Renold Regulatory News (RNO)

RENOLD PLC

("Renold" or "the Company")

Preliminary results for the year ended 31 March 2012

Renold, a leading international supplier of industrial chains and torque transmission products, today announces its preliminary results for the year ended 31 March 2012.

Financial Summary

Highlights

·; Adjusted1 earnings per share more than doubled to 4.2 pence

·; Adjusted1 operating profit increased by 101% to £14.1m

·; Underlying2 sales growth of 9%

·; Torque Transmission achieved underlying growth of 10% and operating margin of 16%

·; Average working capital to sales ratio3 cut by 9%

·; Initiatives taken to cut the structural pensions deficit largely offset the impact of lower net discount rates

·; Net debt leverage cut to 1.2x EBITDA

Matthew Peacock, Chairman of Renold, said:

"We are pleased to be able to report significant growth in operating profit and earnings per share for the second consecutive year despite economic conditions which were more challenging than 2010/11. We continued to convert incremental revenue to additional profit at a high rate whilst further reducing our cost base. We are aiming to deliver further growth in sales, margins and operating profit in the year ahead to support continuing robust growth in earnings."

29 May 2012

1Adjusted for exceptional items and IAS 19 finance charges and, where relevant, any tax thereon.

2Throughout this document underlying data excludes the impact of foreign exchange movements

3Calculated as the average of each month's working capital as a percentage of rolling annual revenue

Enquiries

The financial information set out below does not constitute the Company's statutory accounts for years ended 31 March 2012 or 2011, but is derived from those accounts. The auditor has reported on those accounts; the report was unqualified and did not draw attention to any matters by way of emphasis.

NOTES TO 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, and energy, steel and mining.

Further information about Renold can be found on their website at: www.renold.com

Chairman's Statement

Overview

In this my final report as Chairman, I look back on our progress against the key objectives we set for the Group in 2007. I am pleased to report on a robust set of results achieved in challenging economic conditions, with significant growth in operating profit and earnings per share for the second consecutive year.

1. Sales growth driven by accessing the opportunities in emerging markets 

In the current year, underlying Group sales grew by 9% to £209.5m. A strong first half was followed by more moderate growth in the second half when our diversified portfolio exposure to North America and the emerging economies offset the challenges in the European markets arising from the Eurozone crisis and southern European sovereign debt issues. Our exposure to a wider range of geographical markets and also the broader addressable market created by having an established manufacturing presence in low cost countries has facilitated a significant proportion of this growth.

We are now leveraging, for the benefit of the wider Group, our Chain operations in Hangzhou, China and Gudalur, India. This year we have also invested in Torque Transmission opportunities in China: we established a new jointly controlled entity to address the opportunities in the fast-expanding Chinese domestic mass transit market and we also initiated a large capital program in our existing couplings facility in Beicai, China.

2. Enhancing operating margins4 and overall profitability

We increased operating margins to 6.7% from 3.7% in the prior year. This is only slightly below the pre-recessionary level of 7% despite underlying sales still being approximately 10% lower.

In the current year we are pleased to report adjusted earnings of 4.2 pence per share, more than double the 2.0 pence reported in 2011. This was driven by a 100% increase in adjusted operating profit before exceptional items to £14.1m. We continue to improve and optimise our cost base and are making good progress with the restructuring of our European back office infrastructure; the latter will add £1.8m to annual operating profitability when complete in 2014/15.

Torque Transmission had another particularly good year with its operating margins improved further to 16.0% while still allowing for increased investment in business development capability in four key markets: Mass Transit, Quarrying and Mining, Metals and Energy. This was achieved at the same time as growing the business at an underlying rate of 10%.

3. Improving cash generation

The current year has seen a continued improvement in working capital management with average levels of working capital now 22.4% of sales, a 9% improvement on the prior year. The business has added £47.5m of underlying sales in the period since March 2010 but has only required £2.8m extra working capital to fund this.

4. Reducing the exposure to UK pension deficits

In a year when most businesses with UK pension deficits have reported increases in liabilities due to lower corporate bond yields caused largely by Quantitative Easing (QE) reducing yields on gilts, Renold has taken a number of steps to significantly reduce its impact. Without the impact of QE, which is generally accepted to have reduced gilt yields by around 100 basis points5, the underlying UK deficits, all else being equal, would now be less than £10m.

The Board

I announced my intention to stand down from the Board on 1 May 2012. At the same time we welcomed Mark Harper as a Non-Executive Director. Mark will formally take on the role of Chairman at the closing of the Annual General Meeting on 12 July 2012. In addition, our Senior Independent Director, David Shearer, has indicated that he will not seek re-election to the Board at the Annual General Meeting following over five years service to the Board. A process has begun to seek a replacement for David in due course. I wish Mark and David every success.

I would like to take this opportunity to thank the Board, and all Renold staff, for their support over the last five years. We have worked constructively to overcome an extremely challenging period in Renold's history and the fact that the business continues to grow strongly with improving prospects is testament to the effectiveness of those efforts.

Outlook

The Board has focused on continuing the path of profitable growth throughout the year under review.

Operating margins are nearing pre-recessionary levels while gearing as a ratio of net debt to EBITDA has achieved the lowest level in the last five years at 1.2 times. The Board has decided to recommend that no dividend be paid, but it will consider future dividend policy in the light of performance and, in particular, free cash flow from the business.

Renold remains well placed to exploit its manufacturing base, strong technical capabilities and internationally respected brand. The business has a number of opportunities for new investment and the Board are confident that we will continue to deliver further growth and improving profitability.

Matthew Peacock

Chairman

4Operating profit before exceptional items as a percentage of total external revenue

5Bank of England: 'The United Kingdom's quantitative easing policy: design, operation and impact'

Chief Executive's review

Overview

Improving economic conditions in most of our world markets assisted sales growth throughout the year with Europe seeing a more moderate growth in the second half. Margins improved in both Chain (75% of Group sales) and Torque Transmission (25% of Group sales). Our focus on optimising our cost base continued as we accelerated a project to restructure our Chain Europe back office to deliver better customer service and more efficient business processes. A number of working capital management initiatives were also deployed during the year.

Our objectives for this year included a recovery to pre-recession levels of underlying profitability while underlying revenues were expected to still be approximately 10% below their peak. The drop through rate of incremental revenue to incremental operating profit was strong at 41% (compared to 30% in the prior year) and reflects the existing operational gearing in the business but also the success of further cost reduction initiatives implemented during the year. Operating profit before exceptional items has doubled in the year from £7.0m to £14.1m. This in turn has resulted in adjusted earnings per share more than doubling to 4.2 pence.

This was achieved in large part due to our geographically diverse sales presence which saw strong growth continuing in the Americas, South East Asia and India throughout the year, offsetting a difficult trading environment in Europe in the second half where the European sovereign debt crises led to significant volatility in underlying sales growth. A further complication of the Eurozone crisis itself was a significant strengthening in the Swiss Franc which led to a year on year reduction in underlying sales in our third largest European market in the second half of the year.

During the year the business successfully reduced gearing levels (measured as a ratio of net debt to rolling 12 month EBITDA) to 1.2 times from 1.7 times last year. In the year, net debt increased by £2.9m to £22.9m from £20.0m in the prior year. The Group was able to fund significant sales growth with only limited increases in working capital for a second year in succession. Average working capital has continued to be managed down during the period under review. Continuous improvement was made in average working capital levels, which finished the year at 22.4% of sales compared to 24.7% last year.

With regard to pensions, we have been actively reviewing and improving the overall funding of the UK schemes and so, despite an adverse change in gilt yields of around 100 basis points from QE that drove down corporate bond yields and contributed to an increase in liabilities of £16m, offsetting actions and lower inflation have limited the UK deficit increase to £1.7m.

During the year we achieved the first implementation of our global ERP (Enterprise Resource Planning) system at our Morristown facility in the USA. There were a number of operational and working capital issues that arose in the early stages of the project but these were resolved by the end of the first half. The opportunity was taken to establish a series of lessons learned and the experience in Morristown will undoubtedly help in subsequent implementations of the system in further parts of our business. Over the next 12 months the Torque Transmission facility at Milnrow in the UK will transfer onto the new system, as will the Chain business in Canada and the Chain Europe back office.

We have created a standardised shared service model for our finance, payroll and inside sales functions, based at the headquarters of our Chain Europe business in Manchester, UK. This model will bring benefits to customer service, working capital management and cost savings which are expected to be £1.8m p.a. following completion of the project in 2013/4. The prolonged timetable reflects the utmost importance attached to maintaining customer service during the integration process.

Renold Torque Transmission

Renold Torque Transmission is focused on growth while maintaining or improving the current strong operating margins. Government led investment in transport and energy infrastructure accompanied by private sector demand for commodities such as iron ore, steel and electricity have supported sales growth across our key geographies throughout the year.

Torque Transmission, which was already our highest operating margin division, performed particularly well this year in delivering 10% growth in underlying revenue but also increasing operating margins to 16.0% from 13.5% in the prior year. The business benefits from a portfolio of products and services that are customer specific and solution focussed and which therefore demonstrate the bespoke, specialised nature of our value-add services.

We have also added capability to our Torque Transmission division in the shape of additional production capability in our large manufacturing cell in Beicai, China which was one of the year's larger capital investments. In addition, we have invested in more business development and service support capability to underpin the four key markets targeted for growth by Torque Transmission: Mass Transit, Metals, Quarrying and Mining and Energy. These markets represent approximately 60% of the division's revenues and three of the four grew strongly during the year. In Mass Transit, revenues are driven by timing of customer tender processes which can vary in duration. We are participating in a number of major mass transit tenders in North America and Europe and have reached shortlisting stage in several which are expected to lead to contract awards in 2012/13.

Our Chinese joint venture, which targets the rapidly expanding and significant Chinese mass transit market, now has a fully installed assembly facility that has passed ISO 9001 certification (Quality Management Systems). Often aligned to the mass transit market for vehicle gears and couplings is the demand for high performing safety critical escalator drives. This opportunity exists on new mass transit systems but also on the refurbishment, upgrade and expansion of existing stations such as the Lower East Side Access at Grand Central Station in New York.

Renold Chain

Renold Chain is focussed on improving profitability with growth as an important facilitator. Chain delivered an operating margin of 5.9% (2011: 3.3%). This was the result of underlying sales growth of £12.5m and the full year benefit of the prior year projects to close the French manufacturing facility in Seclin and the US warehouse in Hebron, which together reduced our cost base by approximately £1.5m.

As noted above, growth in regions outside Europe was good for most of the year. The second half in Europe was volatile and the specific impact of currency strength in Switzerland negatively impacted sales growth. Growth of 7% in the second half in the rest of Europe was offset by falls in underlying Swiss revenues in the same period.

Summary and outlook

A 10% Return on Sales margin aligned to regaining pre-recessionary levels of underlying sales remains our firm goal.

Our Torque Transmission business is making excellent progress in leveraging existing skills, capabilities and reputation. Torque Transmission has achieved double digit growth while further enhancing already attractive operating margins. The business is now expanding its geographical reach by focussing on four key target markets which show strong underlying growth prospects. Our aim for Torque Transmission is to maintain the double digit level of growth in the year ahead and ultimately equal the revenue scale of Chain.

Chain is rapidly improving its operating profitability and the European back office restructuring project is a clear sign of the continued focus on improving our cost base and business processes while enhancing customer service for future growth. Prospects in most of the world remain good with some under-exploited opportunities still remaining in large markets such as South America. Since the performance of the Chain division is more closely linked to global economic activity, the current uncertainty in Europe will reduce growth prospects below the strong double digit levels seen in the last two years.

Nevertheless, Renold benefits from market leading positions, a good geographic portfolio and superior products, all of which are driving growth from an increasingly optimised cost base. We remain very confident about the long term future of Renold.

Robert Davies

Chief Executive Officer

Finance Director's review

Our performance

Overview

Revenues and profitability saw significant growth during the year ended 31 March 2012, building on the achievements of the previous year. Cash generation was sufficient to fund the European reorganisation, £5.9m of capital investment and £5.2m of ongoing pension payment obligations. At the same time, the Group took advantage of a number of pension deficit reduction opportunities that should ultimately result in a significant fall in our underlying UK pension scheme deficits after the effects of Quantitative Easing on corporate bond and gilt yields have diminished.

Revenue

Revenue for the year increased by 9.7% to £209.5m following a 22% increase in the preceding year to £191.0m. On an underlying basis, excluding the impact of foreign exchange, the increase was 8.9%. Underlying revenue growth in the second half was negatively impacted by the weak macro economic situation in Europe.

Operating result

The Group generated £6.3m of operating profit before exceptional items in the first half (2011: £3.1m) and £7.8m in the second half (2011: £3.9m) with a full year result of £14.1m (2011: £7.0m). The improved result was due to the combination of increased sales and benefits from cost reduction initiatives implemented at the end of the prior year. The incremental revenue resulted in a strong 'drop through' to the profit line of approximately 41%.

During the year, the Group continued to streamline its operations to achieve greater efficiency. The reorganisation of our Chain Europe business is now at an advanced stage and the business is already benefitting from the cost savings and operational efficiencies of this project to create a standardised shared service model for finance, payroll and inside sales. This project was the main constituent of the exceptional charges of £2.1m for the year (2011: £2.7m charge).

Financing costs

External net interest costs in the year were £2.5m (2011: £2.1m). Net IAS 19 finance charges (which are a non-cash item) were £1.8m (2011: £3.6m); the movement being due to lower interest charges on pension plan liabilities in the UK and overseas. The fall in discount rates this year means that we expect next year's net IAS 19 financing charge to fall further by around £1.5m.

Result before tax

Profit before tax and exceptional items was £9.7m (2011: £1.4m). The profit before tax after exceptional items was £7.6m (2011: loss of £1.3m).

Taxation

The current year tax charge of £1.2m (2011: tax credit of £0.4m) is made up of a current tax charge of £1.0m (2011: charge of £0.8m) and a deferred tax charge of £0.2m (2011: credit of £1.2m). The charge represents an effective adjusted rate of approximately 17% compared to 10% for the year ended 31 March 2011 due to the utilisation of tax losses unrecognised for deferred tax purposes. The Group cash tax paid was much lower at £0.5m (2011: £0.1m) and the difference is due to the utilisation of tax losses and other tax assets in various parts of the Group.

Group results for the financial period

Profit for the financial year ended 31 March 2012 was £6.4m (2011: loss of £0.9m); the basic earnings per share and the diluted earnings per share were 2.8p (2011: loss 0.4p). The basic adjusted earnings per share and diluted adjusted earnings per share were 4.2p (2011: 2.0p).

Balance sheet

Net assets at 31 March 2012 were £53.2m (2011: £56.9m). The net liability for retirement benefit obligations was £45.2m (2011: £42.0m) after allowing for a net deferred tax asset of £10.5m (2011: £9.5m). Overseas schemes now account for £21.3m (47%) of the post tax pension deficits and £19.1m of this is in respect of the German scheme which is not required to be prefunded.

Cash flow and borrowings

Cash generated from operations was £5.9m (2011: £6.6m). Capital expenditure was reduced to £5.6m (2011: £6.6m), to partially mitigate £4.3m working capital increases supporting sales growth of £18.5m. Group net borrowings at 31 March 2012 were £22.9m (2011: £20.0m) comprising cash and cash equivalents of £4.8m (2011: £7.4m) and borrowings, including preference stock, of £27.7m (2011: £27.4m).

Bank facility

During the period, the Group reached an agreement to extend its principal banking facility with the existing syndicate members led by The Royal Bank of Scotland plc, with Fortis Bank S.A./N.V. The key terms of this facility were effective from 13 August 2009 with a Multi-Currency Revolving Credit Facility (MRCF) of £20.0m and a Sterling overdraft facility of £5m. The facility expires on 30 June 2013. The Group expects to agree new banking facilities in the coming year.

This is the Group's principal credit facility although the Group also benefits from numerous overseas facilities totalling £21.1m.

At 31 March 2012 the Group had unused credit facilities totalling £19.8m and cash balances of £4.8m. Total Group credit facilities amounted to £46.1m with £30.6m being committed.

Treasury and financial instruments

The Group's treasury policy, approved by the Directors, is to manage its funding requirements and treasury risks without undertaking any speculative risks.

To manage foreign currency exchange risk on the translation of net investments, certain Dollar denominated borrowings taken out in the UK to finance US acquisitions had been designated as a hedge of the net investment in US subsidiaries. At 31 March 2012, this hedge was fully effective. The carrying value of these borrowings at 31 March 2012 was £8.1m (2011: £8.1m).

At 31 March 2012, the Group had 4% (2011: 4%) of its gross debt at fixed interest rates. Cash deposits are placed short term with banks where security and liquidity are the primary objectives. The Group has no significant concentrations of credit risk with sales made to a wide spread of customers, industries and geographies. Policies are in place to ensure that credit risk on individual customers is kept to a minimum.

Pensions

The Group has a mix of UK (82% of gross liabilities) and overseas (18%) defined benefit pension obligations as shown below.

The Group's three UK defined benefit pension schemes, the Renold Group Pension Scheme (RGPS), the Renold Supplementary Pension Scheme 1967 (RSPS) and the Jones and Shipman plc Retirement Benefit Plan (J&S), were closed to new entrants in 2002 and to future accrual in 2008 and 2009. The replacement arrangement set up at that time is the Renold Personal Pension Plan, a defined contribution plan which is administered by Fidelity International.

During the year ended 31 March 2012, total UK assets were unchanged at £149.1m. UK asset performance reflects actual asset returns of £7.4m (circa 5%) and employer contributions of £3.4m less the funding of £10.8m of pension benefits.

Overseas asset values rose by £0.1m and include a residual scheme surplus of £1.6m in South Africa which will be returned to the sponsoring company when the official scheme liquidator completes the formal wind up process. The overseas asset portfolio earned an average annual return of 1%.

The Group is currently conducting the latest triennial review process with the trustees of the J&S UK pension scheme with a valuation date of 5 April 2012. Results of the triennial review should be available at the time of the Group's final results in May 2013. This scheme currently accounts for £0.3m of the total £2.5m annual UK deficit repair payments and has the best funding position of the three UK schemes.

Principal risks and uncertainties

Risk is inherent in our business activities. We take steps at both a Group and subsidiary level to understand and evaluate potential risks and uncertainties which could have a material impact on our performance in order to mitigate them. Accordingly, a risk aware environment is promoted and encouraged throughout the Group. Details of the principal risks and uncertainties are set out below.

External market

We operate in 20 countries and sell to customers in over 100. While benefitting from the opportunities and growth in these diverse territories, we are necessarily exposed to the economic, political and business risks associated with international operations such as a global recession, sudden changes in regulation, imposition of trade barriers and wage controls, security risk, limits on the export of currency and volatility of prices, taxes and currencies. Our diversified geographic footprint mitigates against exposure within any one country in which we operate, although we are still exposed to global events.

The Group's profit and cash flows are impacted by the price of its principal raw material, steel, which in recent years has seen considerable price volatility driven by global market conditions outside the control of the Group. Where contractually possible, we pass price increases on to our customers but this ability is, to some extent, dependent upon market conditions. There may be periods of time in which the Group is not fully able to recover increases in the cost of raw materials due to the weakness in demand for its products or the action of its competitors. During periods in which prices of raw materials fall, the Group may face demands from its customers to reduce its prices or experience a fall in demand for its products whilst customers delay orders in anticipation of price reductions. All of these factors could have a material adverse affect on the Group's business, financial condition, prospects, customer retention and results of operations. In recent years, the majority of unmitigated cost increases have been passed on to customers.

Internal operations

The Group's profits and cash flows are dependent on the continued use of its various facilities. Operational risks include equipment failure, failure to comply with applicable regulations and standards, raw materials supply disruptions, labour force shortages, events impeding or increasing the cost of transporting the Group's products and natural disasters. Any disruption of the manufacturing processes can result in delivery delays, interrupt production or even lead to a full cessation of production. If production is interrupted, customers may decide to purchase products from other suppliers. The Group has insurance cover to mitigate the impact of a number of these risks.

The pressure to maintain short lead times, requires the Group to significantly enhance our own working capital management processes and detailed plans are in place to achieve this.

The Group is presently implementing a global ERP system to replace numerous legacy systems. This change is expected to improve customer service and to facilitate further cost and inventory reduction. Our first major site went live on schedule on 1 April 2011. The majority of the Group will migrate to the new system during the next two years. Until that is achieved, the risk continues that an unsuccessful implementation at an individual site could seriously impact the Group's business, financial condition, prospects, customer retention and results of operations. In any event, a temporary increase in operating costs is inevitable in any major change process. To mitigate this risk, the Group is making extensive use of external consultants, the implementation is taking place in phases and a thorough project plan is in place with agreed milestones reviewed by the Board.

Revision of environmental legislation in various countries takes time and we monitor this at a local level in order to anticipate the effect on our businesses and customers. Unforeseen legislative changes may increase manufacturing costs but we believe that they can also drive change to make operations more efficient.

As a result of the nature of the products manufactured, we face the inherent business risk of exposure to product liability and warranty claims in the event that a product fails. In order to mitigate these risks, where possible, we maintain product liability insurance. In order to mitigate the risk of warranty claims for property damage or consequential losses, we have adopted a policy of contractually limiting liability, where possible.

Treasury and financial

In the present economic climate, all companies face risk in relation to the availability of debt to fund their ongoing operations. In order to manage this risk, the Group maintains a mix of short and medium term facilities to ensure that it has sufficient funds available. The Group is now in the early stages of agreeing new banking facilities to replace the existing agreements. Cash deposits are placed short term with banks where security and liquidity are the primary objectives.

The Group has operations in 20 countries and sells into many more with the result that two forms of currency risk, transactional and translational exposure, arise.

Ÿ Transactional exposure: a major exposure of the Group earnings and cash flows relates to currency risk on its sales and purchases made in foreign (non-functional) currencies. To reduce such risks, these transactions are covered primarily by forward foreign exchange contracts or cash flow hedges. Such commitments generally do not extend more than 12 months beyond the balance sheet date, although exceptions can occur where longer term projects are entered into.

Ÿ Translational exposure: arises due to exchange rate fluctuations in the translation of the results of overseas subsidiaries into Sterling. To manage foreign exchange currency risk on the translation of net investments, certain Dollar denominated borrowings taken out in the UK to finance US acquisitions have been designated as a hedge of the net investment in US subsidiaries.

Borrowings at variable rates expose the Group to cash flow interest rate risk and borrowings at fixed rates expose the Group to fair value interest rate risk. The Group reviews the mix of fixed and floating debt and intends to use interest rate swaps to manage part of this exposure.

Estimates of the amount and timing of future funding obligations for the Group's pension plans are based upon a number of assumptions including future long term corporate bond yields, the actual and projected performance of the pension plan assets, legislative requirements and increased longevity of members. The Group continually reviews risks in relation to the Group's pension schemes and takes action to mitigate them where possible. While the Group is consulted by the trustees on the investment strategies of its pension plans, it does not have direct control over these matters, as trustees are responsible for the strategy.

Consolidated income statement for the year ended 31 March 2012

6Adjusted for the after tax effects of exceptional items and the IAS 19 charge

Consolidated statement of comprehensive income for the year ended 31 March 2012

Consolidated balance sheet as at 31 March 2012

Approved by the Board on 28 May 2012 and signed on its behalf by:

Matthew Peacock Robert Davies

Chairman Director

Consolidated statement of changes in equity for the year ended 31 March 2012

Consolidated statement of cash flows for the year ended 31 March 2012

Notes to the Consolidated Financial Statements

1(a) Basis of preparation

The preliminary statement was approved by the Board on 28 May 2012. The preliminary statement does not represent the full consolidated financial statements of Renold plc and its subsidiaries which will be delivered to the Registrar of Companies following the Annual General Meeting. The audited consolidated financial statements of Renold plc for the year ended 31 March 2012 have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The preliminary financial statements have been prepared on a consistent basis using the accounting policies set out in the Renold plc annual report for the year ended 31 March 2011. The financial information for the year ended 31 March 2011 has been extracted from the Renold plc annual report for that year as filed with the Registrar of Companies.

The 2011 and 2012 financial statements both carry unqualified audit reports which do not contain an emphasis of matter reference and do not contain a statement under section 237(2) or 237(3) of the Companies Act 1985 or section 498(2) or 498(3) of the Companies Act 2006.

1(b). Basis of preparation - Going Concern

The financial statements have been prepared on a going concern basis. In determining the appropriate basis of preparation of the financial statements, the Directors are required to consider whether the Group can continue in operational existence for the foreseeable future.

The Directors have assessed the future funding requirements of the Group and the Company and compared them to the level of available borrowing facilities. The assessment included a detailed review of financial forecasts, financial instruments and hedging arrangements for at least the twelve month period from the date of signing the accounts and a review of cash flow projections. The Directors considered a range of potential scenarios within the key markets the Group serves and how these might impact on the Group's cash flow, facility headroom and banking covenants. The Directors also considered what mitigating actions the Group could take to limit any adverse consequences. The Group's forecasts and projections, taking account of reasonably possible scenarios show that the Group should be able to operate within the level of its borrowing facilities and covenants.

Having undertaken this work, the Directors are of the opinion that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing the Annual Report and accounts.

2. Segmental information

For management purposes, the Group is organised into two reportable operating segments according to the nature of their products and services. Having considered the management reporting and organisational structure of the Group, the Directors have concluded that Renold plc has two reportable operating segments as follows:

·; The Chain segment manufactures and sells power transmission and conveyor chain and also includes sales of Torque Transmission product through Chain National Sales Centres (NSC's);

·; The Torque Transmission segment manufactures and sells torque transmission products such as gearboxes and couplings used in power transmission.

No operating segments have been aggregated to form the above reportable segments.

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. The Chief Operating Decision Maker (CODM) for the purposes of IFRS 8: 'Operating Segments' is considered to be the Board of Directors of Renold plc. Segment performance is evaluated based on operating profit and loss and is measured consistently with operating profit and loss in the consolidated financial statements. However, Group financing (including finance costs and finance income), retirement benefit obligations and income taxes are managed on a Group basis and are not allocated to operating segments.

Transfer prices between operating segments are on an arm's length basis in a manner similar to transactions with third parties.

i. Inter-segment revenues are eliminated on consolidation.

ii. Capital expenditure consists of additions to property, plant and equipment, and intangible assets including assets from the acquisition of subsidiaries.

iii. Included in Chain external sales is £12.3m of Torque Transmission product sold through the Chain National Sales Centres. The Torque Transmission businesses may use the Chain NSC framework in countries where it does not have its own presence. Where this occurs Torque Transmission represents a low proportion of total sales for the NSC.

iv. The measures of segment assets reviewed by the CODM are inventories and total working capital.

v. Working capital includes inventories, trade and other receivables less trade and other payables.

The segment results for the year ended 31 March 2011 have been restated due to the re-categorisation of a business unit from the Chain segment to the Torque Transmission segment.

The results were as follows:

i. Inter-segment revenues are eliminated on consolidation.

ii. Capital expenditure consists of additions to property, plant and equipment, and intangible assets including assets from the acquisition of subsidiaries.

iii. Included in Chain external sales is £12.6m of Torque Transmission product sold through the Chain NSCs. The Torque Transmission businesses may use the Chain NSC framework in countries where it does not have its own presence. Where this occurs Torque Transmission represents a low proportion of total sales for the NSC.

iv. The measures of segment assets reviewed by the CODM are inventories and total working capital.

v. Working capital includes inventories, trade and other receivables less trade and other payables.

The Board reviews the performance of the business using information presented at consistent exchange rates ('underlying'). The prior year results have been restated using this year's exchange rates as follows:

7 The effect of the re-categorisation was to reduce Chain sales by £2.3m and operating profit by £0.1m with corresponding increases Torque Transmission.

The operations of the Group are based in four main geographical areas. The UK is the home country of the parent company, Renold plc. The principal operating territories are as follows:

·; United Kingdom

·; Rest of Europe

·; North America

·; Other countries

The sales analysis in the table below is based on the location of the customer; the analysis of non-current assets is based on the location of the assets:

Non-current assets consist of goodwill, other intangible assets, property, plant and equipment, investment property and investment in jointly controlled entities. Other non-current assets and deferred tax assets are not included above.

3. Exceptional items

Exceptional costs associated with the restructuring of the Group's European back office support functions as well as global manufacturing and distribution facilities have originated as follows: UK £0.8m (2011: £1.1m), Rest of Europe £0.7m (2011: £1.2m), North America £0.2m (2011: £0.2m) and other countries £nil (2011: £0.2m).

Costs of £0.4m (2011: £nil) were also incurred in relation to a potential acquisition which was ultimately unsuccessful.

4. Net financing costs

5. Taxation

Analysis of tax charge/(credit) in the year

Factors affecting the Group tax charge for the year

Announcements were made in the Budget on 21 March 2012 that the main rate of corporation tax is to be reduced from 26% to 24% with effect from 1 April 2012 and then 1% per year to 22%. Only the first 2% reduction above has been substantively enacted at the balance sheet date and hence only this change has been recognised in the accounts. This has resulted in a £0.2m deferred tax charge to the income statement and a £0.6m deferred tax charge to other comprehensive income, due to the reduction in the value of the deferred tax assets recognised in the UK.

Based on the closing deferred tax assets at the balance sheet date, the aggregate impact of the proposed reductions from 24% to 22% would reduce the deferred tax asset by approximately £1.2m (approximately £0.6m per year).

The Group's tax charge in future years will be affected by the profit mix, effective tax rates in the different countries where the Group operates and utilisation of tax losses. No deferred tax is recognised on the unremitted earnings of overseas subsidiaries.

The actual tax on the Group's profit before tax differs from the theoretical amount using the UK corporation tax rate as follows:

6. Earnings / (loss) per share

Earnings / (loss) per share (EPS) is calculated by reference to the earnings / (loss) for the year and the weighted average number of shares in issue during the year as follows:

The adjusted earnings per share numbers have been provided in order to give a useful indication of underlying performance by the exclusion of exceptional items. Due to the existence of unrecognised deferred tax assets, there were no associated tax credits on some of the exceptional charges and in these instances exceptional costs are added back in full.

At 31 March 2012, the issued ordinary share capital comprised 219,564,703 ordinary shares of 5p each (2011: 219,564,703) and 77,064,703 deferred shares of 20p each (2011: 77,064,703).

During the year the Company issued no ordinary shares (2011: nil).

8. Additional cash flow information

Reconciliation of operating profit to net cash flows from operations:

Reconciliation of net decrease in cash and cash equivalents to movement in net debt: