Renold Regulatory News (RNO)

13 Jun 2005 07:01

Renold PLC13 June 2005 13 June 2005 RENOLD plc 2005 PRELIMINARY RESULTS Renold plc, a leading international supplier of industrial chains and relatedpower transmission products, automotive cam drive systems and machine tools androtors, today announces its preliminary results for the year ended 31 March 2005. Summary • Turnover at £197.0 million (2004: £192.1 million). • Operating profit (before goodwill and exceptional items) was £3.7 million (2004 restated: £7.6 million); reported operating loss of £4.2 million (2004 restated: profit £8.6 million). • Pre-exceptional profit before tax at £1.1 million (2004 restated: £3.7 million); reported loss before tax £6.8 million (2004 restated: profit £4.7 million). • Steel prices, up 40% year on year, had major impact on second half profitability. • Integration of Sachs Automotive France SAS, acquired in March 2005, proceeding as envisaged. • Adjusted earnings per share were 1.4 pence (2004 restated: 4.5 pence); basic loss per share 7.5 pence (2004 restated: earnings 6.8 pence). • Board propose not to pay a final dividend due to reduced earnings and cash needed to fund restructuring activities. Dividend for year 1.5 pence, paid as interim (2004: 4.5 pence). • Net debt £17.0 million (2004: £19.2 million). • Continuing strategic review targeting a more tightly focused business with substantially lower cost base and reduced borrowings. Prospects Roger Leverton, Chairman of Renold plc, said today: "Overall the external economic environment remains difficult. The majorrestructuring activities under way, together with action on prices to recoversteel and other cost increases, should lead to a recovery in margin as the yearprogresses. The recent weakening of the Euro against the Dollar, if maintained,will also be a positive factor for the Group." 13 June 2005 RENOLD plc Chairman: Roger Leverton Preliminary Results for the Financial Year ended 31 March 2005 FINANCIAL SUMMARY 2005 2004 restated £m £m Turnover 197.0 192.1 Operating (loss)/profit (4.2) 8.6 Operating profit before goodwill amortisation andexceptional items 3.7 7.6 Profit before tax, goodwill amortisation andexceptional items 1.1 3.7 (Loss)/profit before tax (6.8) 4.7 Basic and diluted (loss)/earnings per share (7.5)p 6.8p Adjusted earnings per share (adjusting for the after tax effects of goodwill and exceptional items) 1.4p 4.5p Dividends per ordinary share, paid or proposed 1.5p 4.5p Capital expenditure 7.6 7.2 Net debt 17.0 19.2 GROUP RESULTS AND DIVIDEND After an encouraging start the outcome for the financial year 2005 wasdisappointing with an operating profit before goodwill and exceptional items of£3.7 million, compared with £7.6 million (restated) in 2004 on sales of £197.0million (2004: £192.1 million), up 6% at constant exchange rates. Steel price increases had a major effect in the second half of the year with theGroup experiencing an average year on year increase of some 40% in costs. Steelrepresents the major part of raw material cost for the Group and whilst salesprices are being increased, it is proving difficult to fully recover these costincreases, particularly from OEM customers. Continuing weakness of the US Dollaralso had an adverse impact on performance as did slowing volumes in theautomotive business. The power transmission segment saw growth in North America but weak marketconditions persisted in Europe. Development of the Group's activities in Chinacontinued with further contracts won and an increase in the number of localemployees. The machine tool and rotor business continued to progress andgenerated an operating profit of £0.6 million, up from £0.3 million in 2004 onimproved sales levels. The Board's continuing strategic review of the Group and its constituent partsis targeting a more tightly focused business with a substantially lower costbase and a reduced level of borrowings. The process of outsourcing production tolower cost economies is ongoing and the rationalisation of the Burton conveyorchain facility has already been announced and is well advanced. The Board willkeep shareholders informed as these plans move forward. Overall the Group recorded a pre tax loss of £6.8 million compared with a profitof £4.7 million (restated) in 2004. This loss was after providing £3.2 millionfor the rationalisation of the Burton conveyor chain facility and the creationof a UK service centre. In addition there was a £2.4 million goodwill impairmentcharge relating to the Jones & Shipman acquisition following a specific reviewconducted in the second half of the year. In March the Group completed the acquisition of Sachs Automotive France SAS fromZF Sachs AG. This facility, which is located at Saint Simeon de Bressieux inSouth East France, provides a platform for a European aftermarket business forautomotive chain products together with assets and technology which will enhancethe development of the existing OEM activity. Following acquisition the unit hasbeen renamed Renold SAF SAS and is currently being restructured as envisaged. Group borrowings ended the year at £17.0 million compared with £19.2 million theprevious year after including cash of £9.7 million acquired with the Sachsbusiness, which will primarily fund the anticipated costs of restructuring thatbusiness. Revised bank borrowing facilities have been agreed. Dividend Given this year's reduction in earnings and operational cashflow, together withthe cash requirements of funding restructuring activities, the Board believes itis prudent to recommend that no final dividend be paid for this year. Theinterim dividend of 1.5 pence per share paid on 28 January 2005 would thereforebe the total dividend for the year. The Board will consider future dividendpolicy in the light of results. Prospects Overall the external economic environment remains difficult. The majorrestructuring activities under way, together with action on prices to recoversteel and other cost increases, should lead to a recovery in margin as the yearprogresses. The recent weakening of the Euro against the Dollar, if maintained,will also be a positive factor for the Group. CHIEF EXECUTIVE'S REVIEW The last 12 months have been difficult for Renold. Commodity prices,particularly steel, and exchange rate movements have caused significant inputcost increases. These external events have adversely impacted all businesses butthe chain businesses, whose products consist almost entirely of steel, havesuffered the worst impact. The machine tool, gears and couplings businesses,where steel is a much smaller part of product cost, have managed to more thanoffset the increases through cost reduction programmes and price increases. Theindustrial and automotive chain operations have faced a much harder task thanthese project based businesses. The strength of the Euro has aggravated the problems faced by the chainbusinesses as the majority of production is European-based whereas the salesgrowth has come from Dollar-based economies. Steel prices appear to have stabilised, at levels some 40% higher than a yearago, however, it would be unwise to be dependent on any significant steel pricereductions to restore adequate levels of profitability. It is imperative thatthe chain businesses bring the cost base in line with today's externalenvironment and the Group is focused on this target. The majority of chain manufacturing still occurs in Europe. Over the coming yearwe will migrate some of this production to lower cost countries, particularlyones that also provide good growth opportunities. An automotive manufacturingfacility has been established in Tennessee and this will ramp up during the yearto provide a base for all US automotive and some high value industrial basedcontracts. To support custom and special chains in Europe, where close customer support isrequired, it is proposed to establish a new facility in Poland which willinitially employ some 50 people. It is also proposed to establish a wholly owned manufacturing facility in China,on a greenfield site, to support a number of the Company's product lines. Toaccelerate our manufacturing presence in China we are in negotiations with aChinese chain manufacturer with a view to a co-operation leading to Renoldestablishing a controlling interest. This opportunity will not only provide costreduction but, more importantly, will provide better access to markets andcustomers in the Far East. In addition to these initiatives we will continue to drive Lean methodology inall the manufacturing units. There have been positive results from this duringthe past 18 months but further efficiencies should be achieved. Improved ITsystems will also allow us to increase the efficiency of the European salesstructure and enhance our customer service. Unfortunately these changes have caused us to announce the closure of ourexisting facility in Burton and to create a smaller service centre in the samelocality. To date 120 job reductions have been announced in Europe,predominantly in the UK and Germany. The predicted growth in our Frenchautomotive facility should avoid the need for any loss of permanent positions atthe plant in Calais. Despite the poor trading performance we have maintained the sales initiatives incountries that offer good growth prospects. In China a sales force of 12 hasbeen built during the year and we expect this to increase steadily throughoutthe forthcoming year. Sales resource has also been added in the USA and thishelped to deliver the growth achieved in North America. South America andEastern Europe country managers have been added to drive growth in thesecountries. The programme of change within the Group will take time to fully implement andplaces a significant burden on the existing management teams. I should like totake this opportunity to thank these teams and all Renold employees for thepositive and enthusiastic way they have responded to these challenges. OPERATIONS REVIEW Power Transmission - Chain The industrial chain business had a difficult year being severely impacted bysteel price increases and the weakness of the US Dollar. Steel costs make up thevast majority of the material purchases for the Division and can be as high as50% of the cost of sales. Although steel price increases varied, widelydependent on the grade, on average the year-on-year increase was over 40%.Prices to customers have been increased; however, these lagged behind the costincreases and did not enable the business to fully recover the raw material costincreases. Price recovery from major OEMs proved to be particularly difficult. The net impact of steel cost increases to the division was over £3.0 million.Further offset of increased raw material costs was achieved by the successfulintroduction of Lean manufacturing at all the Division's facilities and resultedin a reduction in labour costs greater than wage increases. Stock turns alsoimproved by some 10% despite the adverse impact of significantly increased rawmaterial costs. Product distribution is being centralised at two centres in Europe to allowbetter service to our customers as well as reducing inventory and distributioncosts across Europe. This model will more closely match the successful structurealready in place in the USA. Overhead cost reduction actions were implemented during the year. The closure ofthe Burton facility was announced with production moving to other Renoldfacilities and being outsourced. Within Europe, a facility is planned forPoland; this should be in operation in 2005/06. Further outsourcing is plannedgoing forward. Negotiations are under way with a Chinese manufacturer with the objective ofestablishing a Renold-owned manufacturing capability in the country. This willallow better penetration of Far East markets, in addition to additional costreduction opportunities. Sales, excluding price increases, were ahead of the previous year with NorthAmerica being the strongest territory. Demand in the USA was for both productmanufactured at the Jeffrey Chain facility, in Tennessee, and productmanufactured in Europe. This growth was driven by increased sales resource and astronger position with the major North American distributors. The weaker USDollar understates this growth and had an adverse impact of over £0.5 million tothe profitability of the chain business. Within Europe sales were flat with little sign of market growth and increasingcompetition from low cost suppliers. Some growth in Germany, Scandinavia andSwitzerland was offset by weaknesses in the UK, Benelux and Austria. Asia Pacific, Australia and Malaysia showed growth, with the newly createdChinese sales subsidiary in Shanghai winning its first orders. Order growth largely matched the sales improvements with North America being thestrongest contributor. Looking forward there appears to be a consensus that steel prices have plateauedbut with scant evidence of any significant reductions. Cost reductioninitiatives, in addition to pricing activity, should lead to more acceptablemargins rather than any benefit from commodity prices or exchange rates. Power Transmission - Gears The gear business had a good year with a further increase in sales and profits.The division was particularly successful in China, winning major business fromthe growth in infrastructure projects. This, coupled with an increase in OEMbusiness, led to an increase in orders of over 10%. The division's success is driven by providing creative and innovative designsolutions to solve specific customer problems. This approach has allowed growthin the relatively flat markets of the UK and Germany. Input costs have suffered from large increases in steel and bronze commodityprices. These were more than offset by outsourcing components from low costcountries and the successful implementation of Lean manufacturing. The adverseimpact of raw material price increases on stock was also offset leading to animprovement in stock turns. The division is well positioned to continue to show an improvement in the comingyear. Power Transmission - Couplings During the year the businesses, based in Halifax, Cardiff and Westfield, werecombined under a single management team to better exploit the sales andoperational synergies. This integration has delivered good results with growthin sales and operating profit compared with last year. Order growth came mainlyfrom North America but with prospects in Europe expected to materialize in thecurrent financial year. Design release for the significant multi year contract for the Alstom/New YorkCity Transit Authority was completed during the year, on schedule, and initialproduction has commenced. This contract will build up during 2005/06 and deliversignificant volumes during the following two years. Sales growth also came from the steel industry where increased output andcapacity provided a number of opportunities. Automotive The performance of the automotive operations was disappointing with a failure toachieve an improvement in sales or profits. Sales growth to the largestcustomer, GM, did not materialise due to lower end-customer demand in bothEurope and the USA. The problem was aggravated by an increase in steel prices,which could not be passed on to the customer during the year. Although someefficiency gains were made these were not sufficient to offset the salesshortfall and steel price increases. With over 40% of the output being shippedto North America the strength of the Euro compared to the US Dollar had afurther adverse impact of some £0.7 million. The new manufacturing facility based in Tennessee was established in December,and the first pre-production chain shipped to the customer, on schedule, at theend of March. Quality approval and first production shipments are expected aheadof schedule later in the year. This facility will eventually produce Cam DriveSystems for all Dollar-based contracts. In addition to this reduced currencyexposure there are also cost and working capital benefits from the use ofUS-based manufacture and assembly. The new German facility in Einbeck, designed to relieve the capacity pressure onthe Calais operation, was constructed and opened during the year. This is nowassembling all chain and manufacturing components for VW. The transition hasbeen successful with no disruption to the customer. Towards the end of the year Sachs Automotive France SAS was purchased for anominal sum. This provides an entry into the aftermarket business. It alsoprovides manufacturing equipment and resources that will support the Calaisoperation. The business is being kept separate from Renold Automotive Systemsuntil the restructuring programme is complete, after which it will be fullyintegrated. Albeit a recent acquisition, to date it has met expectations. During the year the first contract from GM in Shanghai was awarded. In Shanghai,product shipments will commence at the end of 2005/06. In addition, a number ofnew customer programmes were commenced during the year. Programmes alreadyawarded should result in a growth in sales of over 20% over the next two yearsbased on customer forecasts. Machine Tool & Rotor The machine tool business had another year of profit improvement. Order levelsat Jones & Shipman showed a significant increase over previous years with goodgrowth coming from the USA, UK and France. The launch of the new Jones & Shipman Suprema machine, towards the end of theyear, was successful and this is expected to give a further boost to the alreadystrong order book. Holroyd machine tool orders did not reach expectations with anumber of prospective customer orders being delayed by several months. Thisshortfall was somewhat offset by an increased demand for rotors and loose gears. Both Holroyd and Jones & Shipman suffered from increases in raw materials andutility costs; however, these were more than offset by outsourcing componentsfrom Eastern Europe and Asia. Jones & Shipman in particular has been successfulin reducing costs by outsourcing a significant portion of major sub-assemblywork. Recruitment of skilled machinists is becoming increasingly difficult and toaddress this issue the Apprentice Training Programme was rekindled at Holroyd.This scheme is designed to provide a flow of skilled, well-trained techniciansfor both the gears and machine tool divisions. It is expected that thisinvestment will give excellent returns over the forthcoming years. FINANCIAL REVIEW Profit and Loss account Turnover was £197.0 million compared with £192.1 million the previous year. TheGroup operates in two sectors, power transmission and machine tool and rotor.Power transmission sales were 6% higher at constant exchange rates with growthin North America and Asia Pacific offset by lower domestic sales in the majorindustrial markets of the UK and France. Machine tool and rotor sales were 6%higher at constant exchange rates. Operating profit, before goodwill amortisation and exceptional items, was £3.7million, compared with £7.6 million (restated) in 2004. The industrial powertransmission and automotive businesses showed a reduction in operating profitsreflecting the significant escalation in steel prices particularly during thesecond half of the year. The machine tool and rotor businesses recorded anoperating profit of £0.6 million, ahead of the £0.3 million profit in 2004,reflecting the benefit of a reduced cost base and some improvement in activityin the machine tool and rotor business. Operating profit was lower in the UK, France, Germany and the rest of Europe.The reduction in France was primarily due to a weaker automotive performancewhile Germany and the UK it was mainly due to the surge in steel pricesexacerbated by the weakness of the US Dollar. North American profit was up dueto strong sales growth. Redundancy and restructuring costs were £4.3 million inthe year, which included a provision of £3.2 million charged to cover the costsof the Burton site rationalisation announced in January 2005. The acquisition of Sachs Automotive France SAS (SAF) took place on 14 March 2005and had no material impact on the trading operations of the Group in the year.However, a provision of £6.8 million was taken for restructuring the SAFbusiness, offset by a release of negative goodwill arising from the acquisition. The return on average operating assets for the Group was 4.0% down from 8.6%(restated) last year; the power transmission businesses achieved 3.9% return onaverage operating assets as compared to 9.5% (restated) last year. Net interest payable was £2.2 million, compared with £2.3 million in 2004; othernet finance costs of £0.4 million compared with £1.6 million in 2004 representsthe FRS 17 net finance costs relating to retirement benefits. Profit before tax for the year before goodwill amortisation and exceptionalitems was £1.1 million compared with £3.7 million (restated) last year. The taxation credit of £1.6 million compares with a net taxation charge of nil(restated) in the previous year. The effective tax rate on profit beforegoodwill amortisation, goodwill impairment, exceptional redundancy andrestructuring costs and property sales was 30% compared with 30% in 2004. Reported loss after tax was £5.2 million compared with a profit of £4.7 million(restated) last year. Excluding goodwill amortisation and exceptional items,this represented earnings per share of 1.4 pence, compared with 4.5 penceearnings per share (restated) last year. Balance sheet Goodwill stands at £14.7 million after an amortisation charge of £1.2 million inthe year and an exceptional impairment charge of £2.4 million relating to theacquisition of Jones & Shipman, which follows a strategic review of thatbusiness. Negative goodwill was £4.5 million, after a release of £6.8 million,resulting from the SAF acquisition. Group operating assets at the year end of £93.5 million were 6% above last year.Fixed assets at £49.5 million were £2.5 million higher after including £3.1million for SAF acquired in March 2005. Capital additions totalled £7.6 millioncompared with £7.2 million last year; the depreciation charge was £8.7 millioncompared with £8.8 million last year. New investment was mainly in theAutomotive Systems business, in France and Germany, and the German and UKindustrial chain manufacturing businesses. Shareholders' funds were £40.3 million at the year end (last year £57.9 million(restated)) after deducting the FRS 17 pension deficit of £41.3 million. Cash flow and borrowings Cash flow from operating activities was £6.6 million which compared with £9.2million the previous year. Working capital was higher by £2.4 million comparedwith an increase of £3.4 million in 2004 (restated); stocks unchanged from theprevious year (excluding SAF); debtors increased by £5.9 million reflectinghigher sales levels in the final quarter and creditors increased by £3.5million. Payments for fixed assets amounted to £8.0 million, whilst tax anddividend payments were £4.2 million. After exchange differences and the cashacquired with SAF there was a net cash inflow of £2.2 million, reducing year-endborrowings to £17.0 million. This represented 21% of shareholders' funds beforethe pension deficit (last year 22% (restated)). Treasury and financial instruments The Group treasury policy, approved by the directors, is to manage its fundingrequirements and treasury risks without undertaking any speculative risks. TheGroup does not use financial derivatives to hedge currency translation exposureon its investments in overseas subsidiaries. Except for the arrangementsreferred to below for the management of foreign currency and interest raterisks, the Group has not made use of financial derivatives. The Group's net debt of £17.0 million at 31 March 2005 is represented by grossdebt of £33.7 million less cash and short term deposits of £16.7 million. At 31March 2005 the Group had 43% of its gross debt at fixed interest rates. Cashdeposits are placed short term with banks where security and liquidity are theprimary objectives. Revised borrowing facilities have been agreed with theGroup's principal bankers. A major exposure of the Group relates to currency risk on its sales andpurchases made in foreign (non-functional) currencies, and to reduce such risksthese transactions are covered, as commitments are made, primarily by forwardforeign exchange contracts. Such commitments generally do not extend more thansix months beyond the balance sheet date, although exceptions can occur wherelonger term projects are entered into. Pension accounting In a change of accounting policy, FRS 17 - Retirement Benefits has been adoptedin the second half of the year; detailed disclosures are given in note 15 on theAccounts. The deficit has increased to £41.3 million from £30.7 million last year despitethe recovering performance of equity markets in the year mainly due to changesin mortality assumptions. FRS17 calculations are very susceptible to short termchanges in equity values, discount and interest rates. International Financial Reporting Standards ("IFRS") For the year ending 31 March 2006 the Group will be required to report itsfinancial results in accordance with IFRS. The conversion process from reportingin accordance with UK GAAP to reporting under IFRS is ongoing. The interimresults for the period to 30 September 2005 will be reported under IFRS. ________________________________________________________________________________ Annual Report to be published 22 June 2005Annual General Meeting 21 July 2005 Annual Report: This preliminary announcement does not form the Group's statutoryaccounts. The figures shown in this release have been extracted from the Group'sfull financial statements which, for the year ended 3 April 2004 have beendelivered, and for the year ended 31 March 2005, will be delivered to theRegistrar of Companies. Both carry an unqualified audit report. The financial statements for the year ended 31 March 2005 have been prepared inaccordance with applicable accounting standards, using the same accountingpolicies as set out in the Annual Report for the year ended 3 April 2004, withthe exception of the adoption in the year of Financial Reporting Standard 17"Retirement Benefits". Comparative information has been restated accordingly. The preliminary announcement was approved by the Board on 13 June 2005. For further information, please contact: Bob Davies, Chief Executive 13 June 2005 Telephone: 020 7067 0700Tony Brown, Finance DirectorRenold plc Thereafter Telephone: 0161 498 4500 Terry Garrett/Stephanie BadjonatWeber Shandwick Square Mile Telephone: 020 7067 0700 RENOLD PLCPRELIMINARY RESULTS Group Profit and Loss Account________________________________________________________________________________for the financial year ended 31 March 2005 2005 2004 restated £m £m Turnover 197.0 192.1 Operating costs- normal operating costs (193.3) (184.5)- goodwill amortisation (1.2) (1.3)- impairment of goodwill (2.4)- exceptional redundancy and restructuringcosts - continuing operations (4.3) (0.5)- exceptional redundancy and restructuringcosts - acquisition: Charges for redundancy and restructuring (6.8) Release from negative goodwill 6.8 _______ - exceptional gain on disposal of propertyheld for sale 2.8 _________ ________ (201.2) (183.5) _________ ________ Operating (loss)/profit (4.2) 8.6Net interest payable (2.2) (2.3)Other net finance costs (0.4) (1.6) _________ ________ (Loss)/profit on ordinary activities beforetax (6.8) 4.7 Taxation 1.6 _________ ________ (Loss)/profit for the financial year (5.2) 4.7Dividends (including non-equity) (1.1) (3.2) _________ ________(Loss)/retained profit for the year (6.3) 1.5 ========= ======== Basic and diluted (loss)/earnings per share (7.5)p 6.8p Adjusted earnings per share 1.4p 4.5p The impact of the acquisition, which was made on 14 March 2005, was not materialto the continuing trading operations of the Group, other than in respect of theexceptional redundancy and restructuring costs, disclosed above, which reflectthe cost of the post-acquisition restructuring and integration of the newsubsidiary and the associated release of negative goodwill arising from theacquisition. All other amounts relate to continuing operations. RENOLD PLCPRELIMINARY RESULTSGroup Balance Sheet________________________________________________________________________________as at 31 March 2005 Group 2005 2004 restated £m £mFixed assetsIntangible assets- Goodwill 14.7 18.8- Negative goodwill (4.5) ________ ________Net goodwill 10.2 18.8Tangible assets 49.5 47.0 ________ ________ 59.7 65.8 ________ ________Current assetsStocks 47.3 47.0Debtors 51.6 41.5Cash and short-term deposits 16.7 8.9 ________ ________ 115.6 97.4Creditors- amounts falling due within one yearLoans and overdrafts (20.6) (12.1)Other creditors (46.3) (44.4) ________ ________Net current assets 48.7 40.9 ________ ________ Total assets less current liabilities 108.4 106.7 Creditors- amounts falling due after more thanone yearLoans (12.7) (15.5)Other creditors (1.2) (1.4) Provisions for liabilities and charges (12.9) (1.2) ________ ________Net assets excluding pension liability 81.6 88.6 Pension liability (41.3) (30.7) ________ ________Net assets including pension liability 40.3 57.9 ======== ======== Capital and reserves(including non-equity interests)Called up share capital 17.9 17.9Share premium 6.0 6.0Profit and loss account 16.4 34.0 ________ ________Shareholders' funds 40.3 57.9 ======== ======== RENOLD PLCPRELIMINARY RESULTSExtracts from the Group Cash Flow Statement_________________________________________________________________________________for the financial year ended 31 March 2005 2005 2004 £m £m £m £m Net cash inflow from operating activities 6.6 9.2 Servicing of finance (2.1) (3.3) Taxation (1.0) (1.6) Capital expenditure and financial investment- Purchase of tangible fixed assets (8.0) (6.0)- Proceeds from disposal of property held for sale 5.1 ________ ________ (8.0) (0.9)Acquisition- Purchase of subsidiary undertaking (0.1)- Net cash acquired with subsidiary undertaking 9.7 ________ 9.6 Equity dividends paid (3.2) (3.2) ________ ________Net cash inflow before use of liquidresources and financing 1.9 0.2 Management of liquid resourcesTransfers (to) short-term deposits (9.5) (1.0) FinancingIncrease/(decrease) in debt and lease financing 2.3 (6.4) ________ ________ (Decrease) in cash in the year (5.3) (7.2) ======== ======== Reconciliation of net cash flow to movementin net debt (Decrease) in cash in the year (5.3) (7.2)Cash flow from (increase)/decrease in debtand lease financing (2.3) 6.4Cash flow from increase in liquid resources 9.5 1.0 _______ ________ Change in net debt resulting from cash flows 1.9 0.2New finance leases (0.5)Other non-cash changes (0.1) (0.1)Exchange translation difference 0.4 2.1 ________ ________ Movement in net debt in the year 2.2 1.7 Net debt at beginning of year (19.2) (20.9) ________ ________ Net debt at end of year (17.0) (19.2) ======== ======== RENOLD PLCPRELIMINARY RESULTS Notes on the Accountsfor the financial year ended 31 March 2005 1. Analysis of activities (a) Activities classified by business segment: 2005 2004 restated Turnover Operating Operating Turnover Operating Operating loss assets profit assets £m £m £m £m £m £mPower transmission 177.3 3.1 80.5 174.2 7.3 76.9Machine tool and rotor 21.7 0.6 13.0 20.7 0.3 11.3 _____________________________________________________________________ 199.0 3.7 93.5 194.9 7.6 88.2Less:Inter activity sales (2.0) (2.8) Goodwill amortisation (1.2) (1.3) Impairment of goodwill (2.4) Exceptional redundancyand restructuring costs (4.3) (0.5) Redundancy andrestructuring - acquisition (6.8) Add:Release from negativegoodwill 6.8 Exceptional gain on disposal ofproperty heldfor sale 2.8 _____________________________________________________________________ 197.0 (4.2) 93.5 192.1 8.6 88.2 ===================================================================== The exceptional redundancy and restructuring cost of £4.3 million is attributed to the powertransmission segment (2004 - £0.3 million to the power transmission segment and £0.2 million to the machine tool and rotor segment). Of the total goodwill charge of £1.2 million, £1.0 million (2004 - £1.1 million) relates to the power transmission businesses and £0.2 million (2004 - £0.2 million) to the machine tool and rotor businesses. The impairment charge relates to the machine tool and rotor businesses. The charge and credit of £6.8 million both arise inrelation to the power transmission businesses. The exceptional gain of £2.8 million reported in 2004 related to the disposal of a non-trading property held for sale. This property was part of the machine tool and rotor segment. (b) Activities classified by geographical region of operation: 2005 2004 restated Turnover Operating Operating Turnover Operating Operating loss assets profit assets £m £m £m £m £m £mUnited Kingdom 70.9 (0.4) 36.6 70.8 2.7 37.5Germany 33.1 2.2 13.9 31.9 2.4 12.3France 47.7 (1.7) 20.7 49.1 (0.6) 14.8Rest of Europe 16.2 0.5 3.8 16.0 0.4 3.9North America 50.3 2.6 13.6 49.2 2.2 13.2Other countries 21.2 0.5 4.9 18.4 0.5 6.5 _____________________________________________________________________ 239.4 3.7 93.5 235.4 7.6 88.2Less: Intra Group sales (42.4) (43.3) Goodwill amortisation (1.2) (1.3) Impairment of goodwill (2.4) Exceptional redundancy and restructuring costs (4.3) (0.5) Redundancy and restructuring - acquisition (6.8) Add: Release from negative goodwill 6.8 Exceptional gain on disposal of property held for sale 2.8 _____________________________________________________________________ 197.0 (4.2) 93.5 192.1 8.6 88.2 ===================================================================== The exceptional cost of £4.3 million arises £3.3 million in the UK (2004 - £0.2million), £0.1million in North America (2004 - £0.3 million), £0.4 million inGermany, £0.2 million in France, £0.2 million in the Rest of Europe and £0.1million in Australia. The goodwill amortisation and the impairment charge areattributed to business acquisitions in North America. The charge and credit of£6.8 million relate to the post acquisition restructuring and integration of theSAF business in France. Turnover by geographical region includes intra group sales as follows: UnitedKingdom £27.3 million (2004 - £29.1 million), Germany £12.8 million (2004 -£11.4 million) and France £1.8 million (2004 - £2.1 million). Operating assets comprise fixed assets, current assets less creditors butexclude net goodwill, cash, borrowings, dividends, current and deferredcorporate tax, finance lease obligations, other provisions for liabilities andcharges and pension liabilities. (c) Geographical analysis of external turnover by market area: 2005 2004 £m £mUnited Kingdom 25.9 24.4Germany 25.1 25.4France 10.0 9.2Rest of Europe 34.4 36.8North and South America 70.9 70.1Other countries 30.7 26.2 ________ ________ 197.0 192.1 ======== ======== 2. Earnings per share Earnings per share is calculated by reference to the earnings for the year andthe weighted average number of shares in issue during the year as follows: 2005 2004 restated Weighted Weighted average Per- average Per- number of share number of share Earnings shares amount Earnings shares amount £m Thousands Pence £m Thousands PenceBasic EPSEarnings attributed to ordinaryshareholders (after preference dividends) (5.2) 69,328 (7.5) 4.7 69,313 6.8 Effect of dilutivesecurities:Employee share options 332 299 ______________________________________________________________________Diluted EPS (5.2) 69,660 (7.5) 4.7 69,612 6.8 ====================================================================== Adjusted EPSBasic EPS (5.2) 69,328 (7.5) 4.7 69,313 6.8Effect of goodwill andexceptional items, after tax:Goodwill amortisation 0.8 1.2 0.8 1.2Impairment of goodwill 2.4 3.5Redundancy and restructuring costs 2.9 4.2 0.4 0.5Redundancy andrestructuring- acquisition 6.8 9.8Release from negativegoodwill (6.8) (9.8)Gain on disposal ofproperty held for sale (2.8) (4.0) _____________________________________________________________________Adjusted EPS 0.9 69,328 1.4 3.1 69,313 4.5 ===================================================================== Inclusion of the dilutive securities, shown above, in the calculation of adjusted EPS does not change the amounts shown of 1.4p (2004 - 4.5p). The adjusted earnings per share numbers have been provided in order to give auseful indication of underlying performance by the exclusion of goodwill andexceptional items. 3. Acquisition On 14 March 2005 the Group purchased Sachs Automotive France SAS ("SAF") for acash consideration of one Euro. This purchase has been accounted for as anacquisition. An analysis of the acquisition is provided below. Net assets at date of acquisition: Book value Provisional Provisional fair fair value value to adjustments the Group £m £m £mTangible fixed assets 2.4 0.7 3.1Stocks 1.2 1.2Debtors 3.2 3.2Creditors (3.2) (3.2)Provisions (restructuring provision of £0.4 million included in book value) (1.2) (1.4) (2.6)Cash 9.7 9.7 _______ ________ _______ 12.1 (0.7) 11.4 ======= ========Negative goodwill arising on acquisition (11.3) _______Consideration- cash paid and costs 0.1 ======= Due to the proximity of the acquisition to the Group's year end, the fair valueto the Group is assessed on a provisional basis. Revaluation adjustments in respect of tangible fixed assets comprise an openmarket valuation of freehold property, together with the write down of certainitems of plant and machinery. Fair value provisions have been established inrespect of environmental and dilapidation liabilities. The provisionalassessment of fair value to the Group has indicated that no significantadjustments to net assets are necessary as a consequence of aligning SAFaccounting policies with those of the Renold Group. Immediately prior to the acquisition of SAF by Renold, there was both a cashinjection and forgiveness of inter-company loans by the former owners. In thelast financial year prior to acquisition, which ran to 31 December 2004, SAFreported a pre-exceptional loss of Euros 3.9 million; the consideration given byRenold reflected the post acquisition restructuring envisaged to make SAF aviable business within the Renold Group. The cash flow impact is as follows: £mCosts associated with the acquisition (0.1)Net cash acquired 9.7 __________Cash inflow on acquisition 9.6 ========== Having been acquired shortly before the Group's year end, the acquisition of SAFhas not had a material impact on the continuing operating activities, subject tothe reorganisation provision and negative goodwill release shown on the face ofthe profit and loss account. Following the acquisition, and prior to the yearend, the Group established provisions amounting to £6.8 million representing thecosts of integrating SAF into the Renold Group and the necessary restructuringrequired to turn SAF into a viable business as highlighted in the Stock Exchangeannouncement issued on the date of the acquisition. These costs have beenmatched by a release from the negative goodwill account, created on acquisitionas the previous owners had provided the aforementioned cash injection to fundthis restructuring programme. 4. Prior year adjustment Following the full adoption of Financial Reporting Standard 17 "RetirementBenefits" in the year, it has been necessary to restate certain comparativeinformation. Provided below is a summary of the revisions arising from thischange in accounting policy: £mGroup profit and loss account Profit for the year ended 3 April 2004 as previously reported 5.4Impact of adopting FRS 17:Reversal of pension charge made under SSAP 24 3.2Charge for pension cost made in accordance with FRS 17 (3.3)Net finance costs in accordance with FRS 17 (1.6)Tax impact of the above changes 1.0 _______Restated profit for the year ended 3 April 2004 4.7 ======= Had the former policy under Statement of Standard Accounting Practice 24"Accounting for Pension Costs" continued through 2005, the loss for the yearwould have been approximately £2.0 million higher. Group balance sheet £m £m Net assets as at 3 April 2004 as previously reported 81.2Adjustment to eliminate the SSAP 24 prepayment (6.4)Adjustment to remove the SSAP 24 pension provision (Provisionfor liabilities and charges) 11.8 Net adjustment to deferred tax balances(Provision £1.3 million, asset £0.7 million) 2.0 Adoption of FRS 17 - net deficit as at 3 April 2004 (30.7) ______Net prior year adjustment (23.3) ______Restated net assets as at 3 April 2004 57.9 ====== This information is provided by RNS The company news service from the London Stock Exchange