Renold Regulatory News (RNO)

25 Jun 2007 07:01

Renold PLC25 June 2007 Renold plc("Renold" or the "Group") 2007 Preliminary Results Renold, a leading international supplier of industrial chains and related powertransmission products, today announces its preliminary results for the yearended 31 March 2007. FINANCIAL SUMMARY 2007 2006 £m £mContinuing operations:Turnover 159.3 155.0Operating profit 3.9 5.4Operating profit before exceptional items 9.8 6.8Profit before tax and exceptional items 7.3 3.2Profit before tax 1.4 1.8 Other information:Basic loss per share - Group (18.3)p (19.6)pBasic earnings per share - continuing operations 1.2p 0.4pAdjusted earnings per share (adjusting for the after tax effects ofexceptional items) - continuing operations 8.4p 1.7pNet debt 19.4 20.7 HIGHLIGHTS • A year that has delivered in line with strategic objectives and one that positions the Group on a stronger financial platform going forward. • Disposal of Automotive and Machine Tool operations completed in the year. • Profit and Cash Enhancement programme on schedule to complete March 2009, underpinned by the post-year end acquisition of a well established chain manufacturing business in China. • ROCE 15%: PACE target > 20% • Working capital / Sales 17%: PACE target < 20% • Chain direct labour in LCC now 36% (including post year end acquisition) PACE target > 40% to be increased to > 60% • Revenue from continuing operations increased by 6% at constant exchange rates. • Continuing businesses' operating profit before exceptional items increased 44%. • Continuing businesses' adjusted earnings per share increased 4.9 times. • Reduction in net debt and pension deficit. Matthew Peacock, Chairman of Renold, said: "Last year was one of excellent delivery against our strategic objectives withthe prospect of further progress to come. This year has started well and welook forward, with confidence, to another year of significant improvementsgenerated by activities which are well underway." 25 June 2007 Enquiries: Renold plc 25 June Tel: 020 7457 2020Bob Davies, Chief Executive Thereafter Tel: 0161 498 4500Peter Bream, Finance Director College Hill Tel: 020 7457 2020Matthew Gregorowski/Nicholas Potter The results presentation will be available on the Company's websitewww.renold.com at 9.30 a.m. on Monday 25 June. Note to editors: Renold is a global leader in the manufacture of industrial chains and alsomanufactures a range of gears and couplings which are sold throughout the worldto a broad range of original equipment manufacturers and distributors. Itsproducts are used in a wide variety of industries including manufacturing,transportation, energy, steel, and mining. Renold has a well deserved reputationfor quality that is recognised worldwide. The Group has 13 manufacturing plants throughout the world and employs 2,500staff. It is currently expanding its geographical footprint by increasing itsmanufacturing presence in "low cost countries". Further information about Renold can be found on the website www.renold.com CHAIRMAN'S STATEMENT Introduction It is a great pleasure in my first statement to shareholders, as the Chairman ofyour Board, to report a year of excellent delivery against our strategicobjectives, and the prospect of further progress in the coming years. Our strategy has been to focus on our main Industrial Chain business and to givethat business the operating and financial structure it needs to succeed - bothin the mature markets where we are a leader, and in key new developing markets. We have made significant progress in executing this strategy during the lastyear. We have disposed of the Automotive and Machine Tool businesses, reducedGroup borrowings and refinanced them under much more favourable terms. Thesesteps, combined with improved profit and cash generation, have given the companyits strongest financial position for many years. At constant exchange rates our sales have grown in all overseas regions wherethe company is represented; China, in particular, represented a small but veryfast growing segment. The Profit and Cash Enhancement (PACE) programme we presented in March 2007 ison schedule. One third of the Chain direct labour is now in China and other lowcost territories, which is well ahead of the PACE plan target of 40% for March2009; consequently we are increasing the target to 60%. We opened greenfieldmanufacturing facilities in Malaysia and China during the year, and these haveshipped products in time and on budget. In May we announced the acquisition ofa 90% interest in a manufacturing business in China, which significantlyenhances our worldwide capacity, and reduces our capex requirements this year by£4 million. Further manufacturing volume was transferred to our Polish facility,which opened the previous year. The PACE programme is already providingsuperior returns from our established markets and building a competitive basisfor our growth in developing regions. Results and dividend Sales growth, a stronger and more efficient company, and the tangible benefitsof the PACE programme served to boost profit before tax and exceptional itemsfrom continuing operations to £7.3 million an increase of 2.3 times on theprevious year. Part of the focus of PACE is the continued strengthening of thebalance sheet and a reduction in the volatility of earnings. Net debt reducedslightly in the year to £19.4 million from £20.7 million last year and furtherprogress is expected. The net pension deficit on UK funded liabilities also fellfrom £23.0 million down to £19.7 million with considerable progress having beenmade late in the year on the asset management activities and work continuing onliability management. Arrangements have been made to appropriately hedgeon-going foreign exchange exposure which had some negative impact during theyear and also to manage steel price changes which were relatively benign duringthe year. Bob Davies and his team have stretching targets for PACE in the coming year, andI am confident they will continue to meet and exceed those targets, as they havedone over the past year. The Board believe it is prudent to recommend that no dividend be paid this year. The Board will consider future dividend policy in light of the results fromthe business going forward. Board Finally, I would also like to welcome David Shearer to the company, he joinedthe Board on 1 May 2007 as a non-executive director. David has served as thesenior partner of Deloitte & Touche in Scotland and Northern Ireland and on theMain Board of HBOS plc. He brings us a wealth of experience from these seniorroles. Prospects At Renold, we have always been proud of our leadership in the specialisedindustrial markets we serve. We are now also very committed to a strategy thatis both delivering financial results in the short term and building a platformfor long term profitable growth. My Board colleagues and I look forward toanother year of taking this strategy forward with confidence. CHIEF EXECUTIVE'S REVIEW Overview The year was notable for the successful delivery of a number of significantinitiatives. The sale of the Automotive and Machine Tool businesses followed byrefinancing with The Royal Bank of Scotland, enhanced the financial stability ofthe Group. The opening of manufacturing facilities in Malaysia and China, andthe increased output from Poland helped drive down the cost base. The operating profit before exceptional items from continuing operationsimproved to £9.8 million, representing a 44% increase over the previous year.This improvement is despite a weaker US dollar resulting in a £1.2 millionadverse impact compared with the previous year. This improved operating result from continuing operations reflects sales growthin all overseas regions where the company is represented with Group salesincreasing 6% at constant exchange rates to £159.3 million. Europe recoveredwell from the weaker markets of the past few years. Some softening was seen inthe USA, particularly in the second half. The additional resources in Chinahave borne fruit, sales doubling again albeit from a relatively low base. Thissales growth, along with numerous cost reduction initiatives, boosted profitbefore tax and exceptional items from continuing operations to £7.3 million, a128% increase on the previous year. Technology Leadership The Industrial Chain business provides 70% of Renold's sales. By market share,we are the number 2 global player operating in over 90 countries with directsales teams in 18 of these. Renold maintains a technology leadership inIndustrial Chain. This is evidenced by our Synergy product range, which carriesa significant price premium to all competing brands. Customers are willing topay this premium because the product's wear and maintenance characteristics cansignificantly lower their cost of ownership. Applications such as the ThamesBarrier, theme park rides and certain continuous process industry applicationsdemonstrate the high integrity reputation that Renold Chain has. It is ourintention to increasingly invest in engineering and product development tomaintain this technology leadership and reputation. PACE The Profit and Cash Enhancement plan, which was presented in March 2007,encapsulated a number of the cost reduction initiatives into a single coherentplan. The main thrust of the cost reduction is the migration of productmanufacturing from relatively high cost manufacturing sites in the UK andGermany, to lower cost sites in Poland and China. The funds required for thesetransfers are to be generated by an inventory reduction programme and sales ofsurplus property. I am pleased to report that the PACE plan was on schedule atthe year-end and continues to be so. Renold Hangzhou In May, we announced the agreement for the acquisition of a 90% interest in thebusiness of HangZhou ShanShui ("HZSS"), a Chain manufacturer based in Hangzhou,China 200 kilometres west of Shanghai. This acquisition is consistent with thePACE plan by providing a well established chain manufacturing facility intowhich certain products currently made in the UK and Germany can be relocated.Renold reviewed over 70 separate Chain companies in China and performed limiteddue diligence on 10 of these. HZSS was selected because of the strength of itsengineering resource and its focus on product quality. A good workingrelationship at several levels has been developed between existing HZSS andRenold staff over the past two years. This acquisition will reduce theexecution risk of the PACE programme. Measured by the tonnage of steel used,Renold Hangzhou is currently larger than the UK facility in Bredbury but smallerthan the German facility in Einbeck. In addition, Renold Hangzhou will provide a platform for sales growth withinChina and other low cost countries. Renold can now offer a product range fromexceptional high performance to products that are cost competitive with thoseoriginating from any part of the world. Service In addition to excellence in design and competitive pricing, our customersdemand outstanding levels of service. A number of initiatives are in place todrive further improvements in meeting customer expectations. In recognition of the success of these initiatives, I am proud to report thatRenold were awarded 'Supplier of Year' by A.I.T, the second largest PowerTransmission Distributor in the USA and our largest customer. This award wasjudged on the level of sales support, quality of the product, technologyinnovation and profitability. This award was clearly a team effort but inparticular, I would like to recognise the determination of the efforts of ourSales Team in the USA, our Manufacturing teams in the UK and Germany and ourGlobal Engineering team. Further recognition for our customer service came from Kinecor, the largestCanadian distributor who identified Renold as a 'Top 5 Supplier'. OPERATIONS REVIEW The Group going forward is focused on its Industrial Power Transmissionbusiness, which forms one business segment. The activities of the segmentinclude the manufacture and sale of chain, gear and coupling products, which aresold through the Group's worldwide sales operations to a broad range of originalequipment manufacturers and distributors. The key performance indicators which are used to monitor performance arefinancial, including rate of sales growth, margin, material costs (particularlysteel), payroll costs, working capital performance and net debt. The Group'sperformance against certain of these key indicators is noted in this OperationsReview and the Financial Review. Other non-financial performance indicators areused but vary on a business by business basis. Chain The Industrial Chain business continued its profit improvement driven by a 6%growth in sales and continuing cost reductions. Some small increases in steelprices were seen towards the end of the year, but these were more thancompensated for by price increases and cost reductions. Europe Renold maintained its market leadership position in Europe. Sales, which havebeen flat for a number of years, increased by 7% at constant exchange rates.Good growth came from each of the selling companies in Europe except France,where sales were flat. The factory in Poland continued to expand and will end this year with a total of200 employees necessitating a move in June to a new, larger 6,000 sq m facilitywhere there is the opportunity for further expansion. This new facility is lessthan a mile from the existing facility and minimal disruption is expected. The final phase of the closure of the Burton manufacturing plant was made duringthe year. Products have been transferred to Renold factories in Poland,Malaysia and Manchester. We have a contract to sell the Burton property to adeveloper for £6.4 million, subject to planning permission. A second planningapplication by developers for the Burton site is expected to be submitted by theend of June. Renold intend to have a custom built and developed office for theUK sales team, as part of the redevelopment of the site. This will retainapproximately 40 professional jobs in the Burton area. The implementation of the European Distribution project made good progressduring the year in improving customer service through the more efficientmanagement of finished goods stock. A common software platform has beeninstalled in all our European sales companies (except Switzerland) and directshipments from the Distribution Centres to the end customers have started. Itis expected that two of the existing warehouse properties will be available forsale by the end of this year. Americas Sales in local currency of roller transmission chain to distributors and OEMsincreased by 10% with further significant increases to A.I.T. and Motion, thetwo largest USA distributors. The award of 'Supplier of the Year' from A.I.T. affirms the improvements in ourposition with the major US distributors. Sales of Synergy, the world's leadingtransmission chain and Syno (lubrication free/dry to the touch chain) continuedto grow. Technical innovations such as these helped to gain the Supplier of theYear award. A further new product development, XXL, directly led to the winningof a $4.5 million contract from a major OEM, displacing an incumbent competitor. Initial trials suggest that this new product has 3 to 6 times the life of thechain it replaced. Sales of engineering/conveyor chain manufactured in Tennessee were below lastyear's level, driven by weak demand from OEMs in the middle of the year. Thisresulted in a redundancy of 14 people in Tennessee. Demand recovered stronglytowards the end of the year. Sales into South America grew by 26% following the addition of dedicated salesresource. The potential in the region is high but much of the demand is forlower cost products. The new facility in Hangzhou should provide an appropriateproduct for these markets. Asia Pacific Sales into China doubled again during the year and orders were up over 60%.This is a reflection of the increased sales resources within China. A member ofthe Group's Executive team is now based in Shanghai to support the continuedgrowth. This rate of progress is expected to continue into the new year as thegreenfield Beicai facility starts to increase production and through thepurchase of HZSS. Three years ago, Renold had no employees in China. By theend of June, China will be second only to the UK by number of Renold employees.The combination of Renold technology and market knowledge, combined with the lowcost base and manufacturing capability of HZSS, will provide a significantnumber of new opportunities within China, elsewhere within the region andglobally. The new facility in Malaysia started to deliver products to customers in August. These products had previously been made in Burton and without the move, asignificant part of this business would have been lost on price. During theyear, two new product lines were launched opening up new markets in Malaysia andSingapore. These products could not have been made competitively in Burton. Australia, which accounts for nearly 10% of Renold's Chain sales, grew by 18%during the year and had its most profitable year on record. Gears Sales of the Gears business grew by 8% with orders up by 11%. The Loose Gearsproduct line was relocated from the adjacent Machine Tools and Rotor Division,prior to the divestment. Following this move, the award of a major contractfrom the USA led to the need to double capacity of this manufacturing cell. TheUK Gears business provides engineered solutions for specific customerchallenges. Its major markets are in the UK, USA, China and Germany. Sales in South Africa grew by 20%, leading to an improvement in profitability.This growth came from an increase in demand from the mining and metalindustries. The South African facility is predominantly a maintenance andoverhaul facility, but does have a design facility. Couplings It was another good year for the Couplings business. Double digit sales growthand return on sales were achieved during the year. Sales are underpinned by amulti-year Mass Transit contract with Alstom, which runs until 2008. No newMass Transit contract orders were won during the year, but a number of bids areoutstanding. Orders increased by 25%, which will require an increase incapacity this year. The capital expenditure required to increase capacity iswithin the normal annual level of spend. This increased level of orderspositions this business well for another strong year. FINANCIAL REVIEW Overview The financial statements of the Group have been prepared in accordance withInternational Financial Reporting Standards (IFRS). Continuing Operations Revenue The revenue of continuing operations increased by 3% to £159.3 million, atconstant exchange rates the increase was 6%. Sales in the second half-year, at£80.0 million were 1% higher than the first half. Operating Profit Operating profit before exceptional items was £9.8 million up 44% on 2005/06.Return on sales for the year before exceptionals was 6.2% compared with 4.4% forlast year. This demonstrates a continuing recovery in margins, which now extendsfor five consecutive half-year periods and we expect to continue. Exceptional costs were £5.9 million, compared with £1.4 million in 2005/06.£3.2 million related to redundancy and restructuring costs incurred mainly inthe European chain operations, and £2.7 million related to inventory provisionsprecipitated by the reorganisation of distribution facilities under the PACEproject. Further details of the exceptional costs are given in Note 2 to this statement. Financing Costs Total net financing costs reduced to £2.5 million (2005/06 - £3.6 million). Net bank interest cost rose to £2.4 million (2005/06 - £2.2 million) and therewas no significant fair value gain or loss on derivatives (2005/06 - gain £0.3million). Costs associated with our re-banking were £0.2 million (2005/06 -£0.7 million). The net interest cost on pension plan balances and the expectedreturn on pension plan assets was a credit of £0.1 million (2005/06 - charge£1.0 million). This change is principally the result of the increased expected return on thehigher value of plan assets. Profit before Tax Profit before tax and before exceptional items was £7.3 million compared with£3.2 million last year. Profit before tax after exceptional items was £1.4million compared with a profit of £1.8 million in 2005/06. Taxation The tax charge on continuing operations of £0.6 million (2005/06 - £1.5 million)represented an effective rate of approximately 40%, nearly half the ratereported in 2005/06. Discontinued Operations The Automotive business was divested on 3 August 2006; a loss before tax of £1.3million was reported for the period and losses on disposal of £6.2 million. The Machine Tools business was divested on 6 December 2006; a loss of £0.7million was reported for the period and losses on disposal of £4.6 million. The results of these businesses are reported as discontinued operations on oneline in the income statement. Details of the results of the discontinued operations are given in Note 5 tothis statement. Group results for the Financial Period The loss for the year was £12.7 million compared with £13.6 million in 2005/06;the basic loss per share was 18.3p (2005/06 - 19.6p loss) and the diluted lossper share was 18.1p (2005/06 - 19.6p). The basic adjusted earnings per share(from continuing operations before exceptional items) was 8.4p (2005/06 - 1.7p). Balance Sheet Net assets at 31 March 2007 were £23.9 million (2005/06 - £40.6 million). Theliability for retirement benefit obligations was £48.0 million (2005/06 - £53.9million) before allowing for a net deferred tax asset of £11.1 million (2005/06- £12.7 million). Of the £48.0 million obligation, £18.0 million arises inrespect of unfunded schemes which do not require to be prefunded (see pensionsbelow). Cash Flow and Borrowings Cash inflow from continuing operations was £10.3 million (2005/06 - £4.7million). Cash outflow from discontinued operations was £4.7 million (2005/06 - £1.7million inflow). Payment for purchase of property, plant and equipment was £6.0 million (2005/06- £6.7 million), of which £1.5 million (2005/06 - £2.9 million) related todiscontinued activities. Proceeds of disposals of property, plant and equipmentwere £0.2 million (2005/06 - £3.2 million). Proceeds from disposal ofAutomotive and Machine Tools businesses totalled £5.4 million. Group net borrowings at 31 March 2007 were £19.4 million (2006 - £20.7 million)comprising cash and cash equivalents £20.3 million (2006 - £17.8 million) andborrowings, including preference shares, of £39.7 million (2006 - £38.5million). Treasury and Financial Instruments During the year the Group entered into a new syndicated bank facility led by TheRoyal Bank of Scotland plc, with Fortis Bank S.A./N.V. as a participant. Thisfacility is significantly larger and materially less expensive than thefacilities which it replaced. The Group treasury policy, approved by the directors, is to manage its fundingrequirements and treasury risks without undertaking any speculative risks. The Group maintains a mix of short and medium-term facilities to ensure that ithas sufficient available funds for ongoing operations. A major exposure of the Group earnings and cash flows relates to currency riskon its sales and purchases made in foreign (non-functional) currencies, and toreduce such risks these transactions are covered primarily by forward foreignexchange contracts. Such commitments generally do not extend more than 12months beyond the balance sheet date, although exceptions can occur wherelonger-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 USacquisitions have been designated as a hedge of the net investment in USsubsidiaries, the carrying value of these borrowings at 31 March 2007 was £6.4million (31 March 2006 - £5.4 million). Borrowings issued at variable rates expose the Group to cash flow interest raterisk and borrowings issued at fixed rates expose the Group to fair valueinterest rate risk. The Group reviews the mix of fixed and floating debt andhas interest rate swaps to manage part of this exposure. At 31 March 2007 the Group had 19% (31 March 2006 - 31%) of its gross debt atfixed interest rates. Cash deposits are placed short-term with banks wheresecurity and liquidity are the primary objectives. The Group has no significant concentrations of credit risk with sales made to awide spread of customers, industries and geographies. Policies are in place toensure that credit risk on individual customers is kept to a minimum. Pensions The gross pension assets and liabilities and deficits are as follows: 2007 2006 Assets Liabilities Deficit Assets Liabilities Deficit £m £m £m £m £m £m UK Schemes - funded 164.4 (192.5) (28.1) 162.7 (195.6) (32.9)Overseas Schemes - funded 15.1 (17.0) (1.9) 15.5 (17.9) (2.4) - unfunded - (18.0) (18.0) - (18.6) (18.6) 179.5 (227.5) (48.0) 178.2 (232.1) (53.9) Deferred Tax Asset 11.1 12.7 Net (36.9) (41.2) During the year the assets of the funded schemes rose by £1.3 million. Thefunding deficit improved further, however, as liabilities decreased by £4.6million reflecting actuarial gains due primarily from increased bond rates, withthe rate used for discounting UK liabilities rising from 5.0% to 5.4%. The overseas deficit comprises £1.9 million in respect of defined benefitschemes, and £18.0 million relating principally to the unfunded German schemewhich, as is common in Germany, is a "pay as you go" scheme which does notrequire to be pre-funded. There is no obligation for deficit funding paymentsfor this type of scheme. There are three UK defined benefit pension schemes, the main scheme which is theRenold Group Pension Scheme (RGPS), the Renold Supplementary Pension Scheme(RSPS), and the Jones & Shipman Retirement Benefit Scheme (J&S). The status ofthese schemes at 31 March 2007 is summarised below: As at 31.3.07 RGPS RSPS J&S Total £m £m £m £m IAS 19 liabilities 125.2 30.7 36.6 192.5Market value of assets 104.2 23.9 36.3 164.4Deficit on IAS 19 basis 21.0 6.8 0.3 28.1Annual deficit reduction payment (based onfunding valuations) 2.2 0.7 0.2 3.1Total members (approx) 6,038 119 1,059 7,216of which active are 472 13 1 486 Annual Report to be published 26 June 2007Annual General Meeting 26 July 2007 Annual Report: This preliminary announcement does not form the Group's statutoryfinancial statements but is prepared on the same basis as set out in theprevious year's annual financial statements. The figures shown in this releasehave been extracted from the Group's full financial statements which have beenprepared under International Financial Reporting Standards adopted by theEuropean Union. These financial statements will be delivered to the Registrarof Companies. The financial statements for the year ended 31 March 2006 havebeen delivered to the Registrar of Companies. The 2006 and 2007 financialstatements both carry an unqualified audit report which does not contain anemphasis of matter reference and does not contain a statement under S237 (2) or(3) of the Companies Act 1985. The preliminary announcement was approved by the Board on 25 June 2007. RENOLD PLCPRELIMINARY RESULTS Consolidated Income Statement for the year ended 31 March 2007 Note 2007 2006 £m £m Continuing operations:Revenue 1 159.3 155.0Operating costs (155.4) (149.6) Operating profit 3.9 5.4 Operating profit before exceptional items 9.8 6.8Exceptional items 2 (5.9) (1.4) Operating profit 3.9 5.4 Financial costs (13.9) (14.1) Financial revenue 11.4 10.5 Net financing costs 3 (2.5) (3.6) Profit before tax 1.4 1.8 Taxation 4 (0.6) (1.5) Profit for the financial year from continuing operations 0.8 0.3 Discontinued operations:(Loss) for the financial year from discontinued operations 5 (13.5) (13.9) (Loss) for the financial year (12.7) (13.6) Earnings per share 6Basic (loss) per share (18.3)p (19.6)pDiluted (loss) per share (18.1)p (19.6)pBasic and diluted earnings per share from continuing operations 1.2p 0.4pAdjusted earnings per share from continuing operations * 8.4p 1.7pDiluted adjusted earnings per share from continuing operations* 8.3p 1.7p * Adjusted for the after tax effects of exceptional items RENOLD PLC PRELIMINARY RESULTS Consolidated Statement of Recognised Income and Expense for the year ended 31 March 2007 2007 2006 £m £m (Loss) for the year (12.7) (13.6) Net income/(expense) recognised directly in equity:Foreign exchange translation differences (4.8) 1.1Gains on fair value of hedging net investments in foreign 0.9 1.1operationsActuarial gains/(losses) on retirement benefit obligations 0.9 (5.3)Tax on items taken directly to equity (1.2) 1.7 Total expense recognised directly in equity (4.2) (1.4) Total recognised income and expense for the year (16.9) (15.0)Change in equity following adoption of IAS 39 - (0.2) Total recognised income and expense (16.9) (15.2) RENOLD PLCPRELIMINARY RESULTS Consolidated Balance Sheet as at 31 March 2007 2007 2006 £m £mASSETSNon-current assetsGoodwill 15.2 17.1Other intangible assets 0.6 0.2Property, plant and equipment 34.0 38.2Investment property 1.6 -Other non-current assets 0.4 0.3Deferred tax assets 17.4 18.4 69.2 74.2 Current assetsInventories 33.1 36.5Trade and other receivables 30.1 25.8Derivative financial instruments - 0.2Cash and cash equivalents 20.3 17.8 83.5 80.3Asset held for sale 3.4 3.4Assets of discontinued operations - 37.1 86.9 120.8 TOTAL ASSETS 156.1 195.0 LIABILITIESCurrent liabilitiesBorrowings (7.8) (12.4)Trade and other payables (36.1) (31.3)Derivative financial instruments (0.1) -Provisions (5.2) (0.4)Current tax liabilities (0.6) (0.7) (49.8) (44.8)Liabilities directly associated with discontinued operations - (28.1) (49.8) (72.9) NET CURRENT ASSETS 37.1 47.9 Non-current liabilitiesBorrowings (31.4) (25.6)Derivative financial instruments - (0.1)Preference shares (0.5) (0.5)Trade and other payables (1.2) (0.7)Deferred tax liabilities (1.3) (0.7)Retirement benefit obligations (48.0) (53.9) (82.4) (81.5) TOTAL LIABILITIES (132.2) (154.4) NET ASSETS 23.9 40.6 EQUITYIssued share capital 17.4 17.4Share premium account 6.1 6.0Other reserves (1.2) 2.7Retained earnings 1.6 14.5 TOTAL SHAREHOLDERS' EQUITY (Note 7) 23.9 40.6 RENOLD PLCPRELIMINARY RESULTS Consolidated Cash Flow Statement for the year ended 31 March 2007 2007 2006 £m £m Cash flows from operating activities (Note 8)Cash generated from operations - continuing 10.3 4.7Cash (absorbed)/generated by operations - discontinued (4.7) 1.7 5.6 6.4Income taxes paid (1.4) (1.7) Net cash from operating activities 4.2 4.7 Cash flows from investing activitiesProceeds from disposal of businesses (net of cash transferred) 5.4 -Purchase of property, plant and equipment (6.0) (6.7)Purchase of intangible assets (0.6) (0.2)Proceeds on disposal of property, plant and equipment 0.2 3.2Interest received 0.2 - Net cash from investing activities (0.8) (3.7) Cash flows from financing activities Financing costs paid (3.0) (3.3)Increase in borrowings 6.1 6.9Issue of ordinary shares 0.1 0.1Payment of finance lease liabilities (0.4) (0.1) Net cash from financing activities 2.8 3.6 Net increase in cash and cash equivalents 6.2 4.6Net cash and cash equivalents at beginning of year 9.6 4.8Effects of exchange rate changes (0.4) 0.2 Net cash and cash equivalents at end of year 15.4 9.6 RENOLD PLC PRELIMINARY RESULTS Notes to the consolidated financial statements 1. 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: 2007 2006 £m £mAssetsIndustrial Power Transmission 113.4 116.6 Unallocated assets (see below) 39.3 37.9Asset held for sale 3.4 3.4Assets of discontinued operations - 37.1 Total assets 156.1 195.0 Liabilities Industrial Power Transmission (90.5) (86.3) Borrowings (39.7) (38.5)Derivative financial instruments (0.1) (0.1)Current and deferred tax (1.9) (1.4)Liabilities of discontinued operations - (28.1) (132.2) (154.4) Secondary reporting format - geographical segments The operations of the Group are based in five main geographical areas. The UKis the home country of the parent. The main operations in the principalterritories are as follows: United KingdomGermanyRest of EuropeUnited States and CanadaOther 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 theassets: Revenue Assets Capital expenditure (Continuing) 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m United Kingdom 19.6 20.4 26.6 29.5 2.0 1.6Germany 14.9 14.6 16.4 19.5 0.6 1.7Rest of Europe 37.5 35.6 16.8 12.6 0.6 0.2North America 56.7 57.2 38.3 41.2 0.4 0.8Other countries 30.6 27.2 15.3 13.8 0.7 0.2 159.3 155.0 113.4 116.6 4.3 4.5 Unallocated assets - - 39.3 37.9 - -Asset held for sale - - 3.4 3.4 - -Discontinued operations - - - 37.1 1.5 2.1 159.3 155.0 156.1 195.0 5.8 6.6 Unallocated assets comprise:Deferred tax asset 17.4 18.4Cash and cash equivalents 20.3 17.8Investment property 1.6 -Property (reclassified in2007 as an investment property) - 1.7 39.3 37.9 The investment property was transferred from property, plant and equipment during the year. 2. Exceptional items 2007 2006 £m £m UK Burton conveyor chain factory restructuring 0.3 0.3Other redundancy and restructuring charges - 1.1Profit and cash enhancement restructuring initiatives ("PACE"):Reorganisation and redundancy costs 2.9 -Exceptional inventory provision 2.7 - 5.9 1.4 Following the disposal of the Automotive and Machine Tool operations, the PACEstrategic initiative has resulted in exceptional costs associated with thecommencement of the restructuring of the continuing Group's manufacturing anddistribution facilities. The reorganisation and redundancy costs haveoriginated mainly in the UK (£1.5 million) and Germany (£1.0 million).Exceptional inventory write-offs have been charged in the UK (£1.4 million),Germany (£0.9 million), the Rest of Europe (£0.2 million) and other countries(£0.2 million). Additional costs were incurred earlier in the year linked to the reorganisationof the Burton factory. Of the £1.1 million redundancy and restructuring costsreported in 2006, the principal amounts were incurred in Germany (£0.3 million)and Rest of Europe (£0.5 million). 3. Net financing costs 2007 2006 £m £m £m £mFinancial costs: Interest payable on bank loans and overdrafts (2.6) (2.3) Interest cost on pension plan balances (11.1) (11.1) Costs associated with refinancing (0.2) (0.7) (13.9) (14.1)Financial revenue: Interest receivable on bank deposits and cash equivalents 0.2 0.1 Expected return on pension plan assets 11.2 10.1 Fair value gains on derivative instruments - 0.3 11.4 10.5 Net financing costs (2.5) (3.6) 4. Taxation Analysis of tax charge in the year 2007 2006 £m £mUnited KingdomUK corporation tax at 30% (2006 - 30%) 1.0 0.5Less: double taxation relief (1.0) (0.5) - -Overseas taxesCorporation taxes 1.3 1.3 Total current tax 1.3 1.3Deferred taxUnited Kingdom - origination and reversal of temporary differences - 0.3Overseas - origination and reversal of temporary differences - (0.4) Total deferred tax - (0.1) Tax charge on loss on ordinary activities 1.3 1.2Analysed as:Continuing 0.6 1.5Discontinued 0.7 (0.3) 1.3 1.2 5. Discontinued operations On 3 August 2006 and 6 December 2006 respectively, the Group announced the completion of the sale of certain assets and liabilities of the Automotive and Machine Tools businesses. Both businesses had been treated as discontinued operations in the financial statements to 31 March 2006 and had accordingly been classified as held for sale in last year's balance sheet. It was explained last year that these transactions were in line with the Board's strategy to focus on the Group's core activity of manufacture and sale of Industrial Power Transmission products. The major classes of assets and liabilities sold and the associated consideration are analysed below: Assets and liabilities disposed other than cash: Automotive Machine Total Tools £m £m £m Property, plant and equipment 6.2 0.5 6.7Inventories 7.2 7.8 15.0Trade and other receivables 6.6 5.3 11.9Trade and other payables (9.2) (6.1) (15.3)Provisions (0.5) - (0.5)Retirement benefit obligations (0.6) - (0.6) Total net assets disposed 9.7 7.5 17.2 Cash and cash equivalents relating to the disposals:Net cash consideration 3.4 3.7 7.1Consideration outstanding (1.0) - (1.0)Cash transferred with business - (0.7) (0.7) Net cash inflow relating to disposals 2.4 3.0 5.4 Deferred consideration of £1.5 million on the Machine Tools disposal has notbeen recognised in these financial statements and will only be recognised whenthere is greater certainty of recovery. The results attributable to the discontinued operations are set out below. Theoperating results for 2006 are for a 12 month period; for 2007 the results arefor the periods up to the respective dates of disposal. 2007 2006 Automotive Machine Total Automotive Machine Total tools discontinued tools discontinued £m £m £m £m £m £m External revenue 16.3 12.8 29.1 49.3 20.8 70.1 Operating profit/(loss) beforeexceptional items (2.2) (1.3) (3.5) (1.6) 0.1 (1.5)Redundancy, restructuring andother exceptional items 1.0 0.7 1.7 0.7 (0.2) 0.5 Operating (loss) (1.2) (0.6) (1.8) (0.9) (0.1) (1.0)Bank interest (0.1) (0.1) (0.2) (0.3) (0.1) (0.4) (Loss) before tax (1.3) (0.7) (2.0) (1.2) (0.2) (1.4)Taxation - - - 0.5 (0.2) 0.3 (Loss) after tax (1.3) (0.7) (2.0) (0.7) (0.4) (1.1) Adjustments to fair value lesscosts to sell and losses ondisposal (6.2) (4.6) (10.8) (9.1) (3.7) (12.8)Taxation (0.7) - (0.7) - - - (6.9) (4.6) (11.5) (9.1) (3.7) (12.8) (Loss) for the year ondiscontinued operations (8.2) (5.3) (13.5) (9.8) (4.1) (13.9) Discontinued exceptional items: Within Automotive the exceptional item of £1.0 million represents the release ofprovisions that were effectively extinguished as a result of the disposaltransaction. In Machine Tools the £0.7 million represents curtailment gainsattributed to operations in the UK. In the prior year the exceptional amountsrepresented the release of surplus provisions and redundancy costs respectively. The cash flows attributed to discontinued operations comprise: 2007 2006 £m £m From operating activities (4.7) 1.7From investing activities (1.7) (2.8)From financing activities (1.6) (0.5) 6. Earnings per share Earnings per share is calculated by reference to the earnings for the year andthe weighted average number of shares in issue during the year as follows: 2007 2006 Weighted Weighted average average number of Per-share number of Per-share shares amount shares amount Earnings Thousands Pence Earnings Thousands Pence £m £mBasic EPSEarnings attributed to ordinaryshareholders (12.7) 69,501 (18.3) (13.6) 69,350 (19.6) Effect of dilutive securities:Employee share options - 569 0.2 - 63 -Diluted EPS (12.7) 70,070 (18.1) (13.6) 69,413 (19.6) Earnings per share from continuing operations:Basic EPS (12.7) 69,501 (18.3) (13.6) 69,350 (19.6) Post tax loss/(profit) fromdiscontinued operations(Note 5) 2.0 2.9 1.1 1.6Adjustments to fair value lesscosts to sell and losses ondisposal (Note 5) 11.5 16.6 12.8 18.4Basic EPS from continuingoperations 0.8 69,501 1.2 0.3 69,350 0.4 Inclusion of the dilutive securities shown above does not change the amount shown for basic EPS from continuing operations. Earnings per share from discontinued operations Basic EPS Post tax (loss)/profit from discontinued operations (Note 5) (2.0) 69,501 (2.9) (1.1) 69,350 (1.6) Adjustments to fair value lesscosts to sell and losses ondisposal (Note 5) (11.5) (16.6) (12.8) (18.4) Basic EPS from discontinued (13.5) 69,501 (19.5) (13.9) 69,350 (20.0) operations Inclusion of the dilutive securities, shown above, changes the amounts shown for basic EPS for discontinued operations to (19.3p) (2006 - unchanged at (20.0p)). Adjusted EPS for continuing activities Basic EPS from continuingoperations 0.8 69,501 1.2 0.3 69,350 0.4Effect of exceptional items,after tax:PACE restructuring initiatives 4.7 6.8Redundancy and restructuringcosts 0.3 0.4 0.9 1.3 Adjusted EPS 5.8 69,501 8.4 1.2 69,350 1.7 Inclusion of the dilutive securities, shown above, in the calculation of adjusted EPS changes the amount shown to 8.3p (2006 - unchanged at 1.7p). 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. 7. Analysis of changes in shareholders' equity Share Share Retained Currency Total equity capital premium earnings translation account reserve £m £m £m £m £m At 1 April 2005 17.3 6.0 31.5 0.5 55.3Loss for the year - - (13.6) - (13.6) Foreign exchange translation difference - - - 1.1 1.1Actuarial gains and losses - - (5.3) - (5.3)Gains on fair value of hedging net investments - - - 1.1 1.1in foreign operationsTax on items recognised directly in equity - - 1.7 - 1.7Employee share options:- value of employee services - - 0.2 - 0.2- proceeds from shares issued 0.1 - - - 0.1 As at 31 March 2006 17.4 6.0 14.5 2.7 40.6Loss for the year - - (12.7) - (12.7)Foreign exchange translation difference - - - (4.8) (4.8)Actuarial gains and losses - - 0.9 - 0.9Gains on fair value of hedging net investments - - - 0.9 0.9in foreign operationsTax on items recognised directly in equity - - (1.2) - (1.2)Share premium - 0.1 - - 0.1Employee share options:- value of employee services - - 0.1 - 0.1 At 31 March 2007 17.4 6.1 1.6 (1.2) 23.9 8. Additional cash flow information Reconciliation of profit/(loss) before tax to net cash flows from operations: 2007 2006 £m £mCash generated from operations:Continuing operations:Profit before taxation 1.4 1.8Depreciation and amortisation 4.9 5.4Loss on plant and equipment disposals 0.1 -Equity share plans 0.1 0.2Net finance costs 2.5 3.6Decrease/(increase) in inventories 1.2 (1.8)(Increase) in receivables (2.3) (0.4)Increase in payables 4.1 2.7Increase/(decrease) in provisions 1.7 (2.7)Movement on pension plans (3.5) (3.8)Movement in derivative financial instruments 0.1 (0.3) Cash generated from continuing operations 10.3 4.7 Discontinued operations(Loss) before taxation (2.0) (1.4)Depreciation and amortisation - 3.1Plant and equipment impairment - 0.8Loss/(gain) on plant and equipment disposals 0.2 (0.1)Net finance costs 0.2 0.4(Increase) in inventories (0.3) (0.6)Decrease in receivables 2.2 0.2(Decrease)/increase in payables (2.0) 5.3(Decrease) in provisions (1.2) (5.7)Movement on pension plans (1.8) (0.3) Cash (absorbed)/generated by discontinued operations (4.7) 1.7 Cash generated from operations 5.6 6.4 Reconciliation of net increase in cash and cash equivalents to movementin net debt: 2007 2006 £m £m Increase in cash and cash equivalents 6.2 4.6Change in net debt resulting from cash flows (6.1) (6.9)Finance lease inception (0.2) -Foreign currency translation differences 1.4 (0.9) Change in net debt during the period 1.3 (3.2)Net debt at start of year (20.7) (17.5) Net debt at end of year (19.4) (20.7) Net debt comprises:Cash and cash equivalents 20.3 17.8Total borrowings (39.7) (38.5) (19.4) (20.7) This information is provided by RNS The company news service from the London Stock Exchange