Last checked at 27 Aug 2019 07:00
Renold plc
Completion of investigation
27 August 2019
Renold plc ("Renold" or "the Group"), a leading international supplier of industrial chains and related power transmission products, today issues the following statement.
Summary
On 9 July 2019, the Group announced the postponement of the Annual General Meeting ("AGM") to permit the preparation of revised audited financial statements for the year ended 31 March 2019, following the identification of historical accounting issues in the Gears business unit, which is part of the Torque Transmission division.
In order to prepare accurate revised financial statements, an independent internal audit investigation, supported by PwC, has been undertaken to assess the extent and impact of the historical misstatement of results. This independent investigation has now been concluded and the Board can confirm that these issues, the nature of which were as set out in the announcement of 9 July 2019, were confined to the Gears business unit.
With the independent investigation complete, revised financial statements have been prepared and audited. The over-statements of profit for the years ended 31 March 2018 and 2019 are broadly consistent with the guidance provided on 9 July 2019 and the final outcome of the investigation does not affect the outlook commentary provided at that time. A summary of the adjustments made to the historic accounts as a result of this investigation is provided below.
Investigation and findings
A review of the Gears business unit was initially undertaken following comments made by the Auditor to the Audit Committee regarding application of accounting controls in the business unit. The initial management investigation identified intentional misstatement of results at a local level, and as a result the Board immediately initiated an independent internal audit investigation, supported by PwC, reporting directly to the Audit Committee.
In the announcement on 9 July 2019, the Company reported that the initial investigation had identified a total overstatement of the balance sheet at 31 March 2019 of £1.8m. The more extensive independent investigation largely corroborated the initial findings, in addition to identifying further errors which principally impact profit in the year to 31 March 2017. The cumulative effect of these misstatements resulted in net assets at 31 March 2019 being overstated by £2.5m in total, and adjusted operating profit in the year to 31 March 2019 being overstated by £1.0m.
This independent investigation concluded that the misstatement was a result of intentional mis-reporting of financial information at a local level. The misstatement comprised many adjustments across a number of balance sheet categories. The impact on cash and net debt of £0.3m is unchanged from the announcement on 9 July 2019.
Robert Purcell, Chief Executive of Renold, said:
"These events are frustrating and deeply disappointing but the Board, in conjunction with the Audit Committee, have acted swiftly to fully investigate all matters. We are working closely with Deloitte, the Group's Auditor, to ensure that recommended improvements to the internal control environment are quickly and effectively implemented.
"With the investigation and audit of the revised accounts completed, we can refocus our efforts on operational improvement and generating value for shareholders."
Impact of findings on historical financial results
A summary of the impact of the adjustments is set out below. More detail is included in notes 27 and 28 of the revised 2019 annual report and accounts which can be found on the Group's website at www.renold.com.
Consolidated statement of comprehensive income (extract):
| 2017 | 2018 | 2019 | ||||||
| As previously reported £m | Restate-ment £m | 2017 restated £m | As previously reported £m | Restate-ment £m | 2018 restated £m | As previously reported £m | Revision £m | 2019 revised £m |
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Revenue | 183.4 | - | 183.4 | 191.6 | - | 191.6 | 202.4 | - | 202.4 |
Operating costs before adjusting items | (168.9) | (1.0) | (169.9) | (177.4) | (0.5) | (177.9) | (186.0) | (1.0) | (187.0) |
Adjusted operating profit | 14.5 | (1.0) | 13.5 | 14.2 | (0.5) | 13.7 | 16.4 | (1.0) | 15.4 |
Adjusting items | (3.5) | - | (3.5) | (8.6) | - | (8.6) | (0.2) | - | (0.2) |
Operating profit | 11.0 | (1.0) | 10.0 | 5.6 | (0.5) | 5.1 | 16.2 | (1.0) | 15.2 |
Net financing costs | (4.3) | - | (4.3) | (4.2) | - | (4.2) | (5.0) | - | (5.0) |
Profit before tax | 6.7 | (1.0) | 5.7 | 1.4 | (0.5) | 0.9 | 11.2 | (1.0) | 10.2 |
Taxation | (1.9) | - | (1.9) | (3.6) | - | (3.6) | (3.5) | - | (3.5) |
Profit/(loss) | 4.8 | (1.0) | 3.8 | (2.2) | (0.5) | (2.7) | 7.7 | (1.0) | 6.7 |
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Consolidated balance sheet (extract):
| 2017 | 2018 | 2019 | ||||||
| As previously reported £m | Restate-ment £m | 2017 restated £m | As previously reported £m | Restate-ment £m | 2018 restated £m | As previously reported £m | Revision £m | 2019 revised £m |
ASSETS |
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Non-current assets | 104.2 | (0.4) | 103.8 | 98.2 | (0.4) | 97.8 | 107.0 | (0.3) | 106.7 |
Current assets |
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Inventories | 40.4 | (0.2) | 40.2 | 41.0 | (0.2) | 40.8 | 44.8 | (0.5) | 44.3 |
Trade and other receivables | 36.8 | (0.1) | 36.7 | 36.4 | (0.3) | 36.1 | 37.8 | (0.3) | 37.5 |
Cash and cash equivalents | 16.4 | - | 16.4 | 14.3 | - | 14.3 | 17.9 | (0.3) | 17.6 |
Current assets | 93.6 | (0.3) | 93.3 | 91.7 | (0.5) | 91.2 | 100.5 | (1.1) | 99.4 |
Non-current assets | 0.3 | - | 0.3 | - | - | - | - | - | - |
TOTAL ASSETS | 198.1 | (0.7) | 197.4 | 189.9 | (0.9) | 189.0 | 207.5 | (1.4) | 206.1 |
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LIABILITIES |
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Current liabilities |
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Trade and other payables | (41.9) | (0.3) | (42.2) | (39.6) | (0.6) | (40.2) | (41.0) | (1.1) | (42.1) |
Other current liabilities | (8.7) | - | (8.7) | (7.1) | - | (7.1) | (1.6) | - | (1.6) |
Current liabilities | (50.6) | (0.3) | (50.9) | (46.7) | (0.6) | (47.3) | (42.6) | (1.1) | (43.7) |
Non-current liabilities | (139.7) | - | (139.7) | (142.1) | - | (142.1) | (163.3) | - | (163.3) |
NET ASSETS | 7.8 | (1.0) | 6.8 | 1.1 | (1.5) | (0.4) | 1.6 | (2.5) | (0.9) |
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ENQUIRIES:
Renold plc | 0161 498 4500 |
Robert Purcell, Chief Executive |
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Ian Scapens, Group Finance Director |
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Peel Hunt LLP | 020 7418 8900 |
Mike Bell |
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Ross Allister |
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Ed Allsopp |
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Instinctif Partners | 020 7457 2020 |
Mark Garraway |
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Rosie Driscoll |
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Cautionary statement regarding forward-looking statements
Some of the information in this document may contain projections or other forward-looking statements regarding future events or the future financial performance of Renold Plc and its subsidiaries (the Group). You can identify forward-looking statements by terms such as "expect", "believe", "anticipate", "estimate", "intend", "will", "could", "may" or "might", the negative of such terms or other similar expressions. Renold Plc (the Company) wishes to caution you that these statements are only predictions and that actual events or results may differ materially. The Company does not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in projections or forward-looking statements of the Group, including among others, general economic conditions, the competitive environment as well as many other risks specifically related to the Group and its operations. Past performance of the Group cannot be relied on as a guide to future performance.
NOTES FOR EDITORS
Renold is a global leader in the manufacture of industrial chains and also manufactures a range of torque transmission products which are sold throughout the world to a broad range of original equipment manufacturers and distributors. The Company has a well-deserved reputation for quality that is recognised worldwide. Its products are used in a wide variety of industries including manufacturing, transportation, energy, steel and mining.
Further information about Renold can be found on the website at: www.renold.com