Renold Regulatory News (RNO)

Renold plc

Final results for the year ended 31 March 2022

("Renold", the "Company" or, together with its subsidiaries, the "Group")

Significant revenue and earnings rebound…Record order book…Continued net debt reduction

Renold (AIM: RNO), a leading international supplier of industrial chains and related power transmission products, announces its results for the year ended 31 March 2022.

Financial highlights

Business highlights

1 See below for reconciliation of actual rate, constant exchange rate and adjusted figures

2 Adjusted operating profit divided by revenue

3 See Note 17 for a reconciliation of net debt which excludes lease liabilities

4 The results for the year ended 31 March 2021 have been restated, see Note 20 for details of the restatement

Robert Purcell, Chief Executive, commented:

"I am pleased with the Group's robust performance through the pandemic which reflected the benefits of the strategic development completed in recent years. Our employees around the world have responded excellently to the challenges we have faced and I thank them for their dedication and commitment to the Group and our customers during this difficult period.

"Throughout the reported period the business performance has been on an improving trend and our order books have continued to grow in the early part of the new financial year. We are cognisant that there remain considerable Covid-19-related challenges in some parts of the world; supply chain issues are still prevalent and inflation is high. However, we have entered the new financial year with good momentum and a belief in the excellent fundamentals of the Renold business upon which we are building."

Meeting for analysts and institutional investors

A virtual meeting for institutional investors and analysts will be held today at 9.30am BST. If you wish to attend this meeting please contact renold@investor-focus.co.uk or call Tim Metcalfe of IFC Advisory Limited (020 3934 6632) before 9.00am to be provided with access details.

Retail Investor presentation and Q&A session

Renold management will be hosting an online presentation and Q&A session at 5.30pm BST today, 13 July 2022. This session is open to all existing and prospective shareholders. Those who wish to attend should register via the following link and they will be provided with access details:

https://us02web.zoom.us/webinar/register/WN_z8p8HGEmQmywDFO-ub0MpA

Participants will have the opportunity to submit questions during the session, but questions are welcomed in advance and may be submitted to: renold@investor-focus.co.uk.

Reconciliation of reported and adjusted results

1 The results for the year ended 31 March 2021 have been restated, see Note 20 for details of the restatement.

ENQUIRIES:

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 reputation for quality that is recognised worldwide. Its products are used in a wide variety of industries including manufacturing, transportation, energy, metals and mining.

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

Chair's statement

I am pleased to be contributing to the Annual Report for the first time as the Renold Chair, having taken up the position at the end of last year's Annual General Meeting. It is encouraging to see that the Group made good progress in FY22, as our markets recovered strongly from the effects of the Covid-19 pandemic, along with significant commercial and operational benefits accruing from the execution of our strategy. Due to the diligence of the executive team, our employees around the world, and the Board, the business has demonstrated that it has the resilience to weather the current economic turmoil. This is true, in terms of financial performance but also true for the flexibility and adaptability of our people across the world, who have delivered an outstanding result for the Group in what remains, with the Russian invasion of Ukraine and ongoing Covid disruptions, a very difficult global environment.

Our markets and trading performance

Over the year, Group revenue from continuing operations increased by 18.1% to £195.2m (2021: £165.3m), and adjusted operating profit improved by 34.2% to £15.3m (2021: £11.4m) excluding amortisation of acquired intangibles of £0.1m and non-recurring credits of £1.0m. Non-recurring items relate to gains from renegotiated lease arrangements offset by charges due to early exits from sublet properties no longer used by the Group, and US PPP Covid loan relief. Operating profit increased to £16.2m (2021: £10.7m)

Return on sales improved by 90bps to 7.8% (2021: 6.9%), as the Group demonstrated its ability to successfully implement price increases ahead of raw material and energy cost increases, together with the benefits of cost reduction and efficiency programmes.

Encouragingly, Group order intake at £223.9m was 31.7% ahead of the equivalent prior year period, and 25.3% ahead excluding the previously announced £11.0m long-term military contract. The order book at 31 March 2022 of £84.1m was a record for the Group and 57.0% ahead of the prior year figure.

The year saw strong cash generation, as a continued focus on cash management resulted in a £4.6m reduction of net debt to £13.8m (31 March 2021: £18.4m).

Strategic Developments

During the year, Renold made good progress in continuing to deliver strategic change across the Group.

The continuing review of capabilities across the Group has identified opportunities for the upgrade and development of existing manufacturing processes in India and China to create higher specification, higher quality products. This review of our manufacturing footprint and processes will facilitate standardisation across more product lines which, in turn, will enable us to benefit more completely from our geographic footprint and economies of scale. Furthermore, flexibility between manufacturing locations, which in light of increasing customer supply chain diversification demands, and a changing tariff environment, will add to our value proposition.

The completion of the major strategic restructuring initiatives, together with the lower level of net bank debt, puts the Group in a strong position to capitalise on accretive bolt-on acquisitions that augment our existing market position. This will allow us to accelerate our growth in revenue, including for our existing products into adjacent sectors, allow entry into under-represented applications and geographies, and most importantly, allow us to benefit from significant production synergies from acquired businesses.

Sustainability

During the year, the Group took the first steps along the path to developing a long-term sustainability strategy, including our energy and carbon dioxide emission proposals, whereby Renold will make sustainability one of its guiding principles. Over a period of time, our new leader for sustainability will help the Board to develop policies and strategies in this area, aimed at reducing the Group's environmental impact, C02 emissions and enhancing social development, whilst improving Group operating results.

The Board

My predecessor, Mark Harper, stepped down as Chair of the Board at the end of the 2021 AGM. On behalf of the Board and the whole Group , I would like to thank Mark for his guidance and leadership during his time as Chair. He left the Group in a far stronger position than when he joined. At the same time Andrew Magson took over the responsibilities of Audit Committee Chair, while Tim Cooper, the Chair of the Remuneration Committee, took on the responsibilities of Senior Independent Director.

The Chair of the Board is primarily responsible for the composition of the Board and for ensuring high standards of governance. As Chair, I will continue to place great importance on the breadth of relevant experience, diversity, and complementary skills amongst the Group's Directors and on the continued development of the strategy for the Renold business. With this in mind, we welcomed Vicki Potter to the Board as a Non-Executive Director in May 2022. Vicki has broad operational and HR experience in multinational engineering and manufacturing companies. She is currently the Chief Human Resources Officer and Customer Services Director for Oxford Instruments plc, a global FTSE 250 technology and manufacturing business. Following a year in which the benefits of our succession planning are evident, the Board will be continuing to ensure that effective succession plans are in place.

Dividend

The Board fully recognises the importance of dividends as part of the overall value creation proposition for shareholders. However, the Board has carefully reviewed its capital allocation priorities, and believes that both organic and inorganic investment opportunities available to the Group, will deliver higher levels of shareholder return over the medium term than the payment of dividends. The Board will continue to review this approach over the coming periods. As such, the Board is not recommending the payment of a dividend on the ordinary shares of the Company for the year ended 31 March 2022.

Summary

The Group has performed well in the face of unprecedented economic and social turmoil and the disruption these events have caused to global supply chains. Supply chain disruption and continuing cost inflation will undoubtedly be key challenges in the new financial year, but the strong financial performance this year, combined with the end of our strategic restructuring programme, has generated the freedom to exploit future organic and acquisition-related growth opportunities. I would like to thank all our employees around the world for their diligence and commitment in supporting the delivery of strong results for the Group.

DAVID LANDLESS

CHAIR

13 July 2022

Chief executive's review

The Group's markets recovered strongly during the year, as activity levels continued to rebound in the aftermath of the Covid-19 pandemic. Group order intake during the year was £223.9m, an increase of 31.7% on a reported basis and 35.5% at constant exchange rates, over the prior year. Excluding the recently announced £11.0m long-term military contract, order intake for the period increased by 25.3% or 28.9% at constant exchange rates. Encouragingly, the second half order intake at £110.9m was 8.7% ahead of the underlying first half performance. The resultant year end order book of £84.1m, represents a further record high for the Group (31 March 2021: £53.6m).

Conversion of orders into sales was also encouraging, with Group revenue for the year of £195.2m, an increase of 18.1% on a reported basis and 21.4% at constant exchange rates, over the prior year. Group activity continued to ramp up over the second half year, with turnover at constant currency of £99.8m, some 4.8% ahead of the first half. Final quarter revenues at £52.9m broke the psychologically important £50m barrier for the Group.

The strong revenue growth contributed to significantly improved trading during the year, together with a number of non-recurring items, shown in the table above, namely the forgiveness of £1.7m of loans received under the US Government's Paycheck Protection Program, together with non-recurring charges regarding sublet properties relating to closed sites, which are less than previously anticipated, due to the recent short-notice cancellation of the lease by our long-term tenant. Excluding these non-recurring items and the amortisation of acquired intangibles of £0.1m, adjusted operating profit from continuing operations increased to £15.3m (2021: £11.4m), reflecting the commercial and operational improvements made to the business. The corresponding return on sales rose to 7.8% (2021: 6.9%). The incremental operating profit gearing1 was a creditable 13%, despite the impact of the widely reported industry headwinds, including on the supply chain, raw material availability and inflation. Operating profit increased to £16.2m (2021: £10.7m).

The Group continued to benefit from the impact of the significant efforts undertaken in the current and previous years to lower the fixed cost base, increasing flexibility and operational leverage. The Group has successfully managed a period of significant supply chain disruption to materials and transportation, both in terms of availability, lead times and increased input costs. Whilst price increases have been successfully passed through to customers, through selling price increases, the Group expects further pressure on materials, labour, energy and transportation to continue into the new financial year.

Renold continues to drive increased performance through specific projects aimed at better levels of operational efficiency and productivity, through improved design and standardisation of products, better utilisation of machinery and people, including more flexible working practices, and leveraging the benefits of improved procurement strategies. The Group's capital investments returned to more normal levels following a period of lower spend in the prior year as a result of the pandemic. The Group's operational capabilities are steadily improving as consistent investments come to fruition.

The strong focus on cash management continued, and delivered a further reduction in net debt of £4.6m during the year, to £13.8m (31 March 2021: £18.4m). The resulting net debt to EBITDA ratio of 0.6x (2021: 0.9x) affords significant headroom against the Group's banking covenants and, in turn, provides greater flexibility and funding capabilities to transact quickly on investment decisions to drive growth and efficiencies.

Activity in the Chain division continued the strong recovery seen over the last 18 months, with order intake for H2 22 some c.60% higher at constant exchange rates than that seen during the pandemic. Output has similarly been ramped up with turnover seen in the last six months c.36% higher at constant exchange rates than at the low point of the pandemic. In a similar vein the adjusted profitability of the Chain business has increased by 43.2%, when again compared to the pandemic year and return on sales for the year at 11.9% (2021: 10.5% at constant rates) continues to show progress.

The TT division is generally a longer lead time, later cycle business. Order intake dipped to its lowest point during the pandemic in H2 21, when an order intake of £17.4m was recorded. Since this time, excluding the £11.0m long-term military contract, order intake has steadily recovered, with the H2 22 figure 37.2% ahead of the pandemic low point, at constant exchange rates. Similarly, turnover has improved, with sales in H2 22 6.2% up on the prior year equivalent figure.During FY21, the TT division received £0.8m of non-recurring, pandemic support from the US Government; excluding the impact of this support, the return on sales for the division was 10.1% (2021: 10.7%).

Volatile operating environment - impact on operations and Renold's response

The Group is facing an extremely volatile operating environment, the like of which I have not seen in my career, created primarily by both the ongoing effects of the Covid-19 pandemic, and the war between Russia and Ukraine.

At the start of the financial year, our operations in India were substantially closed for a six-week period as lockdown restrictions came into force, while at the end of the year Covid related disruption to our Chinese facilities, located in the wider Shanghai region, delayed inventory shipments to other companies in the Group. Our European, Australasian and US operations have continued to experience significant rates of Covid-related absenteeism, which has negatively impacted costs, productivity and service levels from our factories. The Group continues to enforce our Covid protocols and health measures to try to protect all our staff and to mitigate the impacts.

As was mentioned in our half year trading statement, we continue to experience extended shipment times and increased freight costs throughout the world. Container freight services are unreliable and expensive, shortages of trucks and drivers have been evident in many geographies and the war in Ukraine has removed the option of train transport from China to Europe. This has led to an upward pressure on inventory levels, as the Group attempts to maintain customer service levels through the use of buffer stocks, and increased goods in transit between facilities.

Whilst recognising the human tragedy unfolding during the war between Russia and Ukraine, ceasing trading relationships with sanctioned regions has little direct impact on the Group; sales to Russia and Ukraine during FY22 were low at c.0.5% of Group turnover. The wider impact on both material cost and energy prices is more significant, and during the second half year, the Group saw unprecedented increases in material costs, energy and other input costs. In response to this, Renold successfully implemented sales price increases ahead of these inflationary impacts. A significant amount of Group production comes from our German factories, and we are actively working on contingency plans and actions to deal with the impact of any disruption to German energy supplies that Russian action may bring about.

At the end of the financial year all major sites around the Group were open, but a surge of Covid cases within the wider Shanghai region and continued high levels of infection in parts of Europe and the US mean that the risk of further lockdowns, temporary site closures and disruption cannot be eliminated. Disruption to supply chains is causing long lead times for materials and significant inflationary pressure so the Group has had no option but to implement a series of price increases across the business aimed at fully recovering input cost inflation.

Looking forward, Renold is well positioned to benefit further when the broader operating environment returns to something we may recognise as more normal.

Chain performance review

Turnover rebounded during the year, with total Chain turnover increasing 22.5% year-on-year to £159.2m; 26.1% at constant exchange rates. The final quarter of the year saw a further step-up in activity, with Q4 turnover some 27% higher than the prior year comparator, and 12% ahead of the next highest quarterly figure. The increased revenues resulted in return on sales improving by 140 basis points, to 11.9% (2021: 10.5% at constant exchange rates). The operational gearing1 on the increased activity at constant exchange rates was a creditable 17%, as the impact of increased volumes and significant operational efficiency gains fell through to the bottom line. Operating profit was £20.5m (2021: £12.9m), £7.6m higher than the prior year level.

1 Operational gearing is defined as the year-on-year change in adjusted operating profit, divided by the year-on-year change in revenue.

Order intake in the Chain division increased by 30.4% year on year, as economies worldwide recovered from the impact of Covid related lockdowns and we were able to restart more normal commercial activity. Throughout the year, constant currency quarterly order intake figures have remained consistently high, remaining around the £40m level, with the exception of quarter four which saw a further upward step change, as the impact of price increases and the recovery of the US OEM market was reflected in the figures. Closing order books for the division finished the year at £53.9m.

Chain Europe, which is our largest Chain business, saw a sharp recovery in constant exchange rate revenues, which increased 36.0% over the prior year. Revenue strengthened significantly from the outset of the year, a trend which continued throughout each subsequent quarter. The increased activity, together with the benefit of price increases and renewed commercial initiatives, resulted in a substantial increase in underlying adjusted constant currency operating profit. During the year, the business successfully integrated the Brooks conveyor chain acquisition into our UK business, and completed the introduction of ISO9001, ISO14001 and ISO45001 certifications at all of our European manufacturing facilities. From a commercial perspective, Chain Europe launched the Renold Webshop, which enables UK-based customers to make online purchases of industrial, motorcycle and track cycle chains, while also launching the new Renold 3D Configurator software which enables customers to download specification, 3D step files and also raise quotations directly on our systems.

In the Americas, the market recovery seen following the US presidential elections and the lessening impact of Covid, was also marked. Order intake at £69m was at record levels, surpassing the previous high of c.£65m, with March 2022 representing a new record high for monthly order intake, while turnover, at £63m was 29.2% higher than the prior year comparator, using constant currency rates. Sales to OEM customers, especially in the forklift truck market, recovered strongly in the second half, while new business opportunities, especially in the ethanol, grain handling and forestry markets were also won during the year. Production capabilities continue to be enhanced with the introduction of an automated robotic assembly line. Underlying constant currency operating profit increased to a new record high.

Australasia was the region least impacted at the outset of the pandemic and financial year 2021 recorded constant currency revenue growth of 4.6%. This financial year saw additional improvements in constant currency revenues, which increased by a further 4.7% across the region. Australia itself had a good year with revenue at constant exchange rates up 7.3%, which followed last year's 12.8% growth rate, with increased activity seen in the mining sector. We see continuing evidence of customers changing buying patterns to source more domestically produced goods as a result of on-going supply chain disruption of imported products, while we are also seeing the benefits of our product-enhancing engineering capabilities. We continue to invest in the production capabilities of our Melbourne factory. New Zealand also recovered strongly in the year, showing a 24.4% constant currency growth rate. Malaysia and Indonesia encountered more difficult trading conditions, particularly due to Covid restrictions and therefore saw reductions in activity in excess of 10%. The highlight of the region was Thailand where activity grew 63.3%, albeit from a low base. We are continuing to expand our sales into more industries in SE Asia, supported by a strong dealer network in Indonesia.

Domestic revenues in India recovered sharply in the year with constant exchange rate revenues 44.8% higher, despite the business being faced with a further government enforced shutdown, which subdued activity in the first half of the year. This was followed by a significant recovery in demand, which was partially satisfied through the manufacture and import of product from the Renold facility in China, which offset short-term material supply issues caused by the inability of domestic steel production to recover sufficiently quickly. This was a great example of two Renold businesses working together to satisfy customer requirements. We have opened the first of a series of regional distribution warehouses in India to offer our customers better and much quicker service.

Constant currency revenues in China, grew by 45.8% during the year, driven primarily by the significant recovery of intra group demand from Europe, the US, and now India. Efforts and investments are underway to continue to improve the quality and specification of products manufactured in China to make them equivalent to those manufactured in Europe. During the year, our Chinese team initiated a project to upgrade certain component manufacturing processes to use what we would consider to be state-of-the-art technology, while making significant investment in automated assembly lines to facilitate high volume sales growth in both domestic and overseas markets.

The Chain division continues to develop and evolve through investment in equipment, processes, engineering and sales and this provides us with a good base from which to benefit from the expected opportunities in this market.

Torque Transmission performance review

Divisional revenues of £40.4m were £1.3m higher than in the prior year due to a recovery in demand in our Couplings and Gears businesses. The Couplings business saw the planned increase in activity on the contract to supply large Hi-Tec couplings for the Royal Navy, while the Gears business saw a broad recovery in activity following the pandemic. In July 2021, the Group announced it had secured an £11.0m long-term supply agreement for the second phase of the military contract which is expected to deliver revenues over approximately the next eight years.

Divisional adjusted operating profit at constant exchange rates reduced by £0.8m to £4.1m due to the non-recurrence of the non-recurring benefit of US Government Covid support of £0.8m seen in the last financial year. Return on sales excluding the non-recurring prior year US PPP loan forgiveness was 10.1% (2021: 10.7%) and operating profit was £4.1m (2020: £5.0m).

Momentum in this division, which has a later trading cycle, and generally larger orders than our Chain business, continues to be positive.

Order intake for the year increased 48.1% to £55.4m (2021: £37.4m), 51.7% at constant exchange rates, as the recovery from the Covid-19 pandemic spread through the global economy. Excluding the impact of the £11.0m long term military contract, order intake increased 21.6% at constant exchange rates. Recovery in order intake progressed steadily throughout the year, so that by the fourth quarter of the year, the division had experienced its fifth sequential increase in order intake, with the £12.5m recorded being some 60% higher than the low point seen through the pandemic.

The Couplings business, both the UK and Spanish units, saw a marked increase in turnover year-on-year being up 44.6% and 38.7% respectively. As planned, turnover in the marine business, which manages the long-term military contracts increased year-on-year by £0.5m, as delivery of the first phase of the contract was completed. Targeted marketing campaigns have proved successful with an increased interest from customers in the RBI rubber in compression product which offers users a number of clear advantages over other products available in the market, whilst on-going work to further enhance customer service has resulted in a number of interesting opportunities being identified.

The Chinese TT business grew steadily, showing a year-on-year increase of 4.3%, while supply chain issues in the Australian business resulted in turnover in the year being down 15%; however early indications suggest this shortfall should be largely recovered within the first few months of the new financial year. Activity in the US TT business remained subdued throughout most of the year, with turnover reducing 8.6%. Operational disruption, caused by direct labour shortages and supply chain constraints, held back activity. Order intake in the second half of the year improved markedly, as fresh impetus was brought to the business through the strengthening of the commercial team, and the introduction of Group standard business systems.

The Gears business continued to make good progress in order intake, turnover and margin improvements despite facing significant material and energy cost increases. Notable sales in the year included escalator gear units for the Budapest metro. Demand from the OEM sector, particularly for larger projects in the US and UK, which are our key geographic markets, showed further signs of improvement during the year.

As the Torque Transmission division operates on a slightly later sales cycle than the Chain division, we expect full recovery from the Covid-19 pandemic to become evident during the new financial year.

Strategic Plan - STEP2

As the world slowly emerges from the Covid-19 pandemic, I am delighted that we are launching the next phase of the Renold strategy: STEP2. This is an evolution of the current strategy, STEP 2020, and is built on the foundations that have been created. Whilst there are common threads and similar themes, the major thrust of STEP2 is achieved through both organic and acquisitive growth.

We will continue to modernise and drive efficiency and productivity in the business but also look to grow our revenues, margins and cashflows through both organic and acquisitive growth. We will continue to invest in service, products and operations.

Sustainability

Last year we announced that we would be making sustainability a guiding principle for Renold. Since then, we have taken some significant steps forward. In addition to our statement of intent in relation to sustainability, we have developed, agreed and widely embedded within the business a model of what sustainability means to us. Our Sustainability Steering Group has initiated and progressed a number of Group level projects focusing on areas identified as likely to have the most significant impact, including energy usage, carbon dioxide emissions, packaging and our products' impact on customer sustainability. We have also galvanised our regional businesses across the world to develop their own sustainability project roadmaps, seeking to make our efforts relevant for the highly diverse regions within which we operate and to more fully engage our staff in sustainability activity.

In the coming year, we will intensify our focus on our Group projects, bringing them to fruition and where appropriate, initiating new ones. At a regional level we will continue to build on the considerable momentum we have gained, delivering ever more local success. More information on our progress and plans can be found in the sustainability section of the Annual Report.

Progress

Renold was consistently enhancing its operational capabilities through upgrading equipment and processes across the world before the pandemic. As we have become more confident in our ability to cope with all aspects of Covid-19 we have again started to push forward with our plans. Capital expenditure returned to £5.1m in the period, a considerable increase on the prior year and we expect it to rise again in the new year. We have made good progress in difficult circumstances, as supply chain issues have affected our equipment suppliers as much as ourselves.

We have a very clear vision of how our new Chinese factory fits into our global supply chain and our expectations for growth in the Chinese market itself. We are constantly upgrading capabilities in the new facility and we will be offering higher specification Chinese-made product into the domestic market as well as across the world.

In our Indian business, efforts continue to fully integrate the business into the Group supply chain. Investments in production capabilities, including improvements in the product quality and uniformity, are underway. India offers a very attractive market in its own right and an interesting and effective alternative to our Chinese Chain manufacturing site. India provides the Group with an alternative supply base as customers' supply chains flex, driven by an awakening of concern about tariffs and the concentration of supply from a single region.

These projects highlight an intentional trend within our capital allocation decisions for the Group. With the large infrastructure projects complete, capital allocation decisions are now less frequently limited purely by a site's domestic requirements but are focused on customer service, upgrading product specification capabilities and optimising profitability for the Group. For the Chain division especially, this allows us to access economies of scale and offer a truly global service with increasing relevance to large OEM customers. Renold is increasingly an integrated international supplier and less a series of regional businesses.

Having created a stronger operational platform for the Group and with the significant strengthening of our financial position, we have increased our focus on how we can accelerate performance through value-enhancing acquisitions, which will allow us to both benefit from increased geographical and product coverage, but also leverage synergies from increasing the throughput of our existing facilities. As a result, we have developed a pipeline of acquisition opportunities which we believe have the ability to meet our strict financial and operational criteria. These acquisitions will allow us to expand our product and service offering as well as our customer base, further expand our already diverse product portfolio into adjacent market sectors and allow us to capitalise on our ability to provide customers with extremely high specification products with real benefit for their own business performance.

The Board is observing disciplined criteria when prosecuting the new acquisition strategy, ensuring that potential targets will enhance the Group's wider strategy and the earnings of the Group. Additionally, the Board is mindful of retaining a conservative capital structure, especially in light of the current economic backdrop, and will ensure that the long-term net debt to EBITDA ratio is maintained at an acceptable level.

The strategic progress made by the Group over recent years has been significant. Investments in both our production capabilities and our IT environment have resulted in significant benefits, with:

Following the ongoing recovery of our markets, the financial benefits of these improvements will come to the fore. The significant investment in infrastructure and cost of change is largely at an end. As markets further improve, cash generated from trading will no longer be required to support investment in substantial change programmes creating more flexibility in capital allocation decisions.

In the medium term, and despite the uncertainty caused by the war in Ukraine, market demand should continue to improve as the world recovers from the impact of the Covid-19 pandemic. The benefits of the strategic programme already delivered have left Renold well positioned to capitalise on this recovery in the years ahead.

Macroeconomic landscape and business positioning

With so many geopolitical and Covid-19 issues resulting in ongoing short- and medium-term uncertainty, it is necessary to look at the underlying fundamentals of the Group and the markets we serve to understand why Renold will continue to develop. Many of these intrinsic values have remained consistent over time but are continually being enhanced and increased. They include:

Outlook

I am pleased with the Group's robust performance through the pandemic which reflected the benefits of the strategic development completed over prior years. Our employees around the world have responded excellently to the challenges we have faced and I thank them for their dedication and commitment to the Group and our customers during this difficult period.

Throughout the reported period the business performance has been on an improving trend and our order books have continued to grow in the early part of the new financial year. We are cognisant that there remain considerable Covid-19-related challenges in some parts of the world; supply chain issues are still prevalent and inflation is high. However, we have entered the new financial year with good momentum and a belief in the excellent fundamentals of the Renold business upon which we are building.

Robert Purcell

Chief Executive

13 July 2022

Finance Director's review

Renold delivered a strong performance during the year, as the Group's markets rebounded from the impact of the Covid-19 pandemic. The business produced an adjusted operating margin of 7.8% (2021: 6.9%), and achieved a significant reduction in net debt of £4.6m to £13.8m (31 March 2021: £18.4m).

Orders, revenue AND OPERATING PROFIT

1  The results for the year ended 31 March 2021 have been restated, see Note 20 for details of the restatement

Group order intake for the year increased 31.7% to £223.9m (2021: £170.0m), or 35.5% at constant exchange rates, as the impact of the recovery from the Covid-19 pandemic was reflected through the wider economy.

Group revenue from continuing operations increased by £29.9m (18.1%) to £195.2m. Revenue at constant exchange rates increased by £34.4m (21.4%). Activity steadily increased throughout the year as manufacturing facilities ramped up production in response to the increased order intake levels. The activity in quarter four was some 30% higher than at the low point of the pandemic. Both Divisions saw an increase in turnover, with the Chain Division recording an increase at constant exchange rates of 26.2%, while the Torque Transmission Division, which is a larger order and longer cycle business, increased by 5.3%.

The Group generated an adjusted operating profit for the year of £15.3m (2021: £11.4m), excluding the benefit of adjusting items as detailed below. Operating profit for the year was £16.2m (2021: £10.7m). Operating profit margin, calculated on a statutory basis, was 8.3% (2021: 6.5%) and return on sales increased by 90 bps during the year to 7.8% (2021: 6.9%).

Adjusting items

Adjusting items for the year ended 31 March 2022 comprise acquisition-related intangible asset amortisation costs of £0.1m (2021: £0.7m), a £1.7m gain from the forgiveness of US Covid-related loans, and a £0.7m charge from new lease arrangements at previously closed sites, including adjustments relating to the sublease of the closed Bredbury facility, and the termination of a lease at a site in Rainham in Essex. No restructuring charges were incurred in the year ended 31 March 2022 (2021: £nil).

PRIOR YEAR ADJUSTMENTS

This year we have completed a thorough review of past accounting practices. As a consequence, prior period adjustments have been recorded in the accounts relating to the recognition of a dilapidation provision for leased properties across the Group, for the accounting changes and hence policy relating to the accounting for software as a service contracts and in relation to deferred taxation on the UK pension deficit. Details of the adjustments are contained with Note 20 of this announcement, with further details disclosed in the Accounting Policies and Note 27 of the Annual Report and Accounts.

The prior year adjustments processed during the year resulted in the distributable reserves of Renold plc, company only, being in a deficit position of £2.3m at 31 March 2020. Accordingly there was a minor irregularity concerning the technical compliance of the Companies Act 2006 in respect of historical preference dividends paid. The reserves deficit at 31 March 2020 has since been rectified by receipt of dividends from subsidiary companies and the £45m capital reorganisation completed during the current year. The Board will pass the appropriate resolutions at the next Annual General Meeting.

Foreign exchange rates

Foreign exchange rates have remained volatile, with a 1% strengthening of Sterling against the Euro being more than offset by a 4% weakening of Sterling against the US Dollar between March 2021 and March 2022.

Phasing of movements over the current and prior year mean the weighted average exchange rate used to translate the Euro and US Dollar varies to the movement in the closing rates. The weighted average exchange rates were 1.36 for the US Dollar and 1.17 for the Euro for the year ended 31 March 2022 (2021: 1.31 and 1.12 respectively).

If the year-end exchange rates had applied throughout the year, there would be an estimated increase of £4.0m to revenue and £0.3m to operating profit.

FinancE costs

Total finance costs in the year were £3.8m (2021: £4.6m).

Total loan finance costs include external interest on bank loans and overdrafts of £1.1m (2021: £1.6m), amortisation of arrangement fees and costs of refinancing, including the additional costs from the refinancing completed in March 2019, and the transition of banking arrangements from Libor to Sonia during the current year, of £0.3m (2021: £0.2m) and £0.5m (2021: £0.5m) of interest expense on lease liabilities. The reduction in interest payable on external bank loans and overdrafts was driven by the significant repayments of borrowings made during the years ended 31 March 2021 and 31 March 2022.

The net IAS 19 finance charge (which is a non-cash item) was £1.8m (2021: £2.2m).

Finance costs also include £0.1m (2021: £0.1m) resulting from the unwinding of discounts on the deferred build costs of the Chinese factory, classified as non-current trade and other payables.

Profit before tax

Profit before tax was £12.4m (2021: £6.1m), primarily due to increased operating profit, including the non-recurring items noted above, and reduction in finance costs.

Taxation

The tax charge in the year of £2.2m (2021: £1.5m) is made up of current tax of £2.0m (2021: £2.2m) and deferred tax of £0.2m (2021: £0.7m credit). The decrease in the current tax charge for the year is attributable to the full utilisation in the prior year of historical tax losses in jurisdictions for which the statutory tax rate is greater than the prevailing UK headline rate, being more than offset by a release in the provision for open tax matters yet to be agreed with tax authorities, reflecting a reduction in the best estimate of amounts expected to be paid in settling these inquiries. For further details see Note 4.

The effective tax rate for the year was 18% (20211: 25%), benefitting from the non-recurring items described above, which are non-taxable. Excluding these items, the effective tax rate on adjusted earnings was 19% (20211: 22%).

EARNINGS PER SHARE

Profit after tax of £10.2m was achieved for the financial year ended 31 March 2022 (2021: £4.6m). Adjusted earnings per share was 4.3p (2021: 2.3p), which excludes the benefit of one-off items in the year noted above, and charges related to the amortisation of acquired intangible assets. Basic earnings per share was 4.7p compared to 2.0p for the year ended 31 March 2021.

1 The results for the year ended 31 March 2021 have been restated, see Note 20 for details of the restatement.

Balance sheet

Net assets at 31 March 2022 were £5.8 m (31 March 2021 (restated): net liabilities £14.7m). A net profit of £10.2m was delivered for the year, which together with the impact of the valuation of the Group's pension liabilities and the retranslation of overseas operations resulted in an increase in net assets of £20.5m.

The pension deficit, on an IAS 19 basis, decreased to £87.1m (31 March 2021: £102.4m). The net liability for pension benefit obligations was £76.1m (2021: £90.4m) after allowing for a net deferred tax asset of £11.0m (31 March 2021: £12.0m). At the last triennial pension valuation the technical provisions deficit of the UK scheme, which is how the trustees and regulator view the scheme, was only £9.1m. This compares to the IAS 19 deficit for the UK pension fund of £64.1m. The difference represents the valuation of the capital asset reserve (CAR), currently £49.1m, being the discounted value of guaranteed future cash contributions to the scheme for a fixed period of 25 years commencing in 2013.

Overseas schemes now account for £23.0m (26%) of the net pension deficits and £22.4m of this is in respect of the German scheme, which is unfunded, with payments made as pensions fall due.

During the year, and as part of its long-term financial planning, the Company reorganised its balance sheet and reserves through the cancellation of the entire amount of its share premium account and capital redemption reserve. The share premium account and capital redemption reserve are non-distributable reserves and accordingly, the purposes for which they can be used are restricted. The reduction of capital creates sufficient distributable reserves to provide the Board with greater flexibility with regard to how it manages its capital resources. An order of the High Court confirming the capital reduction became effective on 27 May 2021, increasing distributable reserves by £45.5m and, if applied to the Group consolidated balance sheet at 31 March 2021, the capital reduction would decrease the consolidated retained earnings deficit from £78.2m to £32.7m.

CASH FLOW AND NET DEBT

This year saw a further reduction in net debt, the improvement of £4.6m leading to a closing position of £13.8m (31 March 2021: £18.4m). Net debt at 31 March 2022 comprised cash and cash equivalents of £10.5m (31 March 2021: £19.9m) and borrowings of £24.3m (31 March 2021: £38.3m). This reduction was especially pleasing bearing in mind that the Group took the opportunity to purchase £4.9m of shares during the year to satisfy the requirements of the share based payments.

Within the working capital movement, inventory levels increased by £9.5m, as the Group replenished stock levels to ensure good customer service despite supply chain difficulties. Receivables also increased by £4.5m, in line with the higher turnover levels, while careful working capital management in general offset these increases.

Net capital expenditure at £5.1m was expanded during the second half of the financial year, as equipment, delayed due to transportation issues, was finally delivered into our operating facilities. The Group sees investments, especially those in support of our strategy, aimed at improving heat treatment facilities, broader manufacturing capabilities, and product assembly automation, gathering pace in the coming year. Additionally, the installation of the standardised Group IT system will gather momentum as travel restrictions brought about by the pandemic continue to ease.

During the year the Group acquired the conveyor chain business of Brooks Ltd in Manchester, UK, for a total consideration of £0.7m, of which £0.5m was paid in the year, with a further £0.2m deferred and expected to be paid in the next financial year.

Pension cash costs of £4.8m were higher than the prior year equivalent of £2.1m. The increase in contributions is a result of the agreement reached with the UK Pension Trustee in April 2020, whereby £2.8m of FY21 contributions, due to be paid to the UK scheme, were deferred in light of the potential impact of the Covid-19 pandemic. The deferred contributions are being repaid over the five-year period which commenced on 1 April 2022.

Corporation tax cash paid was £1.7m (2021: £0.7m received), which returned to normal levels, while the net inflow seen in the prior year was driven by a recovery of £1.3m of prior year payments on account.

Net cash flow from operating activities decreased to £19.3m (2021: £26.7m).

Debt facility and capital structure

The Group's committed multi-currency revolving credit facility (MRCF) totals £61.5m, with a £20.5m accordion facility providing a route to additional funding if required, although this element is not committed. The facility matures in March 2024. During the year the Group facilities transitioned from Libor to Sonia as the basis to set the interest rate payable.

At 31 March 2022, the Group had unused credit facilities totalling £40.1m and cash balances of £10.5m. Total Group credit facilities amounted to £64.2m, all of which were committed.

The Group has operated well within the pandemic-related revised and original covenant levels throughout the year ended 31 March 2022 (see further detail in the going concern section below) and expects to continue to operate comfortably within covenant limits going forward.

The net debt/adjusted EBITDA ratio as at 31 March 2022 was 0.6x (covenant: up to 2.5x; 31 March 2021: 0.9x), calculated in accordance with the banking agreement. The adjusted EBITDA/interest cover as at 31 March 2022 was 19.6x (covenant: greater than 4.0x; 2021: 10.9x), again calculated in accordance with the banking agreement.

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.

Further information in relation to the Group's business activities, together with the factors likely to affect its future development, performance and financial position, liquidity, cash balances and borrowing facilities is set out in the Chair's statement, the Chief Executive's review, the Finance Director's review and in the section on principal risks and uncertainties. Additional details of the Group's cash balances and borrowings and facility are included in Notes 13, 14 and 17.

The key covenants attached to the Group's multi-currency revolving credit facility relate to leverage (net debt to EBITDA, maximum 2.5x) and interest cover (minimum 4.0x), which are measured on a pre-IFRS 16 basis. The Group regularly monitors its financial position to ensure that it remains within the terms of its banking covenants. Following the strong cash performance in the prior year, the Group has achieved a further reduction in net debt during the current financial year of £4.6m to £13.8m (31 March 2021: £18.4m), notwithstanding cash out flows for share purchases (£4.9m) and lease exit payments (£1.1m). The Group has accordingly remained within the borrowing covenant levels throughout the year ended 31 March 2022 .

Given the current level of macroeconomic uncertainty stemming from Covid-19, inflation, the global supply chain crisis and geopolitical risks, and being also mindful of the risks discussed in the section on principal risks and uncertainties, the Group has performed financial modelling of future cash flows. The Board has reviewed the cash flow forecasts which cover a period of 12 months from the approval of the 2022 Annual Report, and which reflect forecast changes in revenue across the Group's business units. A reverse stress test has been performed on the forecasts to determine the extent of a downturn which would result in a breach of covenants. Revenue would have to reduce by approximately 30% over the period under review for the Group to be likely to breach the leverage covenant under the terms of its borrowing facility. The reverse stress test does not take into account further mitigating actions which the Group would implement in the event of a severe and extended revenue decline, such as reducing discretionary spend and capital expenditure. This assessment indicates that the Group can operate within the level of its current facilities, as set out above, without the need to obtain any new facilities for a period of not less than 12 months from the date of this report.

Following this assessment, the Board of Directors are satisfied that the Group has sufficient resources to continue in operation for a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in relation to this conclusion and preparing the consolidated financial statements. There are no key sensitivities identified in relation to this conclusion.

Treasury and financial instruments

The Group's treasury policy, approved by the Board, is to manage its funding requirements and treasury risks without undertaking any speculative risks. Treasury and financing matters are assessed further in the section on principal risks and uncertainties.

To manage foreign currency exchange impact on the translation of net investments, certain US Dollar denominated borrowings taken out in the UK to finance US acquisitions are designated as a hedge of the net investment in US subsidiaries. At 31 March 2022 this hedge was fully effective. The carrying value of these borrowings at 31 March 2022 was £6.8m (31 March 2021: £6.5m).

At 31 March 2022, the Group had 2% (31 March 2021: 1%) 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.

Pension assets and liabilities

The Group has a mix of UK (84% of gross liabilities) and overseas (16% of gross liabilities) defined benefit pension obligations as shown below.

The Group's retirement benefit obligations decreased from £102.4m (£90.4m net of deferred tax) at 31 March 2021 to £87.1m (£76.1m net of deferred tax) at 31 March 2022. The largest element of the decrease relates to the UK scheme where the deficit decreased from £77.5m to £64.1m primarily due to an increase in AA corporate bond yields, which decreases the present value of gross liabilities under IAS 19. This was partially offset by the impact of an increase in the UK inflation assumption. For the purposes of determining scheme pension payments, inflation is capped for the UK and the US schemes. The deficit of the overseas schemes decreased by £1.9m to £23.0m reflecting changes in assumptions for discount and inflation rates. All defined benefit schemes, with the exception of one scheme for blue-collar workers in the US, are closed for future accrual.

UK funded scheme

The deficit of the UK scheme decreased in the year to £64.1m (31 March 2021: £77.5m) reflecting a number of changes in assumptions and factors.

The decrease in gross liabilities of £15.3m arose primarily from a combination of an increase in the rate used to discount the scheme's liabilities (discount rate of 2.75% compared with 2.0% in the prior year) and an offsetting increase in the inflation assumption (CPI of 3.25% compared with 2.7% in the prior year). Partially offsetting the reduction in liabilities was a small decrease in the value of the scheme's assets.

The latest triennial actuarial valuation of the UK scheme, with an effective date of 5 April 2019, was agreed in March 2020 and identified a deficit of £9.1m. This is significantly lower than the IAS 19 deficit, largely as the actuarial valuation places a value on the Group's guaranteed future cash payments to the scheme under the central asset reserve structure established in June 2013. It is expected that the actuarial valuation deficit of £9.1m can be recovered through asset outperformance, above the prudent levels assumed in the valuation, over the remaining life of the scheme. As a result, there are no changes to the long-term contribution arrangements.

Contributions in the year ended 31 March 2022 were £3.3m (2021: £0.6m). The increase in contributions compared to the prior year follows the agreement reached with the Trustee in April 2020 such that £2.8m of the prior year contributions due to the UK scheme were deferred in light of the potential impact of the Covid-19 pandemic. The deferred contributions are being repaid over the five-year period which commenced on 1 April 2022 with expected contributions for the year ending 31 March 2023 of £4.1m (including the deferred contributions). The underlying level of contributions to the UK scheme increased annually by RPI plus 1.5% (capped at 5%).

The next triennial valuation date will be as at 5 April 2022.

Overseas schemes

The largest element of the overseas schemes is the German unfunded scheme, with a total liability and deficit of £22.4m (31 March 2021: £22.9m). Other overseas funded schemes comprise a number of smaller arrangements around the world, with a combined deficit of £0.6m (31 March 2021: £2.0m). The combined deficits of all the overseas schemes decreased by £1.9m. These changes were most significantly a reduction in the liability of the funded US schemes due to an increase in the discount rate used to value the scheme's liabilities. During April 2022, the Board's decision to close the New Zealand defined benefit pension scheme was enacted by the scheme trustees, and it will be wound down over the coming months.

For overseas pension schemes, the Company contributions in the year were £1.4m (2021: £1.5m).

JIM HAUGHEY

GROUP Finance Director

13 July 2022

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 summarised below and set out in more detail in the Annual Report.

In addition to the principal risks and uncertainties below, the risk review process highlights emerging risks as well as those which have the potential to be a principal risk in the future and therefore need to be more closely monitored. The wider effect of climate change is one of these risks. Continued environmental activism around climate change has started to influence some consumers to reduce their carbon footprints, and there is the potential that this could start to impact some of the sectors we operate in. The risks associated with climate change are not considered principal risks at this time, particularly as Renold supports customers in achieving their own sustainability goals through the development and supply of high specification, durable, environmentally responsible products which ultimately minimise the impact on the environment. We will, however, continue to monitor this evolving situation.

Consolidated Income Statement

for the year ended 31 March 2022

1 See Accounting policies and Note 20 for details of prior period restatements

All results are from continuing operations.

Consolidated Statement of Comprehensive Income

for the year ended 31 March 2022

1 See Accounting policies and Note 20 for details of prior period restatements

Consolidated Balance Sheet

as at 31 March 2022

1 See Accounting policies and Note 20 for details of the prior period restatements

Approved by the Board on 13 July 2022 and signed on its behalf by:

Robert Purcell Jim Haughey

CHIEF EXECUTIVE FINANCE DIRECTOR

Consolidated Statement of Changes in Equity

for the year ended 31 March 2022

1 See Accounting policies and Note 20 for details of the prior period restatements

Included in retained earnings is £1.9m (31 March 2021: £0.8m) relating to a share option reserve.

The other reserves are stated after deducting £4.9m (31 March 2021: £0.035m) relating to shares held in the Renold plc Employee Benefit Trust. The Renold Employee Benefit Trust holds Renold plc shares and satisfies awards made under various employee incentive schemes when issuance of new shares is not appropriate.

At 31 March 2022 18,422,509 (31 March 2021: 199,790) ordinary shares of 5p each were held by the Renold Employee Benefit Trust and, following recommendations by the employer, are provisionally allocated to satisfy awards under employee incentive schemes. The market value of these shares at 31 March 2022 was £3.7m (31 March 2021: £0.035m).

Consolidated Statement of Cash Flows

for the year ended 31 March 2022

Accounting Policies

Basis of preparation

The financial information for the year ended 31 March 2022 and the year ended 31 March 2021 does not constitute the Company's statutory accounts for those years but is derived from those accounts. Statutory accounts for the year ended 31 March 2021 have been delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The statutory accounts for the year ended 31 March 2022 have been authorised for issue and signed by the Board of Directors at the time of this announcement. They are expected to be published on or before 30 July 2022 and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

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.

Further information in relation to the Group's business activities, together with the factors likely to affect its future development, performance and financial position, liquidity, cash balances and borrowing facilities is set out in the Strategic Report section of the Annual Report. In addition, the financial statements within the Annual Report include the Group's objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging activities and its exposure to foreign exchange, credit and interest rate risk. Information relating to post balance sheet events is disclosed in Note 18.

The key covenants attached to the Group's multi-currency revolving credit facility relate to leverage (net debt to EBITDA, maximum 2.5x) and interest cover (minimum 4.0x), which are measured on a pre-IFRS 16 basis. The Group regularly monitors its financial position to ensure that it remains within the terms of its banking covenants. Following the strong cash performance in the prior year, the Group has achieved a further reduction in net debt during the current financial year of £4.6m to £13.8m (31 March 2021: £18.4m), notwithstanding significant cash out flows for share purchases (£4.9m) and lease exit payments (£1.1m). The Group has accordingly remained within the borrowing covenant levels throughout the year ended 31 March 2022 .

Given the current level of macroeconomic uncertainty stemming from Covid-19, inflation, the global supply chain crisis and geopolitical risks, and being also mindful of the risk matrix disclosed in the section on principal risks and uncertainties, the Group has performed financial modelling of future cash flows. The Board has reviewed the cash flow forecasts, which cover a period of 12 months from the approval of the 2022 Annual Report, and which reflect forecasted changes in revenue across the Group's business units. A reverse stress test has been performed on the forecasts to determine the extent of downturn which would result in a breach of covenants. Revenue would have to reduce by 30% over the period under review for the Group to breach the leverage covenant under the terms of its borrowing facility. The reverse stress test does not take into account further mitigating actions which the Group would implement in the event of a severe and extended revenue decline, such as reducing discretionary spend and capital expenditure. This assessment indicates that the Group can operate within the level of its current facilities, as set out above, without the need to obtain any new facilities for a period of not less than 12 months from the date of this report.

Following this assessment, the Board of Directors are satisfied that the Group has sufficient resources to continue in operation for a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in relation to this conclusion and preparing the Consolidated Financial Statements. There are no key sensitivities identified in relation to this conclusion.

Change in accounting policy - Software as a service ('SaaS') arrangements

The Group has changed its accounting policy related to the capitalisation of certain software costs, this change follows the IFRIC interpretation Committee's agenda decision published in April 2021, which clarifies the accounting treatment of the costs of configuring or customising software under Software as a service arrangements.

The Group's accounting policy has historically been to capitalise costs directly attributable to the configuration and customisation of SaaS arrangements as assets in the Balance Sheet. Following the adoption of the above IFRIC agenda guidance, any SaaS arrangements were identified and assessed to determine if the Group has control of the software and associated configured or customised elements. For those arrangements where the Group does not have control of the developed software, the Group has derecognised the asset.

Change in accounting policy - Software as a service ('SaaS') arrangements (continued)

The change in accounting policy led to adjustments in the 31 March 2021 and 31 March 2020 balance sheets amounting to a £1.2m reduction in intangible assets (2020: £1.5m reduction). This change also led to adjustments in the income statement for the year ended 31 March 2021 amounting to a £0.3m decrease in amortisation of intangibles.

Accordingly, the prior period Balance Sheets at 31 March 2021 and 31 March 2020 have been restated in accordance with IAS 8, and, in accordance with IAS 1 (revised), a Balance Sheet at 31 March 2020 is also presented, together with related notes. The tables in Note 20 show the impact of the change in accounting policy on the previously reported financial results.

Notes to the Consolidated Financial Statements

1. Segmental information

For management purposes, the Group is organised into two operating segments according to the nature of their products and services and these are considered by the Directors to be the reportable operating segments of Renold plc as shown below:

• The Chain segment manufactures and sells power transmission and conveyor chain and also includes sales of torque transmission products through Chain National Sales Companies (NSCs); and

• The Torque Transmission segment manufactures and sells torque transmission products, such as gearboxes and couplings.

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

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. Management monitor the results of the separate reportable operating segments based on operating profit and loss which is measured consistently with operating profit and loss in the consolidated financial statements. The same segmental basis applies to decisions about resource allocation. Disclosure has not been included in respect of the operating assets of each segment as they are not reported to the CODM on a regular basis. However, Group finance costs, retirement benefit obligations and income taxes are managed on a Group basis and therefore 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.

1. Segmental information (continued)

In addition to statutory reporting, the Group reports certain financial metrics on an adjusted basis (alternative performance measures, APMs). Definitions of adjusted measures, and information about the differences to statutory metrics are provided in Note 19. Current year adjusting items include a £1.7m gain (2021: £nil) relating to US PPP loan forgiveness (Chain segment), £0.7m of non-recurring loss (2021: £nil) relating to new lease arrangements on sublet properties (Head office costs and eliminations segment) and £0.1m (2021: £0.7m) of amortisation of acquired intangibles (Chain segment).

Constant exchange rate results are retranslated to current year exchange rates and therefore only prior year comparatives would be deemed an alternative performance measure. A reconciliation is provided below and in Note 19.

1 The results for the year ended 31 March 2021 have been restated. Refer to Note 20 and Accounting Policies for details of the restatements.

1. Segmental information (continued)

Geographical analysis of external sales by destination, non-current asset location and average employee numbers

The UK is the home country of the parent company, Renold plc. The principal operating territories, the proportions of Group external revenue generated in each (customer location), external revenues, non-current assets (asset location) and average employee numbers in each are as follows:

1 The results for the year ended 31 March 2021 have been restated. Refer to Note 20 and Accounting Policies for details of the restatements.

All revenue relates to the sale of goods and services. No individual customer, or group of customers, represents more than 10% of Group revenue (2021: None).

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

2. Operating costs

Operating profit is stated after charging/(crediting):

1 The results for the year ended 31 March 2021 have been restated. Refer to Note 20 and Accounting Policies for details of the restatements.

3. Finance costs

* Amounts arising on financial liabilities measured at amortised cost.

4. Taxation

Analysis of tax charge in the year

1 The results for the year ended 31 March 2021 have been restated. Refer to Note 20 and Accounting Policies for details of the restatements.

Factors affecting the Group tax charge for the year

The increase in the current tax charge for the year is primarily attributable to the full utilisation of historical tax losses in jurisdictions for which the headline statutory tax rate is higher than the prevailing UK tax rate. This in turn resulted in an increase in cash tax paid during the year. On 24 May 2021, the Finance Bill 2021 was considered substantively enacted thereby triggering a restatement of UK deferred tax balances from the 19% rate to 25%. This resulted in a deferred tax credit which was partially offset by a charge for the current year movement in the deferred tax balance. A portion of the restatement of the UK deferred tax balance has also been recognised in the statement of changes in equity. The deferred tax charge also includes a prior year adjustment relating to the recognition of deferred tax on US state tax balances. At 31 March 2022, the provision for open tax matters totalled £1.9m (31 March 2021: £2.3m).

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 in accordance with IAS 12.39.

4. Taxation (continued)

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

1 The results for the year ended 31 March 2021 have been restated. Refer to Note 20 and Accounting Policies for details of the restatements.

Effective tax rate

The effective tax rate of 18% (2021: 25%) is higher than the UK tax rate of 19% (2021: 19%) due to the following factors:

· Losses in jurisdictions where, due to uncertain future profitability, deferred tax assets are not recognised;

· Permanent differences including items that are non-assessable from a tax perspective such as US Paycheck Protection Program debt forgiveness income which is tax exempt;

· The impact of substantively enacted tax rate increases on existing recognised deferred tax asset balances;

· Prior year adjustments arising as tax submissions are finalised and agreed in specific jurisdictions.

· A release of provisions held in respect of open tax matters as these are agreed with revenue authorities.

Tax payments

Cash tax paid in the year was £1.7m (2021: £0.7m received). The net inflow in the prior year was driven by a review of payments on account across the Group, with revised payment profiles leading to a recovery of £1.3m of contributions from earlier periods.

5. Earnings per share

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