Last checked at 25 Jun 2008 07:00
Renold plc
("Renold" or the "Group")
2008 Preliminary Results
Renold, a leading international supplier of industrial chains and related power transmission products, today announces its preliminary results for the year ended 31 March 2008.
FINANCIAL SUMMARY
| 2008 £m | 2007 £m | ||
| Continuing operations: | |||
| Turnover | 172.6 | 159.3 | |
| Operating profit | 12.2 | 3.9 | |
| Operating profit before exceptional items | 12.0 | 9.8 | |
| Profit before tax and exceptional items | 9.1 | 7.3 | |
| Profit before tax | 9.3 | 1.4 | |
| Other information: | |||
| Basic earnings per share - Group | 11.0p | (18.3)p | |
| Basic earnings per share - continuing operations | 8.9p | 1.2p | |
| Adjusted earnings per share (adjusting for the after tax effects of exceptional items) - continuing operations | 8.5p | 8.4p | |
| Net debt | 23.9 | 19.4 |
HIGHLIGHTS
Matthew Peacock, Chairman of Renold, said:
"Our order book at the end of the first quarter of new financial year is particularly strong and the company is well positioned in its geographies and markets. From this solid starting point, I have every confidence in our ability to perform over the coming year."
25 June 2008
| Enquiries: | |
| Renold plc | 0161 498 4517 |
| Bob Davies, Chief Executive | |
| Peter Bream, Finance Director | |
| College Hill | 020 7457 2020 |
| Nicholas Potter | |
| Adam Aljewicz |
NOTES FOR EDITORS:
Renold plc is a global leader in the manufacture of industrial chains and a wide range of precision engineering products which are sold throughout the world to a broad range of original equipment manufacturers and distributors. Its products are used in a wide variety of industries including transportation, energy, steel, manufacturing and mining.
The company has a well deserved reputation for quality that is recognized worldwide.
The group has 13 manufacturing plants throughout the world and employs 2,500 staff. It is currently expanding its geographical footprint by increasing its manufacturing presence in "low cost countries".
In June 2007 the company completed the acquisition of a 90% interest in Hangzhou Shanshui, a chain manufacturer based in Hangzhou, China, 200 kilometres west of Shanghai.
For more information on Renold, visit www.renold.com
Chairman's Statement
Overview
In this, my second year as Chairman of your Board, I am again pleased to report that Renold has delivered a strong set of results. Revenue growth of 8% and a strong increase in operating profit of 22% before tax and exceptionals have generated basic earnings per share of 11.0p, compared to a loss per share of (18.3p) a year ago. Within the strong all-round performance set out in this report, the continued delivery of the Profit and Cash Enhancement programme (PACE plan) announced in March 2007 deserves particular comment. At the period end, 46% of our direct labour was in low cost countries compared to the original PACE target of 40% by March 2009. This has grown from only 3% two years ago.
Strategy
We have strengthened the business over the last year, primarily via delivering PACE according to plan. Cost savings, cash generation and capital expenditure targets have been achieved. Risk reduction actions on exchange rate exposure and energy prices were concluded. Progress was made on tax efficiency, pension funding and unlocking freehold property value. Perhaps most significantly, the integration of our June 2007 acquisition of Chinese chain manufacturer Hangzhou Shanshui was successful, and capacity has been doubled from pre-acquisition levels at a very attractive capital cost.
Looking forward, we will continue to focus on cost reduction and on extending geographically. Thus far, the emphasis has been on moving the appropriate manufacturing capacity to low-cost countries - a strategy which will continue to yield growth in our core developed market territories. In addition, now that we are physically present in these low-cost markets, we are in an excellent position to expand our highly regarded product range into them. We estimate that an annual industrial chain market of £400m exists in new territories where we have a current market share of less than 1%. The expansion to new geographies and product gaps will continue to be pursued via selective infill acquisitions.
To this effect, it was announced on 9 June that Renold is in discussions to acquire a 75% interest in the industrial chain business of L.G. Balakrishnan & Bros Ltd ('LGB'), a public company listed on the stock exchange in India. This business is the market leader for the production and distribution of industrial chains in India as well as having established exports. This will enable Renold to promote its existing product range into India's rapidly growing market place, take account of existing export markets, as well as exploit new product, market and export opportunities.
Your Board
Barbara Beckett will retire from the Board at the AGM in July. I would like to thank Barbara for her contribution over the last three and a half years, particularly in her role as Chairman of the Remuneration Committee. I would like to welcome John Allkins who joined the Board in April 2008 as a non-executive director and as Chairman of the Audit Committee. John is also a non-executive director of Intec Telecom Systems and was previously Group Finance Director of My Travel Group plc. Besides financial skills, he has strong international experience, which will be of benefit in the delivery of the Group's current strategy.
Outlook
We enter our next year with a strong sense of purpose, but also with some caution regarding the outlook for the global economy, notwithstanding that we operate in diverse geographies and sectors which are somewhat uncorrelated with each other. We plan to pursue, actively, the considerable opportunities available to us in the rapidly growing but fragmented emerging markets. However, we will maintain a particularly strong focus this year on cash management and a risk aversion with our balance sheet as we do this. As a consequence, the Board has decided to recommend that no dividend be paid, but it will consider future dividend policy in the light of results from the business going forward.
Additionally, it will remain important in the current year to continue to recover, through price increases and improved efficiency, the inflation we experience in some of our input costs, predominantly in steel, freight and energy. Our order book at the end of the first quarter of the new financial year is particularly strong, and the Company is well positioned in its geographies and markets. From this solid starting point, I have every confidence in our ability to perform over the coming year under the strong leadership of Bob Davies and his executive team.
Matthew PeacockChairman
Chief Executive's Review
Overview
I would characterise this year as one of delivering on the challenging targets set and good progress on our strategic, longer term ambitions. I am very proud of Renold's heritage, the patenting of the first transmission chain and over 100 years experience of establishing and maintaining our reputation of superior technology, quality and customer satisfaction. We hope to maintain and improve on this position in the forthcoming years and, at the time of writing, we have just announced our planned purchase of LGB in India which demonstrates our commitment to growth in emerging markets and adding value for our customers.
Results
I am proud that we achieved an 8% increase in sales over the last year and this result, together with the 22% improvement in the operating profit before tax and exceptionals, means that the PACE plan is delivering to the bottom line. We will continue to cost control our activities whilst aggressively seeking profitable sales growth across the world in the many sectors in which we operate.
Working capital
I am pleased to report that return on capital employed improved in the year to 17% from 15% in 2006/07. The working capital to sales ratio was maintained at 17% and, although inventory increased by £7.9 million, inventory turns were unchanged.
Movements in exchange rates added £2.9 million to inventory, which also increased as a consequence of higher sales volumes and the increased cost of steel during the year. Understandably, working capital rose as a result of the acquisition of Hangzhou and also because of the buffer stocks manufactured as production was relocated. We will be addressing this through inventory reduction, which will result in cash generation and which will be of particular focus in the coming year.
Renold Hangzhou
In June 2007, we completed the acquisition of a 90% interest in Hangzhou Shanshui, a chain manufacturer based in Hangzhou, China, 200 kilometres west of Shanghai. Integration has proceeded well with capacity more than doubled from pre-acquisition levels and we now have over 400 employees who are skilled and capable of maintaining high quality standards. The increase in capacity was the result of both improved operating practices and £2 million of capital expenditure. A large part of this capital expenditure was sourced locally and represents excellent value for money compared to what it would cost if sourced in Europe or in the US. This important strategic acquisition underpins and reduces the execution risk of PACE and provides a major growth opportunity in the domestic Chinese market and into other parts of South East Asia.
As reported in the media, input costs in China, particularly steel, have increased rapidly and significantly. We are actively pursuing price increases and cost reductions in order to offset these increases.
Potential Acquisition in India
Renold announced on 9 June on the London Stock Exchange that it is in discussions to acquire a 75% interest in the industrial chain business of an Indian quoted group, L. G. Balakrishnan & Bros Ltd ('LGB'). LGB has three divisions, one of which is a chain division. We are seeking to acquire all assets of LGB's chain division other than those employed in the manufacture of chains to the automotive industry, which will be retained by LGB. The remainder is the part we are seeking to acquire. This part employs approximately 500 people involved in the manufacture of transmission chain and conveyor chain. This business is based in Tamil Nadu, India. The predominant reason for this acquisition is an entry into the Indian market, which is one of the fastest growing in the world.
This business, already the market leader for the production and distribution of industrial chains in India, will provide an established manufacturing base and sales distribution network. This network will enable Renold to promote its existing product range into India's rapidly growing market place. In addition, the business manufactures products not currently in our portfolio which can be sold through our existing sale distribution channels. This transaction follows on from last year's successful acquisition and integration of Renold Hangzhou in China and is part of our strategy for growth into new markets. If this acquisition concludes, this would exceed the revised PACE target of 60% of the chain direct labour force being in low cost countries. Successful completion of the transaction is dependent upon a number of factors, including regulatory and LGB shareholder approvals which are currently being sought.
Pensions
Considerable progress has been made during the year through asset management activities. In particular, a more progressive asset management policy has been agreed and implemented leading to a more diverse and less correlated portfolio. The net UK pension deficit has reduced to £6.8 million (March 2007: £19.7 million). This reduction has arisen in part due to the discount rate increasing to 6.6% as a result of market interest movements. We are aggressively looking at options to minimise risk going forward.
The gross pension deficit of £31.2 million at 31 March 2008 shows a decrease of £16.8 million from £48.0 million at 31 March 2007.
Burton Property
The sale of the Burton-upon-Trent property was concluded in January 2008 and the gross proceeds of £6.4 million were used to reduce net debt and realised a profit of £2.6 million which is reported as an exceptional item. This was a key element in the funding of the PACE plan.
Technology
Renold has maintained its technology leadership through the design and development of products to solve some of the power transmission issues faced in industry today, resulting in building strong relationships with both OEMs and end users. These 'solution products' are aimed at achieving high performance, low maintenance and harmony with the environment. Renold Synergy has been a flagship product for several years, offering unsurpassed performance in highly demanding environments, but for applications where oil free operation is needed such as the food industry, a range of products known by the 'Renold Syno' brand are offered. In addition, 'Renold Hydroservice' has gained in popularity in applications where resistance to corrosion is a priority. Renold has invested in a range of 'Smartlink' products, developed to give visibility of the actual loads and wear in a chain drive system. This has enabled many customers to improve and optimise their own products. The innovative approach to Chain Engineering has led to strong technical ties with major global OEMs. Renold has continued to invest in Engineering in the last year including the addition of a state of the art R&D facility in China and an Innovation Centre in the UK. We intend to make further investments in the coming year.
Service
The world is becoming a smaller place and increasingly competitive, so Renold has a product offering covering the spectrum of needs from Solution products at one end to utility products, for less exacting applications, at the other. In all cases, the need for excellent service is paramount and a Global Supply Chain organisation has been created in order to ensure that this expectation is fully met. The goals of improving on-time delivery, quality and cost have been key objectives, as this year we intend to keep ongoing focus on these areas particularly with the increased volatility of raw material supply and costs witnessed in recent times.
Organisation
Our organisation has been changed to meet our growth ambitions and the need to be able to best manufacture wherever in the world. We have developed and implemented Global Supply Chain organisation which will ultimately have the responsibility for manufacturing efficiency and customer fulfilment within our chain factories. This will give us the capacity and capability to be responsive and flexible to our current and new customer needs.
Gears and Couplings
The Gears and Couplings business continues to have good sales and profit growth. This growth is being driven by the steel, mining, power generation and transportation industrial sectors in which they operate. Their highly engineered products are valued by customers across the world particularly in China, Europe, Africa and the USA. The contract with Alstom for the mass transit system in the State of New York has been extended and will generate $14 million sales over the next 18 months. Following the acquisition of Renold Hangzhou we have consolidated the manufacture in China of chain products and components there. The Beicai facility in Shanghai is now devoted to the manufacture of gears and couplings products and components. This gives this business access to local markets and a lower cost of manufacture.
Way Forward
We have a clear strategy and a track record of delivering performance. The Renold team is capable and enthused to meet our strategic ambitions. We look forward with confidence to another successful year.
Bob DaviesChief Executive
Financial Review
Overview
The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.
CONTINUING OPERATIONS
Revenue
The revenue from continuing operations increased by 8% to £172.6 million. Sales in the second half-year, at £90.5 million, were 10% higher than in the first half.
Operating Profit
Operating profit before exceptional items was £12.0 million, up 22% on 2006/07. Return on sales for continuing operations for the year before exceptionals was 7.0% compared with 6.2% for last year. This demonstrates a continuing recovery in margins, which now extends for six consecutive half-year periods. We expect this trend to continue.
Exceptional items were £0.2 million credit, compared with £5.9 million charge in 2006/07. £2.4 million redundancy and restructuring costs incurred mainly in the European chain operations were offset by £2.6 million profit recognised on the sale of the Burton property.
Further details of the exceptional items are given in Note 3 to the financial statements.
Financing Costs
Total net financing costs increased to £2.9 million (2007 - £2.5 million).
Net bank interest cost rose to £2.6 million (2007 - £2.4 million) due to the increased LIBOR borrowing rates in the period. Amortisation of costs associated with the re-banking in February 2007 were £0.2 million (2007 - £0.2 million). The net interest cost on pension plan balances and the expected return on pension plan assets was a charge of £0.1 million (2007 - credit £0.1 million).
Profit before tax
Profit before tax and before exceptional items was £9.1 million compared with £7.3 million last year. Profit before tax after exceptional items was £9.3 million compared with £1.4 million in 2006/07.
Taxation
The tax charge on continuing operations of £3.1 million (2007 - £0.6 million) represented an effective rate of approximately 33%, 7% less than that reported in 2006/07 and a continuation of the downward trend.
Discontinued Operations
The Automotive and Machine Tools businesses were divested in 2006/07. In 2007/08, £0.15 million deferred consideration on the sale of the Machine Tool business received in May 2008 was recognised. The remaining £1.35 million deferred consideration will also be recognised when received. £1.5 million of net provision in relation to claims on various warranty matters were released in 2007/08 following settlement of the claims.
Group results for the Financial Period
The profit for the year was £7.7 million compared with a loss of £12.7 million in 2006/07; the basic earnings per share was 11.0p (2007 - 18.3p loss) and the diluted earnings per share was 10.8p (2007 - 18.1p loss). The basic adjusted earnings per share (from continuing operations before exceptional items) was 8.5p (2007 - 8.4p).
Balance Sheet
Net assets at 31 March 2008 were £41.0 million (2007 - £23.9 million). The liability for retirement benefit obligations was £31.2 million (2007 - £48.0 million) before allowing for a net deferred tax asset of £4.8 million (2007 - £11.1 million). Of the £31.2 million obligation, £19.8 million arises in respect of non-UK unfunded schemes which do not require to be prefunded (see pensions below). The UK pension schemes deficit net of deferred tax has reduced to £6.8 million (2007 - £19.7 million).
Cash Flow and Borrowings
Operating cash inflow from continuing operations was £4.5 million (2007 - £10.3 million). Operating cash inflow from discontinued operations was £nil (2007 - £4.7 million outflow).
Payment for purchase of property, plant and equipment was £7.5 million (2007 - £6.0 million including £1.5 million related to discontinued activities). Proceeds of disposals of property, plant and equipment and assets held for sale (Burton) were £7.1 million (2007 - £0.2 million).
Group net borrowings at 31 March 2008 were £23.9 million (2007 - £19.4 million) comprising cash and cash equivalents £15.5 million (2007 - £20.3 million) and borrowings, including preference shares, of £39.4 million (2007 - £39.7 million).
Acquisition
In June 2007 we completed the acquisition of a 90% interest in Hangzhou Shanshui for £2.4 million. The existence of put and call options over the remaining 10% shareholding retained by the vendors requires us to account for the £0.5 million contingent consideration as a provision and not to report a minority interest. Goodwill arising on acquisition is £1.2 million.
Treasury and Financial Instruments
In February 2007 the Group entered into a three year syndicated bank facility led by The Royal Bank of Scotland plc, with Fortis Bank S.A./N.V. as a participant. This facility is the Group's principal credit facility, although it does maintain facilities and relationships with a number of other banks in the territories in which it operates.
The Group treasury policy, approved by the directors, is to manage its funding requirements and treasury risks without undertaking any speculative risks.
The Group maintains a mix of short and medium-term facilities to ensure that it has sufficient available funds for ongoing operations.
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. 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.
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 have been designated as a hedge of the net investment in US subsidiaries. The carrying value of these borrowings at 31 March 2008 was £6.5 million (2007 - £6.4 million).
Borrowings issued at variable rates expose the Group to cash flow interest rate risk and borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group reviews the mix of fixed and floating debt and has interest rate swaps to manage part of this exposure.
At 31 March 2008, the Group had 20% (2007 - 19%) 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 gross pension assets and liabilities and resulting deficits are as follows:
| 2008 | 2007 | ||||||
| Assets £m | Liabilities £m | Deficit £m | Assets £m | Liabilities £m | Deficit £m | ||
| UK Schemes - funded | 158.5 | (168.0) | (9.5) | 164.4 | (192.5) | (28.1) | |
| Overseas Schemes - funded | 15.2 | (17.1) | (1.9) | 15.1 | (17.0) | (1.9) | |
| - unfunded | - | (19.8) | (19.8) | - | (18.0) | (18.0) | |
| 173.7 | (204.9) | (31.2) | 179.5 | (227.5) | (48.0) | ||
| Deferred Tax Asset | 4.8 | 11.1 | |||||
| Net | (26.4) | (36.9) | |||||
During the year, the assets of the funded schemes fell by £5.8 million. The funding deficit improved further, however, as total liabilities decreased by £22.6 million reflecting actuarial gains due primarily from increased bond rates, with the rate used for discounting UK liabilities rising from 5.4% to 6.6%.
The overseas deficit comprises £1.9 million (2007 - £1.9 million) in respect of funded defined benefit schemes, and £19.8 million (2007 - £18.0 million) relating principally to the unfunded German scheme which, as is common in Germany, is a 'pay as you go' scheme which is not required to be pre-funded. There is no obligation for deficit funding payments for this type of scheme.
There are three UK defined benefit pension schemes: (i) the main scheme, which is the Renold Group Pension Scheme (RGPS); (ii) the Renold Supplementary Pension Scheme (RSPS); and (iii) the Jones & Shipman plc Retirement Benefit Plan (J&S).
The status of these schemes at 31 March 2008 is summarised below:
| As at 31.3.08 | RGPS £m | RSPS £m | J&S £m | Total £m |
| IAS 19 liabilities | (108.3) | (29.1) | (30.6) | (168.0) |
| Market value of assets | 102.0 | 26.5 | 30.0 | 158.5 |
| Deficit on IAS 19 basis | (6.3) | (2.6) | (0.6) | (9.5) |
| Annual deficit reduction payment (based on funding valuations) | 2.2 | 0.7 | 0.2 | 3.1 |
| Total members (approx) | 5,109 | 117 | 1,040 | 6,266 |
| of which active are | 415 | 8 | 1 | 424 |
Peter BreamFinance Director
Consolidated Income Statement
for the year ended 31 March 2008
| Note | 2008 | 2007 | ||||
| £m | £m | |||||
| Continuing operations: | ||||||
| Revenue | 2 | 172.6 | 159.3 | |||
| Operating costs | 3 | (160.4) | (155.4) | |||
| Operating profit | 12.2 | 3.9 | ||||
| Operating profit before exceptional items | 12.0 | 9.8 | ||||
| Exceptional items | 3 | 0.2 | (5.9) | |||
| Operating profit | 12.2 | 3.9 | ||||
| Financial costs | (14.7) | (13.9) | ||||
| Financial revenue | 11.8 | 11.4 | ||||
| Net financing costs | 4 | (2.9) | (2.5) | |||
| Profit before tax | 9.3 | 1.4 | ||||
| Taxation | 5 | (3.1) | (0.6) | |||
| Profit for the financial year from continuing operations | 6.2 | 0.8 | ||||
| Discontinued operations: | ||||||
| Profit/(loss) for the financial year from discontinued operations | 6 | 1.5 | (13.5) | |||
| Profit/(loss) for the financial year | 7.7 | (12.7) | ||||
| Earnings per share | 7 | |||||
| Basic earnings/(loss) per share | 11.0p | (18.3)p | ||||
| Diluted earnings/(loss) per share | 10.8p | (18.1)p | ||||
| Basic earnings per share from continuing operations | 8.9p | 1.2p | ||||
| Diluted earnings per share from continuing operations | 8.7p | 1.2p | ||||
| Adjusted earnings per share from continuing operations* | 8.5p | 8.4p | ||||
| Diluted adjusted earnings per share from continuing operations* | 8.3p | 8.3p |
* Adjusted for the after tax effects of exceptional items
Consolidated Balance Sheet
as at 31 March 2008
| 2008 £m | 2007 £m | ||
| ASSETS Non-current assets | |||
| Goodwill | 16.3 | 15.2 | |
| Other intangible assets | 1.2 | 0.6 | |
| Property, plant and equipment | 39.5 | 34.0 | |
| Investment property | 1.9 | 1.6 | |
| Other non-current assets | 0.3 | 0.4 | |
| Deferred tax assets | 9.9 | 17.4 | |
| 69.1 | 69.2 | ||
| Current assets | |||
| Inventories | 41.0 | 33.1 | |
| Trade and other receivables | 35.2 | 30.1 | |
| Derivative financial instruments | 0.1 | - | |
| Current tax asset | 0.1 | - | |
| Cash and cash equivalents | 15.5 | 20.3 | |
| 91.9 | 83.5 | ||
| Asset held for sale | - | 3.4 | |
| 91.9 | 86.9 | ||
| TOTAL ASSETS | 161.0 | 156.1 | |
| LIABILITIES | |||
| Current liabilities | |||
| Borrowings | (8.3) | (7.8) | |
| Trade and other payables | (41.8) | (36.1) | |
| Derivative financial instruments | (0.9) | (0.1) | |
| Provisions | (3.9) | (5.2) | |
| Current tax liabilities | - | (0.6) | |
| (54.9) | (49.8) | ||
| NET CURRENT ASSETS | 37.0 | 37.1 | |
| Non-current liabilities | |||
| Borrowings | (30.6) | (31.4) | |
| Provisions | (0.5) | - | |
| Preference shares | (0.5) | (0.5) | |
| Trade and other payables | (0.7) | (1.2) | |
| Deferred tax liabilities | (1.6) | (1.3) | |
| Retirement benefit obligations | (31.2) | (48.0) | |
| (65.1) | (82.4) | ||
| TOTAL LIABILITIES | (120.0) | (132.2) | |
| NET ASSETS | 41.0 | 23.9 | |
| EQUITY | |||
| Issued share capital | 17.5 | 17.4 | |
| Share premium account | 6.3 | 6.1 | |
| Currency translation reserve | (1.3) | (1.2) | |
| Other reserves | (0.6) | - | |
| Retained earnings | 19.1 | 1.6 | |
| TOTAL EQUITY | 41.0 | 23.9 |
Approved by the Board on 24 June 2008 and signed on its behalf by:
Matthew Peacock Bob Davies
Chairman Director
Consolidated Cash Flow Statement
for the year ended 31 March 2008
| 2008 £m | 2007 £m | ||
| Cash flows from operating activities (Note 9) | |||
| Cash generated from operations - continuing | 4.5 | 10.3 | |
| Cash generated / (absorbed) by operations - discontinued | - | (4.7) | |
| 4.5 | 5.6 | ||
| Income taxes paid | (2.3) | (1.4) | |
| Net cash from operating activities | 2.2 | 4.2 | |
| Cash flows from investing activities | |||
| Acquisition of subsidiary undertaking | (2.4) | - | |
| Proceeds from disposal of businesses (net of cash transferred) | 0.2 | 5.4 | |
| Purchase of property, plant and equipment | (7.5) | (6.0) | |
| Purchase of intangible assets | (0.7) | (0.6) | |
| Proceeds on disposal of property, plant and equipment | 1.1 | 0.2 | |
| Proceeds on disposal of assets held for sale | 6.0 | - | |
| Interest received | 0.1 | 0.2 | |
| Net cash from investing activities | (3.2) | (0.8) | |
| Cash flows from financing activities | |||
| Financing costs paid | (2.8) | (3.0) | |
| Proceeds from borrowings | 7.1 | 35.0 | |
| Repayment of borrowings | (5.8) | (28.9) | |
| Issue of ordinary shares | 0.3 | 0.1 | |
| Payment of finance lease liabilities | (0.1) | (0.4) | |
| Net cash from financing activities | (1.3) | 2.8 | |
| Net (decrease) / increase in cash and cash equivalents | (2.3) | 6.2 | |
| Net cash and cash equivalents at beginning of year | 15.4 | 9.6 | |
| Effects of exchange rate changes | 1.1 | (0.4) | |
| Net cash and cash equivalents at end of year | 14.2 | 15.4 |
Consolidated Statement of Recognised Income and Expense
for the year ended 31 March 2008
| 2008 £m | 2007 £m | ||
| Profit / (loss) for the year | 7.7 | (12.7) | |
| Net income/(expense) recognised directly in equity: | |||
| Recycling of losses on cash flow hedges to the income statement | 0.2 | - | |
| Net losses on cash flow hedges taken to equity | (0.8) | - | |
| Foreign exchange translation differences | (0.7) | (4.8) | |
| Gains on fair value of hedging net investments in foreign operations | 0.6 | 0.9 | |
| Actuarial gains on retirement benefit obligations | 16.0 | 0.9 | |
| Tax on items taken directly to equity | (6.3) | (1.2) | |
| Total income/(expense) recognised directly in equity | 9.0 | (4.2) | |
| Total recognised income and (expense) for the year | 16.7 | (16.9) | |
| Attributable to: | |||
| Equity shareholders of the Company | 16.7 | (16.9) |
Notes to the consolidated financial statements
1. Basis of preparation
The preliminary statement was approved by the Board on 24 June 2008. 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 2008 have been prepared in accordance with International Financial Reporting Standards (IFRS) 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 2007. The financial information for the year ended 31 March 2007 has been extracted from the Renold plc Annual Report for that year as filed with the Registrar of Companies.
The 2007 and 2008 financial statements both carry unqualified audit reports which do not contain an emphasis of matter reference and do not contain a statement under S237 (2) or (3) of the Companies Act 1985.
2. Segmental information
Primary reporting format - business segment
The Group's continuing activities are in one class of business, Industrial Power Transmission. The consolidated income statement for continuing operations therefore relates wholly to the Industrial Power Transmission business.
Segment assets and liabilities
Shown below is a summary of the assets and liabilities of Industrial Power Transmission:
| 2008 £m | 2007 £m | ||
| Assets | |||
| Industrial Power Transmission | 133.7 | 113.4 | |
| Unallocated assets (see below) | 27.3 | 39.3 | |
| Asset held for sale | - | 3.4 | |
| Total assets | 161.0 | 156.1 | |
| Liabilities | |||
| Industrial Power Transmission | (78.1) | (90.5) | |
| Borrowings | (39.4) | (39.7) | |
| Derivative financial instruments | (0.9) | (0.1) | |
| Current and deferred tax | (1.6) | (1.9) | |
| Total Liabilities | (120.0) | (132.2) |
Secondary reporting format - geographical segments
The operations of the Group are based in five main geographical areas. The UK is the home country of the parent. The main operations in the principal territories are as follows:
United Kingdom
Rest of Europe
United States and Canada
China
Other countries
The sales analysis in the table below is based on the location of the customer; the analysis of assets and capital expenditure is based on the location of the assets:
| Revenue (Continuing) | Assets | Capital expenditure | ||||||
| 2008 £m | 2007 £m | 2008 £m | 2007 £m | 2008 £m | 2007 £m | |||
| United Kingdom | 20.0 | 19.6 | 30.7 | 26.6 | 2.4 | 2.0 | ||
| Rest of Europe | 56.1 | 52.4 | 38.9 | 33.2 | 2.6 | 1.2 | ||
| North America | 57.6 | 56.7 | 40.1 | 38.3 | 0.8 | 0.4 | ||
| China | 9.6 | 5.1 | 9.2 | 2.8 | 2.1 | 0.3 | ||
| Other countries | 29.3 | 25.5 | 14.8 | 12.5 | 0.3 | 0.4 | ||
| 172.6 | 159.3 | 133.7 | 113.4 | 8.2 | 4.3 | |||
| Unallocated assets | - | - | 27.3 | 39.3 | - | - | ||
| Asset held for sale | - | - | - | 3.4 | - | - | ||
| Discontinued operations | - | - | - | - | - | 1.5 | ||
| 172.6 | 159.3 | 161.0 | 156.1 | 8.2 | 5.8 | |||
| Unallocated assets comprise: | ||||||||
| Deferred tax asset | 9.9 | 17.4 | ||||||
| Cash and cash equivalents | 15.5 | 20.3 | ||||||
| Investment property | 1.9 | 1.6 | ||||||
| 27.3 | 39.3 | |||||||
All revenue relates to the sale of goods.
3. Exceptional items
| 2008 £m | 2007 £m | ||
| UK Burton conveyor chain factory restructuring | - | (0.3) | |
| Profit on disposal of asset held for sale (Burton factory) | 2.6 | - | |
| Profit and cash enhancement restructuring initiatives ("PACE"): | |||
| Reorganisation and redundancy costs | (2.4) | (2.9) | |
| Exceptional inventory provision | - | (2.7) | |
| 0.2 | (5.9) |
The PACE strategic initiative has resulted in exceptional costs associated with the restructuring of the continuing Group's manufacturing and distribution facilities. The reorganisation and redundancy costs have originated in the UK £0.5 million (2007 - £1.5 million), Germany £1.6 million (2007 - £1.0 million) and other countries £0.3 million (2007 - £0.4 million). In 2006/07 exceptional inventory write-offs were charged in the UK (£1.4 million), Germany (£0.9 million), the Rest of Europe (£0.2 million) and other countries (£0.2 million).
4. Net financing costs
| 2008 | 2007 | ||||
| £m | £m | £m | £m | ||
| Financial costs: | |||||
| Interest payable on bank loans and overdrafts | (2.7) | (2.6) | |||
| Costs associated with refinancing | (0.2) | (0.2) | |||
| Interest cost on financial liabilities not at fair value through the income statement | (2.9) | (2.8) | |||
| Interest cost on pension plan balances | (11.8) | (11.1) | |||
| Total financial costs | (14.7) | (13.9) | |||
| Financial revenue: | |||||
| Interest receivable on bank deposits and cash equivalents | 0.1 | 0.2 | |||
| Interest income on financial assets not at fair value through the income statement | 0.1 | 0.2 | |||
| Expected return on pension plan assets | 11.7 | 11.2 | |||
| Total financial revenue | 11.8 | 11.4 | |||
| Net financing costs | (2.9) | (2.5) | |||
5. Taxation
Analysis of tax charge in the year
| 2008 £m | 2007 £m | ||
| United Kingdom | |||
| UK corporation tax at 30% (2007 - 30%) | 0.2 | 1.0 | |
| Less: double taxation relief | (0.2) | (1.0) | |
| - | - | ||
| Overseas taxes | |||
| Corporation taxes | 1.2 | 1.3 | |
| Amount underprovided in previous years | 0.4 | - | |
| Current income tax charge | 1.6 | 1.3 | |
| Deferred tax | |||
| United Kingdom - origination and reversal of temporary differences | 0.5 | - | |
| Impact of change in tax rate on deferred tax | 0.4 | - | |
| Overseas - origination and reversal of temporary differences | 0.6 | - | |
| Total deferred tax | 1.5 | - | |
| Tax charge on loss on ordinary activities | 3.1 | 1.3 | |
| Analysed as: | |||
| Continuing | 3.1 | 0.6 | |
| Discontinued | - | 0.7 | |
| 3.1 | 1.3 |
6. Discontinued operations
The results attributable to the discontinued operations are set out below. The operating results for 2007 are for a 12 month period; for 2008 the results are for the periods up to the respective dates of disposal.
| 2008 | 2007 | ||
| Total discontinued £m | Total discontinued £m | ||
| External revenue | - | 29.1 | |
| Operating loss before exceptional items | - | (3.5) | |
| Redundancy, restructuring and other exceptional items | - | 1.7 | |
| Operating loss | - | (1.8) | |
| Bank interest | - | (0.2) | |
| Loss before tax | - | (2.0) | |
| Taxation | - | - | |
| Loss after tax | - | (2.0) | |
| Adjustments to fair value less costs to sell and losses on disposal | 1.5 | (10.8) | |
| Taxation (Note 5) | - | (0.7) | |
| - | (11.5) | ||
| Profit / (loss) for the year on discontinued operations | 1.5 | (13.5) |
Discontinued exceptional items
Within discontinued operations, the exceptional item of £1.5 million represents a £1.3 million net release of provisions in relation to claims on various disposals and £0.2 million of proceeds received from the purchaser of the Machine Tools business.
Discontinued employment costs comprise:
| 2008 £m | 2007 £m | ||
| Gross wages and salaries | - | 8.8 | |
| Social security costs | - | 2.2 | |
| Gain arising on pension curtailment | - | (0.7) | |
| - | 10.3 |
The cash flows attributed to discontinued operations comprise:
| 2008 £m | 2007 £m | ||
| From operating activities | - | (4.7) | |
| From investing activities | - | (1.7) | |
| From financing activities | - | (1.6) |
Deferred consideration of £1.35 million (2007 - £1.5 million) on the Machine Tools disposal has not been recognised in these financial statements and will only be recognised when there is greater certainty of recovery.
In 2007: (i) external revenue of £29.1 million was reported, of which £16.3 million related to Automotive operations and £12.8 million related to Machine Tools operations; (ii) operating loss before exceptional items of £3.5 million was reported, of which £2.2 million related to Automotive operations and £1.3 million related to Machine Tools operations; (iii) redundancy, restructuring and other exceptional items of £1.7 million was reported, of which £1.0 million related to Automotive operations and £0.7 million related to Machine Tools operations; (iv) operating loss of £1.8 million was reported, of which £1.2 million related to Automotive operations and £0.6 million related to Machine Tools operations; (v) bank interest cost of £0.2 million was reported, of which £0.1 million related to Automotive operations and £0.1 million related to Machine Tools operations; (vi) a loss before and after tax of £2.0 million was reported, of which £1.3 million related to Automotive operations and £0.7 million related to Machine Tools operations; (vii) adjustments to fair value less costs to sell and losses on disposal of £10.8 million was reported, of which £6.2 million related to Automotive operations and £4.6 million related to Machine Tools operations; (viii) a taxation charge on discontinued operations of £0.7 million was reported, which wholly related to Automotive operations; and (ix) a loss for the year on discontinued operations of £13.5 million was reported, of which £8.2 million related to Automotive operations and £5.3 million related to Machine Tools operations.
7. Earnings per share
Earnings per share are calculated by reference to the earnings for the year and the weighted average number of shares in issue during the year as follows:
| 2008 | 2007 | |||||
| Earnings £m | Weighted average number of shares Thousands | Per-share amount Pence | Earnings £m | Weighted average number of shares Thousands | Per-share amount Pence | |
| Basic EPS | ||||||
| Earnings attributed to ordinary shareholders | 7.7 | 69,807 | 11.0 | (12.7) | 69,501 | (18.3) |
| Effect of dilutive securities: | ||||||
| Employee share options | - | 1,589 | (0.2) | - | 569 | 0.2 |
| Diluted EPS | 7.7 | 71,396 | 10.8 | (12.7) | 70,070 | (18.1) |
| Earnings per share from continuing operations
| ||||||
| Basic EPS | 7.7 | 69,807 | 11.0 | (12.7) | 69,501 | (18.3) |
| Post tax (profit) / loss from discontinued operations (Note 6) | - | - | 2.0 | 2.9 | ||
| Adjustments to fair value less costs to sell and losses on disposal (Note 6) | (1.5) | (2.1) | 11.5 | 16.6 | ||
| Basic EPS from continuing operations | 6.2 | 69,807 | 8.9 | 0.8 | 69,501 | 1.2 |
| Inclusion of the dilutive securities, shown above, in the calculation of basic EPS from continuing operations changes the amount shown to 8.7p (2007 - 1.2p).
Earnings per share from discontinued operations
| ||||||
| Basic EPS | ||||||
| Post tax profit / (loss) from discontinued operations (Note 6) | 1.5 | 69,807 | 2.1 | (2.0) | 69,501 | (2.9) |
| Adjustments to fair value less costs to sell and losses on disposal (Note 6) | - | - | (11.5) | (16.6) | ||
| Basic EPS from discontinued operations | 1.5 | 69,807 | 2.1 | (13.5) | 69,501 | (19.5) |
| Inclusion of the dilutive securities does not change the amount shown for basic EPS for discontinued operations (2007 - (19.3p)).
| ||||||
| Adjusted EPS for continuing activities
| ||||||
| Basic EPS from continuing operations | 6.2 | 69,807 | 8.9 | 0.8 | 69,501 | 1.2 |
| Effect of exceptional items, after tax | (0.3) | (0.4) | 5.0 | 7.2 | ||
| Adjusted EPS | 5.9 | 69,807 | 8.5 | 5.8 | 69,501 | 8.4 |
| Inclusion of the dilutive securities, shown above, in the calculation of adjusted EPS changes the amount shown to 8.3p (2007 - 8.3p). | ||||||
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.
8. Analysis of changes in shareholders' equity
| Share capital £m | Share premium account £m | Retained earnings £m | Currency translation reserve £m | Other Reserves £m | Total equity £m | |
| At 1 April 2006 | 17.4 | 6.0 | 14.5 | 2.7 | - | 40.6 |
| Loss for the year | - | - | (12.7) | - | - | (12.7) |
| Foreign exchange translation difference | - | - | - | (4.8) | - | (4.8) |
| Actuarial gains and losses | - | - | 0.9 | - | - | 0.9 |
| Gains on fair value of hedging net investments in foreign operations | - | - | - | 0.9 | - | 0.9 |
| Tax on items recognised directly in equity | - | - | (1.2) | - | - | (1.2) |
| Share premium | - | 0.1 | - | - | - | 0.1 |
| Employee share options: | ||||||
| - value of employee services | - | - | 0.1 | - | - | 0.1 |
| At 31 March 2007 | 17.4 | 6.1 | 1.6 | (1.2) | - | 23.9 |
| Profit for the year | - | - | 7.7 | - | - | 7.7 |
| Recycling of losses on cash flow hedges to the income statement | - | - | - | - | 0.2 | 0.2 |
| Net losses on cash flow hedges taken to equity | - | - | - | - | (0.8) | (0.8) |
| Foreign exchange translation difference | - | - | - | (0.7) | - | (0.7) |
| Actuarial gains and losses | - | - | 16.0 | - | - | 16.0 |
| Gains on fair value of hedging net investments in foreign operations | - | - | - | 0.6 | - | 0.6 |
| Tax on items recognised directly in equity | - | - | (6.3) | - | - | (6.3) |
| Share premium | - | 0.2 | - | - | - | 0.2 |
| Employee share options: | ||||||
| - value of employee services | - | - | 0.1 | - | - | 0.1 |
| - proceeds from shares issued | 0.1 | - | - | - | - | 0.1 |
| At 31 March 2008 | 17.5 | 6.3 | 19.1 | (1.3) | (0.6) | 41.0 |
9. Additional cash flow information
Reconciliation of profit before tax to net cash flows from operations:
| 2008 £m | 2007 £m | ||
| Cash generated from operations: | |||
| Continuing operations: | |||
| Profit before taxation | 9.3 | 1.4 | |
| Depreciation and amortisation | 5.1 | 4.9 | |
| (Profit) / loss on plant and equipment disposals | (3.0) | 0.1 | |
| Equity share plans | 0.1 | 0.1 | |
| Net finance costs | 2.9 | 2.5 | |
| (Increase) / decrease in inventories | (5.0) | 1.2 | |
| (Increase) in receivables | (3.0) | (2.3) | |
| Increase in payables | 2.4 | 4.1 | |
| (Decrease)/increase in provisions | (0.3) | 1.7 | |
| Movement on pension plans | (4.0) | (3.5) | |
| Movement in derivative financial instruments | - | 0.1 | |
| Cash generated from continuing operations | 4.5 | 10.3 | |
| Discontinued operations | |||
| Profit/(loss) before taxation | 1.5 | (2.0) | |
| Loss on plant and equipment disposals | - | 0.2 | |
| Net finance costs | - | 0.2 | |
| Increase in inventories | - | (0.3) | |
| Decrease in receivables | - | 2.2 | |
| Decrease in payables | - | (2.0) | |
| Decrease in provisions | (1.3) | (1.2) | |
| Offset of proceeds from disposal of businesses | (0.2) | - | |
| Movement on pension plans | - | (1.8) | |
| Cash generated / (absorbed) by discontinued operations | - | (4.7) | |
| Cash generated from operations | 4.5 | 5.6 |
Reconciliation of net increase in cash and cash equivalents to movement in net debt:
| 2008 £m | 2007 £m | ||
| (Decrease) / increase in cash and cash equivalents | (2.3) | 6.2 | |
| Change in net debt resulting from cash flows | (1.3) | (6.1) | |
| Finance lease inception | - | (0.2) | |
| Foreign currency translation differences | (0.9) | 1.4 | |
| Change in net debt during the period | (4.5) | 1.3 | |
| Net debt at start of year | (19.4) | (20.7) | |
| Net debt at end of year | (23.9) | (19.4) | |
| Net debt comprises: | |||
| Cash and cash equivalents | 15.5 | 20.3 | |
| Total borrowings | (39.4) | (39.7) | |
| (23.9) | (19.4) |
10. Post balance sheet event
In June 2008, Renold Continental Limited committed to sell the freehold of an office building located in Brussels for proceeds expected to be approximately £1.5 million. The anticipated profit on this disposal is estimated to be approximately £0.7 million.