The in-line trading statement is overshadowed by the news that Andrew Lewis, CFO for the last eight years, is to leave the company at his own behest. Paul Rayner is to step in as the interim CFO, having previously held roles at Liberty Living, Mouchel and Chemring Group. His experience appears a good fit for Avon’s strategy of augmenting organic growth with strategic M&A. As also indicated in the statement, the group finances support the strategy with £2m of net cash in the balance sheet at the year end.
As previously indicated trading for the FY16 achieved management and market expectations and will be published to the market on 16 November. Indeed, the cash performance was well ahead of our expectation, with strong financial management driving impressive cash generation leaving the company with net cash balances of £2m at the year end (versus our estimate of £4m net debt). The new financial year has got off to a good start with a new 15,000 mask systems order for Protection & Defence to be delivered in the current quarter, and rising milk prices introducing an element of recovery potential into the Dairy segment. Together with positive FX effects, these factors should support accelerating growth in FY17. Our estimates will be reviewed following the results in November, but as an indication Avon’s 2015 financial statements suggested a five cent fall in $/£ would benefit profit by £700k.
The departure of the CFO is of his own choosing, and in that regard we see no reason to adjust forecasts or valuations at this juncture. An executive search has been launched to find a permanent replacement. We shall wait with interest to see where Andrew Lewis lands given his positive contributions to Avon’s development, including acting as interim CEO last year.