Renold Regulatory News (RNO)

20 Nov 2007 07:01

Renold PLC20 November 2007 Renold plc("Renold" or the "Group") Results for the half year to 30 September 2007 Renold, a leading international supplier of industrial chains and related powertransmission products, today announces its interim results for the half yearended 30 September 2007. Key Highlights • Successful first half, with performance meeting Board expectations o 22% increase in adjusted earnings per share from continuing operations o 7% revenue growth at constant exchange rates • Board anticipates further performance improvement in second half • PACE restructuring programme execution is ahead of schedule • Renold Hangzhou progressing ahead of expectations • Reduction in pension deficit of £5.6 million • Next phase of strategic development initiated Matthew Peacock, Chairman of Renold plc, said: "Following a 22% increase in adjusted earnings per share from continuingoperations, and with the present order book higher than at the commencement ofthe year, increased sales volumes and continuing actions to reduce costs, thesecond half year should see further performance improvement." Financial Summary Half year ended 30 September 2007 2006 £m £m Continuing operations: Revenue (+ 7% at constant exchange rates) 82.1 79.3Operating profit 4.5 4.6Operating profit before exceptional items 5.1 4.8Operating profit at constant exchange rates (+19%) 5.7 4.8Profit before tax and exceptional items 3.6 3.6Profit before tax 3.0 3.4Basic and diluted earnings per share 2.0p 2.4pAdjusted* earnings per share 3.3p 2.7p * Adjusting for the after tax effects of exceptional items and change in UK corporate tax rate Enquiries: Renold plc 20 November Tel: 020 7457 2020 Bob Davies, Chief Executive Thereafter Tel: 0161 498 4500 Peter Bream, Finance Director College Hill Tel: 020 7457 2020 Matthew Gregorowski/Nicholas Potter 20 November 2007 The results presentation will be available on the Company's websitewww.renold.com at 9.30 a.m. on Tuesday 20 November. 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 Company's websitewww.renold.com Chairman's Statement The results for the first half to 30 September 2007 are in line with the Board'sexpectations, with a 22% increase in adjusted earnings per share from continuingoperations. Renold is in its strongest position for many years. The Executivehas delivered a solidly funded business and the restructuring programme isprogressing ahead of schedule, underpinned by the recent acquisition in China.With the cost restructuring well underway there is now an increasing focus ongrowth opportunities which will make up the next phase of its development. Continuing Operations Sales for the first half to 30 September 2007 were £82.1 million (2006/07: £79.3million). At constant exchange rates sales were 7% ahead of last year. Operating profit before exceptional items was £5.1 million (2006/07: £4.8million), a 6.2% return on sales (2006/07: 6.1%). The £0.3 million improvementwas despite the £0.6 million impact from the adverse average US Dollar/GB Poundexchange rate movement experienced during the period. On a constant exchangerate basis the improvement was £0.9 million. Forward exchange contracts are inplace to beyond the end of the financial year-end to hedge the exposure tofuture US Dollar/GB Pound exchange rate movements. Net financing costs of £1.5 million (2006/07: £1.2 million) were higherprincipally because of the increase in market interest rates. Financingincluded a net charge of £0.1 million (2006/07: £0.1 million) relating topension plan balances. The reported tax charge in the period was £1.6 million (2006/07: £1.7 million).Excluding the £0.4 million tax charge resulting from the revaluation of thedeferred tax asset following the reduction in the UK corporate tax rate from 30%to 28%, the effective rate was 40% (2006/07: 50%). Adjusted earnings per sharefrom continuing operations were up 22% to 3.3 pence (2006/07: 2.7 pence) andbasic earnings per share from continuing operations were 2.0 pence (2006/07: 2.4pence). Cash Flow and Borrowings Cash absorbed by continuing operations was £1.5 million (2006/07: generated £1.1million). The principal working capital movement was a planned net outflow onpayables of £7.1 million. Capital expenditure amounted to £2.5 million (2006/07: £3.5 million). Additionally £2.2 million was paid in the period for theacquisition of the business of Hangzhou Shanshui. This spend allowed us to cut£4 million of budgeted capital expenditure. Net borrowings, including finance lease obligations and preference shares, at 30September 2007 were £27.8 million compared with £27.0 million at 30 September2006 and £19.4 million at 31 March 2007. Dividend The Board has decided to recommend that no interim dividend be paid but it willconsider the payment of a dividend in the light of results for the year as awhole. Strategic Development The recent focus for Renold has been on cost reduction and securing the platformfor global growth of its well regarded product range. Following the resolutionof a number of legacy issues, the achievement of financial stability, and theinitiation of a robust plan (PACE) to improve business efficiency further onwhich we are making excellent progress, Renold is now able to initiate the nextphase of its strategic development. The focus of this next phase will be to deliver future sales and margin growth.This will be achieved by geographic expansion with existing products into thosemarkets in which we are presently under-represented and through the introductionof new products manufactured in low cost countries to our core territories. Weestimate that we have a greater than 15% market share in our traditional marketsfor industrial chain and less than 1% in the new markets which have aggregateannual sales of £400 million. Our entry into new territories will be facilitatedby the Renold brand's reputation for performance and quality and theavailability of product from our expanding manufacturing operations in low costcountries including Renold Hangzhou where capacity is planned to double by theend of the financial year. New products will be delivered both from ourinnovative engineering team and through a selective programme of infillcorporate acquisitions. PACE (Profit and Cash Enhancement Programme) The PACE programme continues to be on schedule and a further cost reduction of£0.6 million is anticipated in the second half year which equates to anadditional 0.5 pence earnings per share in that period. At the period end 41%of direct labour was in low cost countries compared to the original PACE targetof 40% by March 2009. Following the acquisition of Renold Hangzhou the targetwas revised to 60% over the same time period. Negotiations with the workscouncil in Einbeck, Germany, are concluded and there will be a reduction of 70jobs within the next 6 months. This production can now be accommodated followingthe relocation to a larger manufacturing site in Poland which was completed inJuly. Cost savings, cash generation and capital expenditure remain in line with theoriginal plans. Risk reduction actions on exchange rate exposure and energyprices are concluded. Progress has been made on normalising the tax rate, andthe assets held in the pension fund have been diversified. Renold Hangzhou In June we completed the acquisition of a 90% interest in Hangzhou Shanshui, achain manufacturer based in Hangzhou, China, 200 kilometres west of Shanghai.Integration is proceeding ahead of expectations with output increased 20% frompre-acquisition levels. The majority of £2 million of capital expenditure isnow committed which will double the capacity of the facility by March 2008. Alarge part of this capital expenditure is sourced locally and representsexcellent value for money compared to what it would cost if sourced in Europe orin the US. This important strategic acquisition underpins and reduces theexecution risk of PACE and provides a major growth opportunity in the domesticChinese market and into other parts of South East Asia. Business Review The business operated in an environment of relatively stable, albeit high, rawmaterial, utility and freight costs. At constant exchange rates sales grew by7% over the first half of 2006/07 with growth predominantly in China, Europe andthe USA. Although the Board remains cautious about the outlook for the USeconomy, sales in the US were ahead of last year and the order outlook hasstrengthened since July of this year when we issued our first Interim ManagementStatement. For the business as a whole, margins have been maintained despite theimpact of adverse exchange rates through volume increases plus continuedreductions in the cost base across the business. The Company continues to winnew business including the recently announced $14 million order from Alstom forPhase 2 of the New York Mass Transit Authority contract. Burton Site Planning consent for mixed use development of the Burton-upon-Trent factory wasreceived on 25 June 2007. The Board expects the sale of the site to complete,and the gross proceeds of £6.4 million to be received by Jan 5th. Pensions The gross pension deficit of £42.4 million shows a decrease of £5.6 million from£48.0 million at 31 March 2007. This decrease is principally due to thediscount rate increasing to 5.9% as a result of market interest rate movements. Risks and Uncertainties The principal risks and uncertainties affecting the business activities of theGroup remain those detailed in the Annual Report for the year ended March 2007which include exposure to the US Dollar/GB Pound exchange rate. To mitigate thisexposure, the Company has a policy of hedging currency exposure and has forwardexchange contracts in place beyond the end of the financial year. In the mediumterm the expansion of manufacturing in China and a predominantly stable USDollar/Chinese Renminbi exchange rate presents a growing natural exchange ratehedge as does the prospect of increasing US manufacturing. Outlook With the order book higher than at the commencement of the year, increased salesvolumes and continuing actions to reduce costs (PACE), the Board anticipatesthat the second half year will see further performance improvement in line withits expectations. Furthermore, as the Group enters this next phase in its strategic developmentpredicated on delivering further sales and margin growth, the Board looksforward to the future with confidence and enthusiasm. RENOLD PLC Interim Consolidated Income Statementfor the six months ended 30 September 2007 (unaudited) First half Full year Note 2007/08 2006/07 2006/07 £m £m £m Continuing operations: Revenue 3 82.1 79.3 159.3 Operating costs (77.6) (74.7) (155.4) Operating profit 4.5 4.6 3.9 Operating profit before exceptional items 5.1 4.8 9.8 Exceptional items 4 (0.6) (0.2) (5.9) Operating profit 4.5 4.6 3.9 Financial costs (7.5) (6.9) (13.9) Financial revenue 6.0 5.7 11.4 Net financing costs 5 (1.5) (1.2) (2.5) Profit before tax 3.0 3.4 1.4 Taxation 6 (1.6) (1.7) (0.6) Profit for the period from continuing operations 1.4 1.7 0.8 Discontinued operations Loss for the financial period from discontinued operations 7 - (6.4) (13.5) Profit/(loss) for the financial period 1.4 (4.7) (12.7) Earnings per share 8 Basic earnings/(loss) per share 2.0p (6.8)p (18.3)p Diluted earnings/(loss) per share 2.0p (6.8)p (18.1)p Basic and diluted earnings per share fromcontinuing operations 2.0p 2.4p 1.2p Adjusted earnings per share from continuing operations* 3.3p 2.7p 8.4p Diluted adjusted earnings per share fromcontinuing operations* 3.2p 2.7p 8.3p *Adjusted for the after tax effects of exceptional items and the change in UK corporate tax rate. The notes on pages 10 to 17 form an integral part of this condensed consolidatedhalf-yearly financial information. RENOLD PLC Interim Statement of Recognised Income and Expensefor the six months ended 30 September 2007 (unaudited) First half Full year 2007/08 2006/07 2006/07 £m £m £m Profit/(loss) for the period 1.4 (4.7) (12.7) Net income/(expense) recognised directly in equity:Foreign exchange translation differences (0.9) (1.5) (4.8) Gains/(losses) on fair value of hedging net investments in foreign operations 0.3 (0.9) 0.9 Gains/(losses) on cash flow hedges taken to equity (0.1) - - Actuarial gains/(losses) on retirement benefitobligations 5.5 (3.5) 0.9 Tax on items taken directly to equity (2.1) 1.0 (1.2) Total income and expense recognised directly in equity 2.7 (4.9) (4.2) Total recognised income and expense for the period 4.1 (9.6) (16.9) The notes on pages 10 to 17 form an integral part of this condensed consolidatedhalf-yearly financial information. RENOLD PLC Interim Consolidated Balance Sheetas at 30 September 2007 (unaudited) Note At At At 30 September 2007 30 September 31 March £m 2006 2007 £m £mAssets Non-current assets Goodwill 15.5 15.9 15.2 Other intangible fixed assets 0.7 0.2 0.6 Property, plant and equipment 35.6 36.9 34.0 Investment property 1.6 - 1.6 Other non-current assets 0.4 0.3 0.4 Deferred tax assets 14.1 18.9 17.4 67.9 72.2 69.2 Current assets Inventories 34.1 37.4 33.1 Trade and other receivables 30.0 26.0 30.1 Cash and cash equivalents 11 8.3 9.6 20.3 72.4 73.0 83.5 Asset held for sale 3.4 3.4 3.4 Assets of discontinued operations - 13.4 - 75.8 89.8 86.9 Total assets 143.7 162.0 156.1 Liabilities Current liabilities Borrowings 11 (6.4) (32.3) (7.8) Trade and other payables (29.1) (27.3) (36.1) Derivative financial instruments (0.1) (0.2) (0.1) Provisions (5.0) (0.2) (5.2) Current tax liabilities (0.2) (1.3) (0.6) (40.8) (61.3) (49.8) Liabilities directly associated with discontinued operations - (6.9) - (40.8) (68.2) (49.8) Net current assets 35.0 21.6 37.1 Non-current liabilities Borrowings 11 (29.2) (3.8) (31.4) Preference shares 11 (0.5) (0.5) (0.5) Trade and other payables (1.2) (1.3) (1.2) Deferred tax liabilities (1.4) (0.8) (1.3) Retirement benefit obligations 9 (42.4) (56.4) (48.0) (74.7) (62.8) (82.4) Total liabilities (115.5) (131.0) (132.2) Net assets 28.2 31.0 23.9 Equity Issued share capital 17.5 17.4 17.4 Share premium 6.2 6.1 6.1 Other reserves (2.0) 1.1 (1.2) Retained earnings 6.5 6.4 1.6 Total shareholders' equity 10 28.2 31.0 23.9 The notes on pages 10 to 17 form an integral part of this condensed consolidatedhalf-yearly financial information. RENOLD PLC Interim Consolidated Cash Flow Statement for the six months ended 30 September 2007 (unaudited) First half Full year 2007/08 2006/07 2006/07 £m £m £mCash flows from operating activities (Note 11) Cash (absorbed)/generated by operations - continuing (1.5) 1.1 10.3 Cash (absorbed)/generated by operations - discontinued - (6.3) (4.7) (1.5) (5.2) 5.6Income taxes paid (0.9) (0.6) (1.4)Net cash from operating activities (2.4) (5.8) 4.2 Cash flows from investing activities Acquisition of subsidiary (net of cash in subsidiary) (2.2) - -Proceeds from disposal of businesses (net of cash - 3.8 5.4transferred)Purchase of property, plant and equipment (2.4) (3.5) (6.0)Purchase of intangible assets (0.1) - (0.6)Proceeds on disposal of property, plant and equipment - - 0.2Interest received 0.1 - 0.2Net cash from investing activities (4.6) 0.3 (0.8) Cash flows from financing activities Financing costs paid (1.5) (1.3) (3.0) (Decrease)/increase in borrowings (0.7) (0.5) 6.1 Issue of ordinary shares 0.1 - 0.1 New obligations under finance leases 0.1 0.2 - Payment of finance lease obligations - (0.3) (0.4) Net cash from financing activities (2.0) (1.9) 2.8 Net (decrease)/increase in cash and cash equivalents (9.0) (7.4) 6.2 Net cash and cash equivalents at beginning of period 15.4 9.6 9.6 Effects of exchange rate changes 0.2 (0.3) (0.4) Net cash and cash equivalents at end of period 6.6 1.9 15.4 In the balance sheet net cash and cash equivalents comprised:Cash and cash equivalents 8.3 9.6 20.3 Overdrafts (included in borrowings - Note 11) (1.7) (7.7) (4.9) 6.6 1.9 15.4 The notes on pages 10 to 17 form an integral part of this condensed consolidatedhalf-yearly financial information. Notes to the Interim Condensed Consolidated Financial Statements 1 Corporate information The condensed consolidated interim financial statements for the six months to 30September 2007 were approved by the Board on 20 November 2007. These statementshave not been audited or reviewed by the Group's Auditors pursuant to theAuditing Practices Board guidance on the Review of Interim FinancialInformation. Renold plc is a limited liability company incorporated and domiciled in theUnited Kingdom whose shares are publicly traded. The principal activities ofthe Company and its subsidiaries are described in Note 3 and the performance inthe half year is set out in the Chairman's Statement. These interim condensed consolidated financial statements do not constitutestatutory accounts of the Group within the meaning of Section 240 of theCompanies Act 1985. The statutory accounts for the year ended 31 March 2007have been filed with the Registrar of Companies. The Auditors' report on thoseaccounts was unqualified, did not contain an emphasis of matter paragraph anddid not contain any statement under Section 237 of the Companies Act 1985. 2 Basis of preparation The interim condensed consolidated financial statements for the sixmonths ended 30 September 2007 have been prepared in accordance with theDisclosure and Transparency Rules of the Financial Services Authority and withIAS 34 ("Interim Financial Reporting") as adopted by the European Union. Theaccounting policies used are consistent with those followed in the preparationof the Group's annual financial statements for the year ended 31 March 2007.However, the interim condensed consolidated financial statements do not includeall the information and disclosures required in the annual financial statements,and should be read in conjunction with the Group's annual financial statementsas at 31 March 2007. In the current financial year the Group has adopted IFRS 7, "FinancialInstruments; Disclosures" and IAS 1, "Capital Disclosures". These mandatorystandards require additional disclosures that will be provided in the annualfinancial statements but there is no impact on the disclosures required in theseinterim condensed financial statements. In addition, the Group has adopted the new interpretations applicable for thisperiod, namely IFRIC 8, "Scope of IFRS 2", IFRIC 9, "Reassessment of embeddedderivatives", IFRIC 10, "Interim Financial Reporting and impairment" and IFRIC11 , "IFRS 2 - Group and treasury share transactions". Adoption of theseinterpretations did not have any effect on the financial position or performanceof the Group. Of those new standards, amendments to standards and interpretations that havebeen issued, but are not effective for the financial year ending 31 March 2008and have not been early adopted by the Group, the following are noted as beingrelevant. IFRIC 14, "IAS 19 - The limit on a defined benefit asset, minimumfunding requirements and their interaction" is relevant to the Group but, inview of the prevailing net obligation valuations, adoption is not expected toimpact the Group's financial position. IFRS 8, "Operating segments" and IAS 1,"Presentation of financial statements (Revised)" will not have an impact on theGroup's results or financial position but will affect the disclosure ofinformation in the Group's financial statements in future years. It is notedthat these three pronouncements remain subject to EU endorsement. 3 Segment information The Group's continuing activities are in one class of business, Industrial PowerTransmission. The consolidated income statement for continuing operationstherefore relates wholly to the Industrial Power Transmission business. The geographical analysis of revenue by market areas is as follows: First half Full year 2007/08 2006/07 2006/07 £m £m £m United Kingdom 10.2 10.1 19.6Germany 6.7 7.8 14.9Rest of Europe 19.3 18.4 37.5North and South America 29.3 28.9 56.7Other countries 16.6 14.1 30.6 82.1 79.3 159.3 4 Exceptional items First half Full year 2007/08 2006/07 2006/07 £m £m £m UK Burton conveyor chain factory restructuring - 0.2 0.3PACE restructuring initiatives:Reorganisation and redundancy costs 0.6 - 2.9Exceptional inventory provision - - 2.7 0.6 0.2 5.9 During the period charges arising under the Profit and Cash Enhancementinitiative ("PACE") have been incurred principally in respect of redundancies inGermany. 5 Net financing costs First half Full year 2007/08 2006/07 2006/07 £m £m £m Financial costs:Interest payable on bank loans and overdrafts (1.5) (1.2) (2.6)Interest cost on pension plan balances (6.0) (5.7) (11.1)Costs associated with refinancing - - (0.2) (7.5) (6.9) (13.9) Financial revenue:Interest receivable on bank deposits 0.1 0.1 0.2Expected return on pension plan assets 5.9 5.6 11.2 6.0 5.7 11.4 Net financing costs (1.5) (1.2) (2.5) 6 Taxation First half Full year 2007/08 2006/07 2006/07 £m £m £m Current tax: - UK - - -- Overseas 0.4 1.0 1.3 0.4 1.0 1.3Deferred tax: - UK 0.4 - -- Overseas 0.8 0.2 - 1.2 0.2 -Income tax expense 1.6 1.2 1.3 Attributable to: - Continuing operations 1.6 1.7 0.6- Discontinued operations - (0.5) 0.7 1.6 1.2 1.3 Legislative changes, that are substantively enacted as at 30 September 2007,have reduced the UK corporation tax rate from 30% to 28%. This has resulted ina £0.4m deferred tax charge, due to the reduction in the value of the deferredtax asset recognised in the UK. 7 Discontinued operations In the year ended 31 March 2007 the Group disposed of its Automotive and MachineTool business segments. These were treated as discontinued operations in boththe comparative half year and full year statements. The results of thediscontinued operations are set out in the table below: First half Full year 2007/08 2006/07 2006/07 £m £m £m External revenue - 24.9 29.1 Operating loss before exceptional items - (2.7) (3.5)Exceptional items - - 1.7 Operating loss - (2.7) (1.8) Bank interest - (0.2) (0.2) Loss before taxation - (2.9) (2.0)Taxation - 0.5 -Loss after taxation - (2.4) (2.0) Adjustments to fair value less costs to sell and losseson disposal - (4.0) (10.8)Taxation - - (0.7) - (4.0) (11.5)Loss for the period on discontinued operations - (6.4) (13.5) 8 Earnings per share Basic earnings per share is calculated by dividing the profit for the period bythe weighted average number of shares in issue during the period. Dilutedearnings per share takes into account the dilutive effect of the options andawards outstanding under the Group's employee share schemes. The calculation ofearnings per share is based on the following data: First half Full year 2007/08 2006/07 2006/07 Pence per share Pence per Pence per share share Basic 2.0 (6.8) (18.3)Diluted EPS 2.0 (6.8) (18.1)Basic and diluted EPS from continuing operations 2.0 2.4 1.2Adjusted EPS from continuing operations 3.3 2.7 8.4Diluted adjusted EPS from continuing operations 3.2 2.7 8.3 £m £m £mContinuing operations Profit for the period 1.4 1.7 0.8 Discontinued operations Loss from discontinued operations - (6.4) (13.5) Continuing and discontinued operations 1.4 (4.7) (12.7) £m £m £m Profit for calculation of adjusted EPS for continuingoperations Profit from continuing operations 1.4 1.7 0.8 Adjusted for: (a) the after tax effects of exceptional items: PACE restructuring initiatives 0.5 - 4.7 Redundancy and restructuring costs - 0.2 0.3 (b) deferred tax charge due to the change in UK corporate tax rate 0.4 - - 2.3 1.9 5.8 Thousands Thousands Thousands Weighted average number of ordinary shares For calculating basic earnings per share 69,714 69,438 69,501 Effect of dilutive securities - employee share options 569 1,357 109 For calculating diluted earnings per share 71,071 69,547 70,070 9 Retirement benefit obligations The Group's retirement benefit obligation is summarised as follows: At 30 At 30 September 2006 At 31 September 2007 March 2007 £m £m £m Funded plan obligations (204.0) (214.0) (209.5)Funded plan assets 180.2 175.8 179.5Net funded plan obligations (23.8) (38.2) (30.0)Unfunded obligations (18.6) (18.2) (18.0)Total retirement benefit obligations (42.4) (56.4) (48.0) The reduction in the Group's liability from £48.0m at 31 March 2007 to £42.4m at30 September 2007 is primarily due to the increase in the discount rateassumption applied to the UK pension plans. This has been increased to 5.9% (31March 2007 - 5.4%) in line with market conditions. 10 Reconciliation of movements in total equity First half Full year 2007/08 2006/07 2006/07 £m £m £m Opening total equity 23.9 40.6 40.6Total recognised income and expense 4.1 (9.6) (16.9)Employee share options - value of employee services 0.1 - 0.1 Employee share options - proceeds from shares issued 0.1 - 0.1 28.2 31.0 23.9 11 Cash generated by operations First half Full year 2007/08 2006/07 2006/07 £m £m £mContinuing operations:Profit before taxation 3.0 3.4 1.4Depreciation and amortisation 2.5 2.5 4.9Loss on plant and equipment disposals - - 0.1Equity share plans 0.1 - 0.1Net finance costs 1.5 1.2 2.5(Increase)/decrease in inventories (0.1) (2.7) 1.2Decrease/(increase) in receivables 0.2 (1.1) (2.3)(Decrease)/increase in payables (7.1) (1.9) 4.1(Decrease)/increase in provisions (1.0) (0.2) 1.7Movement on pension plans (0.6) (0.4) (3.5)Movement on derivative financial instruments - 0.3 0.1Cash (absorbed)/generated by continuing operations (1.5) 1.1 10.3 Discontinued operations: Loss before taxation - (2.9) (2.0) Depreciation and amortisation - - - Plant and equipment impairment - - - Gain on plant and equipment disposals - - 0.2 Net finance cost - 0.2 0.2 (Increase) in inventories - (0.5) (0.3) Decrease in receivables - 1.0 2.2 (Decrease) in payables - (3.5) (2.0) (Decrease) in provisions - (0.6) (1.2) Movement on pension schemes - - (1.8) Cash (absorbed) by discontinued operations - (6.3) (4.7) Cash (absorbed)/generated by operations (1.5) (5.2) 5.6 The reconciliation of the movement in cash and cash equivalents to movement innet debt is as follows: At 30 At 30 September 2006 At 31 September 2007 March 2007 £m £m £m (Decrease)/increase in cash and cash equivalents (9.0) (7.4) 6.2Change in net debt resulting from cash flows 0.7 0.5 (6.1)Finance lease inception (0.1) (0.2) (0.2)Other non-cash movements (0.1) - -Foreign currency translation differences 0.1 0.8 1.4Change in net debt during the period (8.4) (6.3) 1.3Net debt at start of year (19.4) (20.7) (20.7)Net debt at end of year (27.8) (27.0) (19.4) Net debt comprised: At 30 September At 30 September At 31 March 2007 2006 2007 £m £m £m Cash and cash equivalents 8.3 9.6 20.3 Borrowings:Bank overdrafts (1.7) (7.7) (4.9)Bank loans - current (4.6) (24.5) (2.8)Obligations under finance leases - current (0.1) (0.1) (0.1)Sub-total - Current borrowings (6.4) (32.3) (7.8)Bank loans - non-current (28.9) (3.5) (31.2)Obligations under finance leases - non-current (0.3) (0.3) (0.2)Sub-total - Non-current borrowings (29.2) (3.8) (31.4) Preference shares (0.5) (0.5) (0.5)Net debt (27.8) (27.0) (19.4) 12 Business combination On 16 June 2007 the Group acquired an interest in the plant, equipment,inventory and existing workforce of the chain manufacturing business of HangzhouShanshui Industrial Co Limited ("HZSS"), located in China. Renold's interest is represented by a 90% equity investment in Renold (Hangzhou)Co Limited ("RHZ"), the vehicle used to acquire the respective trade andbusiness assets of HZSS. The contract establishing RHZ contains both a put andcall option allowing either party to enforce the right of Renold to acquire theremaining 10% equity interest from HZSS at a date ten years after theacquisition (or by mutual agreement at any time between three and ten years fromacquisition). As a consequence of this arrangement the investment has beenaccounted for as a 100% subsidiary. The Group has recognised the fair value ofthe related contingent consideration to acquire the remaining 10% interest inRHZ as a provision in the Group's balance sheet and as part of the purchaseconsideration. The purchase consideration is summarised as follows; £m Cash paid 2.1Contingent consideration 0.5Direct costs relating to the acquisition 0.2Total purchase consideration 2.8Fair value of net identifiable assets acquired 1.9Goodwill 0.9 At the time of publishing the interim financial statements, the Group has yet tofinalise the amount of the fair value of the net identifiable assets acquired.Therefore, provisional fair values have been used in these interim financialstatements. The goodwill resulting from the acquisition is attributable to certainintangible assets that cannot be individually separated and reliably measureddue to their nature. These include the synergies expected to result fromcombining RHZ within the Renold Group and the acquisition of an assembledworkforce. The assets and liabilities arising from the acquisition are as follows: Book Provisional value fair values £m £m Plant and equipment 1.1 1.1Inventories 1.1 0.9Liabilities - (0.1)Net identifiable assets acquired 2.2 1.9 From the date of acquisition on 16 June 2007 RHZ has contributed a break evenposition to the Group's results from a turnover of £1.1 million. Separable andreliable data for the trading operation acquired is not readily available forthe period prior to acquisition. In view of this, and the planned changes inoperational activities following the acquisition by Renold, it is not consideredhelpful or meaningful to provide pro forma data as if RHZ had been owned by theGroup since 1 April 2007. Statement of directors' responsibilities The directors confirm that this condensed set of financial statements has beenprepared in accordance with IAS 34 as adopted by the European Union, and thatthe Chairman's Statement herein includes a fair review of the informationrequired by the DTR 4.2.7 and DTR 4.2.8. The directors of Renold plc are listed in the Renold Group Annual Report for 31March 2007 and there have been no changes in the composition of the Board sincethat Report was published. A list of current directors is maintained on theRenold Group website: www.renold.com. By order of the Board Robert Davies Peter Bream Chief Executive Finance Director 20 November 2007 20 November 2007 This information is provided by RNS The company news service from the London Stock Exchange