved the 2016 Performace Share Pla awards grated i December 2015 ad moitored the performace of the outstadig awards agaist their performace targets Reviewed the executive maagemet successio pla Oversaw the remueratio bechmarkig process for the Executive Directors ad Group Executive maagemet team Sice the ed of the 2016 fiacial year, the Committee has: Approved aual bous paymets to the Executive Directors ad the Group Executive maagemet team, followig completio of the exteral audit i November 2016 Made preparatios for the 2017 Performace Share Pla awards to be grated i December 2016 Implemetatio of the Remueratio Policy for 2016 Result of 2016 bechmarkig exercise I accordace with our Policy, the basic salary for each Executive Director is reviewed ad bechmarked every three years, with icreases oly implemeted if curret salary levels were foud to be below the media of a comparator group. The previous review was i 2013 ad therefore a review ad bechmarkig exercise was coducted durig this fiacial year. The review cocluded that the media for the Executive Directors had ot icreased i this time. I accordace with our Policy, o Mr R. Reie s appoitmet as Chief Executive Officer, his salary was set below the curret media level, to be icreased to the media oce prove. Mr R. Reie s salary will be icreased to the media of 330,000 as from 1 October Followig the resigatio of Mr A. Lewis as Group Fiace Director o 18 October 2016, his permaet successor s salary will be cofirmed, i accordace with the Policy, followig appoitmet. Basic salaries for Directors Basic salary Up to From Icrease 30 September 1 October R. Reie 300, ,000 10% A. Lewis 252,000 /a /a No-Executive Directors As detailed i the Policy, the fees for No-Executive Directors are determied i light of market research ad bechmarkig advice provided by a exteral advisor. Fees are bechmarked every three years ad adjusted to the media level of a comparator group. The first icreases pursuat to this bechmarkig were made o 1 October 2014 ad fees are ow fixed util October Curret fees for No-Executive Directors are as follows: % Icrease Chairma 125, ,000 - Base fee No-Executive 38,500 38,500 - Committee Chairma fee 10,000 10,000 - Committee attedace fee 2,000 2,000 - OVERVIEW OF THE YEAR SHAREHOLDER INFORMATION HOW WE PERFORMED HOW WE RUN OUR BUSINESS ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 65

68 REMUNERATION REPORT The iformatio that follows has bee audited (except where idicated) by the Compay s auditors PricewaterhouseCoopers LLP. Directors remueratio for the year eded 30 September 2016 was as follows: Sigle total figure of remueratio for Directors for the year eded 30 September 2016: Fixed Pay Pay for performace Year Basic salary ad fees 000 Pesio/other supplemets 000 Other Beefits* 000 Sub-total 000 Aual Bous** 000 PSP 000*** Subtotal 000 Total Remueratio 000 Executive Directors ⁵ R. Reie ⁶ ,000 1,307 A. Lewis No-Executive Directors , D. Evas P. Vervaat C. Posoby Former Directors R. Wood P. Slabbert ,052 1, ,155 1, S. Pirie Total ,328 2,019 2, ,732 2, ,091 1,913 2,782 1 C. Posoby was appoited to the Board with effect from 1 March R. Wood retired from the Board o 26 Jauary P. Slabbert retired from the Board o 30 September S. Pirie retired from the Board o 29 Jauary R. Reie was appoited to the Board with effect from 1 December This amout icludes a salary supplemet for actig as Iterim Chief Executive durig October ad November * This is the cost of private health isurace, executive medical ad for R. Reie, relocatio costs paid. No Director waived emolumets i respect of the year eded 30 September 2016 (2015: il). ** 2016 bous paymets as a percetage of salary were 77.5% for R. Reie ad 100% for A. Lewis, agaist maximum percetages of 150%. I respect of A. Lewis this icludes a 252,000 oe off bous as per the Remueratio Policy. *** Calculated by multiplyig the umber of shares that vested by the share price o the day of vestig, which i 2016 was 1030p (100% vestig), 2015 was 720p (96% vestig), i 2014 was 570p (100% vestig). 66 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

69 Percetage chage i remueratio of the CEO compared with other employees (uaudited) The Committee cotiues to believe it is iappropriate to compare the percetage chage i remueratio of the CEO with the wider workforce. This is because the CEO s salary is fixed ad brought up to the media level every three years, whereas the wider workforce are, largely, already at the media level ad receive aual cost of livig icreases. Nevertheless i lie with curret practice, we have reported chages i the CEO s remueratio agaist the wider workforce. Last year we reported that, havig brought the CEO s salary up to the media level i 2013, we expected future icreases, made to keep track with the media, to start aligig with the aual icreases made to other employees each year, whe measured over a three-year period. The result of the 2016 bechmarkig exercise is that the CEO s 2013 salary remais the media of the 2016 comparator group ad the icrease beig made for Mr R. Reie i October 2016 brigs his salary up to that level. The followig table sets out the percetage chage i remueratio betwee the reported year ad the precedig year i certai aspects of the CEO s remueratio ad the average of employees across the Group: OVERVIEW OF THE YEAR CEO All employees Salary +18% 0% -9% +3% +3% +2% Beefits 0% 0% 0% 0% 0% 0% Aual Bous +88% -1% -61% +15% +8% -51% The ratio of CEO fixed pay to average employee fixed pay is 9.6:1 for the year uder review (2015: 11.3:1). Relative importace of sped o pay (uaudited) The followig table shows actual expediture of the Group ad the chage i expediture betwee curret ad previous fiacial periods o remueratio paid to all employees globally, set agaist distributios to shareholders ad other uses of profit or cash flow beig profits retaied withi the busiess ad ivestmets i research ad developmet ad property, plat ad equipmet: Global remueratio sped Divideds to shareholders Other expediture as a percetage of global remueratio sped Profit retaied Research ad developmet expediture Expediture o property, plat ad machiery % 000 % 000 % 000 % ,211 2, % 15, % 8, % 3, % ,344 1, % 11, % 7, % 3, % ,423 1, % 9, % 7, % 3, % SHAREHOLDER INFORMATION HOW WE PERFORMED HOW WE RUN OUR BUSINESS ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 67

70 REMUNERATION REPORT Aual bous (uaudited) The Remueratio Committee determied at its meetig o 10 November 2016 that the criteria for makig a award uder the aual bous scheme had bee met. No discretio was exercised by the Committee to reduce or icrease paymets. The breakdow is as follows: R. Reie A. Lewis Actual Max. Actual Max. 1. Fiacial Targets (a) Group profit budget achievemet (Group PBITE) 0% 25% 0% 25% (b) Profit growth o previous year (year o year PBITE growth) 0% 25% 0% 25% (c) Group cash geeratio (ratio of operatig cash flow to operatig profit) 20% 20% 20% 20% (d) Earigs Per Share growth (ratchet based o additioal EPS growth above 20% over the previous fiacial year) 50% 50% 50% 50% 2. Persoal Performace Targets 7.5%* 30% 30% 30% Total potetial bous 2016 as a percetage of basic salary 77.5% 150% 100% 150% * As the 2016 fiacial targets were ot met, a 50% reductio factor was applied to the persoal performace elemet of Mr R. Reie s bous uder the rules of the Group Performace Maagemet Process. Uder the terms agreed with Mr A. Lewis, i coectio with his departure o 30 November 2016, it was cofirmed that the 50% reductio factor would ot be applied to the performace elemet of his bous paymet. The Board cosiders the disclosure i advace of actual performace agaist the targets for the upcomig year to be commercially sesitive ad the Committee has take the decisio ot to disclose them. The Committee is ot of the view that such targets will ecessarily always be cofidetial but will keep this uder review. The Committee is prepared to disclose fiacial performace targets ad performace agaist them retrospectively as set out below: Fiacial Performace targets for the year eded 30 September 2016 (uaudited) Threshold (0% payable) Target (50% payable) Stretch (100% payable) Actual/Reported Applied Bous payable Group PBITE ( 000) Year o year PBITE growth ( 000) Group cash geeratio* 22,724 25,249 27,774 21,763 0% 0% 22,493 23,618 24,742 21,763 0% 0% 80% 90% 100% 152% 100% 20% EPS growth** 2.5% 6.6% 10% 13.3% 100% 50% * ratio of operatig cashflow to operatig profit ** ratchet based o additioal EPS growth above 20% over the previous fiacial year Of the bous payable 75% will be paid i cash ad the remaiig 25% to be deferred ito shares to be held for two years. A claw back rule applies if the Group s fiacial results are restated due to a error durig the two years followig release. 68 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

71 Oe off bous I 2015, Mr A. Lewis was grated a bous award, subject to the performace coditios explaied below, i coectio with the retiremet of the CEO Mr P. Slabbert, i order to retai his services while the recruitmet ad trasitio to a ew CEO was completed. The paymet was also desiged to reflect the extra work ad resposibility Mr A. Lewis had to carry out durig this period. The total amout of the bous was capped at Mr A. Lewis s aual salary of 252,000 ad was oly to be paid if he remaied i post ad performed satisfactorily, as determied i the Board s sole discretio, at the time paymet was due to be made. This bous paymet is ot pesioable. OVERVIEW OF THE YEAR Amout Payable Adjustmet factor Amout paid Calculatio of adjustmet factor 150,000 Withi 14 days of the aoucemet of the 2016 iterim results 50,000 Withi 14 days of the aoucemet of the 2016 fial results Paymet to be multiplied by a adjustmet factor set by referece to the Compay s relative TSR performace whe compared to the FTSE All Share Idex excludig ivestmet trusts over the previous 12 moths (i respect of the first paymet) ad 18 moths (i respect of the secod paymet). If Avo tracks the FTSE All Share exactly over the period the adjustmet factor is 1. For example, if Avo uderperforms by 10% the adjustmet factor is 0.9, if it outperforms by 10% the adjustmet factor is 1.1 * To be paid to Mr A. Lewis o 30 November 2016 as part of the terms agreed i coectio with his departure o 30 November Pesios 182, ,509* As cofirmed uder the Policy, the Executive Directors are etitled to receive a cotributio towards pesio of 15% of basic salary, paid either as a o-pesioable salary supplemet or delivered though the group s moey purchase scheme. Mr A. Lewis has capped his aual cotributios ito the Pla at 10,000 ad the excess is paid to him as a mothly salary supplemet. Mr A. Lewis s membership etitles him to life assurace which pays a lump sum of four times pesioable salary o death i service ad a spouse s pesio of oe quarter of the member s salary. Mr R. Reie has reached the lifetime allowace ad has ot joied the Pla. His pesio cotributio is paid etirely as a salary supplemet which Mr R. Reie uses to purchase Compay shares at market price every three moths uder a tradig pla as defied ad required uder paragraphs 23 to 26 of the Model Code at Aex 1 of Listig Rule 9 ad as aouced to shareholders o 8 March Mr R. Reie is ot i receipt of life assurace cover provided by the Compay. The employer pesio cotributio is show i the table below: Executive Director Salary supplemet Cotributio ito the Pla R. Reie 38 - A. Lewis The Compay does ot cotribute to ay pesio arragemets for No-Executive Directors. SHAREHOLDER INFORMATION HOW WE PERFORMED HOW WE RUN OUR BUSINESS ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 69

72 REMUNERATION REPORT Directors shareholdigs ad share iterests Beeficial iterests of Directors, their families ad trusts i ordiary shares of the Compay were: At the ed of the year At the begiig of the year R. Reie 12,157 /a A. Lewis 60,146 * 87,055 D. Evas 40,000 40,000 R. Wood (retired 26 Jauary 2016) /a - C. Posoby - /a P. Vervaat 2,000 - * Icludes 9,198 shares held uder the aual bous deferral scheme Iterests i joitly owed shares held by the Executive Directors uder the Performace Share Pla are excluded from the above ad detailed separately opposite. The oly chage i the iterests set out above betwee 30 September 2016 ad 16 November 2016 were the additioal shares bought by Mr A. Lewis uder the Share Icetive Pla, which icreased his total shareholdig to 60,176. The register of Directors iterests cotais details of the Directors shareholdigs ad share optios. The positio uder the shareholdig guidelies for the Executive Directors is set out o page 71. Performace Share Pla 2010 (the Pla) The Committee determied i December 2015 that the 2013 award vested i full o the basis that the TSR over the three years from 1 October 2013 to 30 September 2015 was sigificatly ahead of the upper quartile of the comparator group. As a cosequece, ad as aouced to shareholders i December 2015, 46,893 shares were awarded to Mr A. Lewis ad 82,063 shares were awarded to Mr P. Slabbert. The Directors cotiget iterests i ordiary shares uder the Pla at 30 September 2016 were as follows: 30 Sep Grated i Exercised i Lapsed i 30 Sep 2015 the year* the year** the year 2016*** P. Slabbert 1 135,286 - (82,063) - 53,223 R. Reie - 27, ,650 A. Lewis 125,354 23,226 (46,893) - 101,687 Other seior employees**** 508, ,806 (204,487) (15,135) 404, , ,682 (333,443) (15,135) 586,727 1 P. Slabbert retired o 30 September 2015 * The award price at the date of grat was 1085 pece ** The market price at the vestig date for the 2013 award was 1073 pece *** The weighted average remaiig life of the awards outstadig at the year-ed is 1.2 years (2015: 1.1 years). **** This figure icludes 162,932 (2015: 180,383) i respect of key maagemet as defied i ote 9 of the fiacial statemets. Outstadig awards grated aually uder the Pla were as follows: Total* For grats of joit owership awards, optios or coditioal awards made to date pursuat to the Pla, the performace coditios have bee based o the Compay s TSR relative to the TSR of a comparator group, comprisig the FTSE SmallCap compaies (excludig ivestmet trusts). Uder the ameded Policy approved last year, the comparator group for awards after 1 October 2015 will use the FTSE All-Share idex (excludig ivestmet trusts). For the Cycles grated i 2014, 2015 ad 2016 a split performace coditio applied so that 50% of the award vests i accordace with the TSR target ad 50% i accordace with a EPS target based o real growth i earigs over the performace period where real growth is expressed as a percetage above iflatio. P. Slabbert 1 37,950 15,273-53,223 R. Reie ,650 27,650 A. Lewis 43,471 34,990 23, ,687 Other seior employees 139, , , , , , , ,727 1 P. Slabbert retired o 30 September 2015 * I relatio to the awards outstadig at 30 September 2016, deferred loa paymets for the awards grated i 2014, 2015 ad 2016 will become due to the Compay as follows: A. Lewis 9, (2015: 10,000). R. Reie 3, (2015: il) The award price for the 2016 was 1085 pece, for the 2015 award it was pece, for the 2014 award it was pece ad for the 2013 award it was pece. The twofold test based o TSR performace ad EPS is i lie with market practice ad ecourages maagemet to maitai ad icrease earigs levels whilst at the same time esurig that it is ot at the expese of loger term shareholder retur. I 2011, the Committee set the EPS target as il vestig at RPI +3% ad maximum vestig at RPI +8% with vestig o a pro rata basis i betwee these two figures. For all awards from 1 October 2015, amely the 2016 awards, RPI was replaced with CPI o the basis that RPI is o loger a atioal statistic. 70 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

73 PSP 30 Sep 30 Sep 30 Sep 30 Sep Performace Period years (Cycle E)⁵ (Cycle F)³ (Cycle G)⁴ (Cycle H)⁴ edig TSR elemet¹ 50% 50% 50% 50% EPS elemet² 50% 50% 50% 50% Total exercisable rate (% grat) 100% Based o Avo Rubber p.l.c. s Total Shareholder Retur raked relative to compaies i the FTSE SmallCap Idex at the start of the period. 2 Based o the real growth i earigs over the performace period where real growth is expressed as a % above iflatio. 3 The three year performace period i respect of these awards is complete but vestig is ot determied util the ed of November followig release of the Group results. 4 The three year performace periods i respect of these awards is ot yet complete. 5 These awards vested i full i December 2015 o the basis of a Compay TSR of 225% compared to the upper quartile of the comparator group at 112% Positio uder shareholdig guidelies Shares held Shareholdig as Actual Target Achievemet volutarily i at 30 Sep 2016* value** Value **** excess of guidelie Number of shares Number of shares A. Lewis 60, % 10,245 R. Reie 12, % - * Take from the table o page 70. ** Usig the closig share price o 30 September 2016 of 1010 pece. *** 200% of curret salary for Executive Directors salaries used are those effective 1 October **** Actual value as a percetage of curret salary. Dilutio I respect of the 5% ad 10% limits recommeded by the Associatio of British Isurers, the relevat percetages were 8.15% ad 9.23% respectively based o the issued share capital at 30 September As at 30 September 2016, the umber of shares committed uder discretioary share-based icetive schemes sice 30 September 2006, less the umber of shares purchased i the market to satisfy previous awards that had vested ad the shares held i the Employee Share Owership Trust gives 2,527,306 shares. This represets 8.15% dilutio agaist the 10% discretioary pla dilutio limit. As at 30 September 2016, the umber of shares committed uder all employee share-based icetive schemes sice 30 September 2006, less the umber of shares purchased i the market to satisfy previous awards that had vested ad the shares held i the Employee Share Owership Trust gives 2,864,612 shares which represets 9.23% dilutio agaist the 15% all employee pla dilutio limit. It remais the Compay s practice to use Employee Share Owership Trusts ( ESOTs ) i order to meet its liability for shares awarded uder the Pla. Two trusts have bee established i coectio with the joitly owed equity awards. At 30 September 2016 there were 718,789 shares held i the ESOTs which will either be used to satisfy awards grated uder the Pla to date, or i coectio with future awards. Of these, 401,742 were held o a joitly owed equity basis. A hedgig committee esures that the ESOTs hold sufficiet shares to satisfy existig ad future awards made uder the Pla by buyig shares i the market or causig the Compay to issue ew shares. Shares held i the ESOTs do ot receive divideds. OVERVIEW OF THE YEAR SHAREHOLDER INFORMATION HOW WE PERFORMED HOW WE RUN OUR BUSINESS ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 71

74 REMUNERATION REPORT Total shareholder retur performace graph (uaudited) The followig graph illustrates the total retur, i terms of share price growth ad divideds o a otioal ivestmet of 100 i the Compay over the last five years relative to the FTSE SmallCap Idex (excludig ivestmet trusts) ad the FTSE AllShare Idex (excludig ivestmet trusts). These idicies were chose by the Remueratio Committee as a competitive idicator of geeral UK market performace for compaies of a similar size Avo Rubber p.l.c. FTSE SmallCap Idex (excludig ivestmet trusts) FTSE AllShare Idex (excludig ivestmet trusts) Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Sep 13 Mar 14 Sep 14 Mar 15 Sep 15 Mar 16 Sep 16 Avo Rubber - Total Retur O Ivestmet 72 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH

75 Chief Executive Officer s Remueratio (uaudited) The total remueratio figures, icludig aual bous ad vested PSP awards (show as a percetage of the maximum that could have bee achieved) for the Chief Executive Officer for each of the last eight fiacial years are show i the table below. Mr P. Slabbert retired o 30 September 2015 ad was replaced by Mr R. Reie o 1 December OVERVIEW OF THE YEAR Year CEO CEO sigle figure of Aual bous Log-term icetive total remueratio pay out agaist vestig rates agaist 000 maximum opportuity maximum opportuity 2016 R. Reie % P. Slabbert 1,435 91% 96% 2014 P. Slabbert 1,538 91% 100% 2013 P. Slabbert 1,374 86% 100% 2012 P. Slabbert 1,864 40% 100% 2011 P. Slabbert % il 2010 P. Slabbert % il 2009 P. Slabbert % il Statemet of shareholder votig o the Remueratio Report (uaudited) The shareholder vote o the Remueratio Report for the year eded 30 September 2015 at the AGM which took place o 26 Jauary 2016 was as follows: Resolutio text Votes For (icludig % For Votes Agaist % Agaist Total (excl. withheld ad Withheld discretioary) (excludig withheld) third party discretioary) Approval of Remueratio Policy 15,042, ,454, ,496,389 1,634,519 Approval of Remueratio Report 19,569, , ,904,032 1,226,876 Share Icetive Pla Durig the year to 30 September 2016 Mr A. Lewis purchased 201 shares pursuat to the Share Icetive Pla (SIP). Mr R. Reie is ot curretly a member of the SIP. As at 30 September 2016, the market price of Avo Rubber p.l.c. shares was (2015: 9.14). Durig the year the highest ad lowest market prices were ad 7.18 respectively. Paymets to past Directors ad paymets for loss of office No paymets were made to past Directors durig the year. Details of the advisors to the Remueratio Committee ad their fees Durig the year to 30 September 2016 the Compay icurred costs of 11,000 (2015: 16,350) i respect of fees for advisors to the Remueratio Committee. The Remueratio Report has bee approved by the Board of Directors ad siged o its behalf by: Chloe Posoby Chairma of the Remueratio Committee 16 November 2016 SHAREHOLDER INFORMATION HOW WE PERFORMED HOW WE RUN OUR BUSINESS ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 73