Renold Regulatory News (RNO)

Renold plc("Renold" or the "Group")

Interim results for the half year ended 30 September 2014

Renold, a leading international supplier of industrial chains and related power transmission products, today announces a strong performance for the half year ended 30 September 2014 ('the period') driven by the continuing successful implementation of the Group's Strategic Plan.

Performance highlights

· Self help measures drove underlying adjusted operating profit up 67%

· Adjusted[1] EPS more than doubled to 2.3p

· Leverage[2] cut to 1.3x from 1.6x in prior year, to benefit financing costs

· Double digit operating margin achieved in Chain division

· Foundations being put in place for Organic Growth phase of our Strategic Plan

Robert Purcell, Chief Executive of Renold plc, said:

"We continue to deliver robust and sustainable improvements in operating profits and margins."

"Numerous self help projects remain to be exploited in future years and their benefits will contribute to further margin enhancement and revenue growth as we lay the foundations for the Organic Growth phase of our Strategic Plan to be entered at the end of the current financial year."

25 November 2014

Reconciliation of reported, underlying and adjusted results

NOTES FOR EDITORS

Renold is a global leader in the manufacture of industrial chains and also manufactures a range of torque transmission products which are sold throughout the world to a broad range of original equipment manufacturers, end users and distributors. The Company has a well deserved reputation for quality that is recognised worldwide. Its products are used in a wide variety of industries including manufacturing, transportation, energy, steel and mining.

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

Chief Executive's Statement

We are pleased to report that we have continued to make further significant and sustainable progress with phase one (the 'Restructuring' phase) of our Strategic Plan, as demonstrated by the 67% increase in underlying adjusted operating profit compared to the prior year. This improvement was primarily the result of the cost savings generated from the Bredbury site closure but was also supported by leveraging higher value added products and by other group wide initiatives to reduce production costs and overheads.

Strategic Plan Progress Review

Phase 1 - 'Restructuring'

We previously set out our medium term objective to deliver steady and continuous improvements in adjusted earnings per share. This would be delivered by implementing a three phase plan based around 'Restructuring' in Phase 1, 'Organic Growth' in Phase 2, and ultimately 'Structural Activities' in Phase 3. Phase 1 is based on self help and continuous improvement activities in all aspects of our business.

During the period we completed the closure of our Bredbury facility and the transfer of its production to sister sites. The project completed slightly ahead of schedule and within its original budget. While still early days, it is reassuring to note that our risk based allowance for the loss of up to 10% of the Chain division sales that originated from our Bredbury facility has not materialised, partly due to transitional protective arrangements that were put in place. The project has already delivered annualised operating profit gains of approximately £3.2m with effect from the end of May 2014.

Further benefits from the closure project are expected to include a series of efficiency gains in manufacturing processes at the sites now responsible for the products formerly manufactured in Bredbury. The activities to capture these benefits are collectively referred to as 'Bredbury Phase 2'. We have already commissioned the first 'Bredbury Phase 2' project in one plant and, through a rapid payback capital investment, will add £0.2m of annual operating profit next year by reducing considerably the production times on an important range of products. The project will also help reduce lead times and improve customer service.

Other expected benefits from Bredbury Phase 2 include:

· concentration of capital spend in fewer facilities leveraged for higher returns on investment;

· greater selectivity in the quality of revenue streams we accept;

· overall reduction in the level of working capital; and

· further reductions in lead times and improvements to customer service.

During the period we initiated a detailed strategic planning exercise in each individual business unit with a view to identifying a road map of continuous improvement activities in the areas of manufacturing efficiency but also in business process efficiency. Our aim is to develop a series of improvement initiatives for each of our business units that will span the next five years.

Phase 2 - 'Organic Growth'

Given our goal of commencing the second, 'Organic Growth' phase of our plan, towards the end of the current financial year, we have also started to put in place foundations to support that phase. Revenue expenditure on activities to support growth will increase in the second half of the year. These preparations are being made in parallel with the continuous improvement activities which will be a permanent feature of our business in the future.

We have opened new customer service offices in a number of key European territories reversing closures that have taken place in recent years. Elsewhere we are splitting the activities of our sales forces in a number of territories to allow more focussed and dedicated sales effort on our Chain and Torque Transmission product ranges. As part of our detailed strategic planning exercise we are also further refining our commercial strategy and product management ideas.

Business Review

Group Results

The Group experienced improving trading conditions in a number of key markets in the first half of 2014/15. The table below shows the change in underlying orders and sales for the last three consecutive half year periods.

Underlying orders and sales

Both order intake and sales show an improving trend for consecutive half years. These are discussed in further detail in the Chain and Torque Transmission divisional operating segment reviews below.

Underlying adjusted operating profit of £7.5m moved ahead strongly (2013: £4.5m) as both divisions delivered on the self help measures set out in the Strategic Plan announced in the 2013/14 Annual Report. The result was achieved despite the £0.6m adverse impact of translational foreign exchange in the first half of the current year.

Chain

The improving trends in the Group's order intake and sales have been driven by a significantly improved performance in the Chain division as shown below.

Underlying orders and sales

Underlying external sales increased in a number of regions. Europe delivered 8.0% growth in underlying sales driven primarily by a large project win that benefits the first and second half in Switzerland. Excluding growth in Swiss orders, order intake in Chain grew by 5.5% in the period. Modest growth was achieved in the other major European sales territories of Germany, the UK and France. Indian underlying sales grew by 26.0% with particularly strong demand from domestic original equipment manufacturers. The Americas were flat year on year, while in Australasia, underlying external sales fell by 7.0% and remain depressed by the weak domestic mining sector in Australia. In China the focus was on Bredbury production transfers and our small external sales declined slightly.

Chain delivered a key milestone in its development by achieving a double digit operating margin. Adjusted underlying operating profit of £7.1m was almost double that for the first half of the prior year (2013: £3.8m), with adjusted ROS increasing from 5.7% to 10.2%. Improvements in profitability were firstly driven by the closure of the Bredbury manufacturing facility which completed in the first quarter of the year and reduced the division's overhead base. Secondly, growth of £2.1m in underlying sales combined with an improving mix of higher value added products to improve margins. Thirdly, other business improvement projects delivered better operating margins in all regions except Australasia, which was negatively impacted by the continued slow down in the domestic mining sector.

Torque Transmission

The table below shows a more mixed picture for order intake and sales in Torque Transmission.

Underlying orders and sales

The current year fall in underlying external order intake primarily reflects a slow down in demand for UK sourced gear products for use in power generation (from power stations in China and engine manufacturers more generally). The fall in underlying external revenues of 3.8% was driven firstly by this power generation slow down and secondly, by the end of a mass transit contract in the USA that had generated £1.1m of sales in the first half of the prior year.

Adjusted underlying operating profit improved from £2.8m to £3.4m in the first half compared to the prior year, with adjusted ROS increasing from 12.7% to 16.0%. These gains reflect an improving mix of higher value added product sales and a broad range of continuous improvement initiatives across all sites to reduce the overhead base. Overhead reductions in the first half compared to the same period in the prior year amounted to £0.3m.

Financial Review

Growth in underlying external revenue of 1.5% added approximately £0.7m to the operating result in the period. The Bredbury closure project had four full months of benefits in the period and added approximately £1.0m to operating profit. Other net overhead reduction projects added a further £1.0m across the Group as a whole with the balance of the increase reflecting a change in the mix of products towards a higher value added product range. The increase in central costs reflects revenue investments required to support the delivery of the Strategic Plan such as market research and consulting activities. It also includes the impact of new hires into the business to drive the group wide initiatives in the Strategic Plan (for example, a new Group HR Director and a Director of Business Systems) as well as increased charges for long term incentive plans and annual bonus provisions.

Exceptional items

During the period the Board concluded a review of the Group's Strategy for a single integrated Enterprise Resource Planning ('ERP') system. While the merits of a single ERP remain compelling, the Board concluded that a successful global implementation could best be achieved by changing to a different system whose logic and functionality was already better understood in the business. The Board has selected M3, which is the updated version of Movex, an ERP system which is already in use in a number of Renold locations. This revised approach will deliver a lower risk and more effective implementation across the business. No material change is anticipated in the time required or cost to complete the new system compared to the estimates to complete the previous ERP.

As a result of this decision a number of licences for the original ERP system have been impaired as they are unlikely ever to be used generating a charge of £0.2m. A further £0.4m of exceptional charges were incurred as the Group continues to restructure and streamline the business. The total exceptional charges of £0.6m (2013: £1.0m) are detailed further in Note 4 to the Interim Financial Statements.

Cash Flow and Net Debt

The business also continued to improve its cash performance with net debt in the period reducing by £0.4m. Cash of £6.5m was generated by operations before pension contributions and administration costs of £2.4m. The prior year pension cash flow was assisted by the refund of a £1.4m surplus in the South African defined benefit scheme. The key performance indicator of working capital as a ratio of rolling 12 month revenue weakened slightly to an average level of 18.9% (2013: 18.5%). This was largely driven by an increase in inventory levels required to support the Bredbury factory closure and transfer of production elsewhere in the Group. Selective investment was also made in certain stock lines, to support sales growth. Working capital remains an area where more gains can be made.

Pensions

The Group is responsible for a number of defined benefit pension schemes which it accounts for in accordance with IAS 19 Employee benefits. The Group's retirement benefit obligations increased from £64.9m (£49.3m net of deferred tax) at 31 March 2014 to £68.6m (£51.8m net of deferred tax) at 30 September 2014. This mainly reflects the declining yield on UK corporate bonds which drives the discount rate used to value the liabilities (4.5% at 31 March 2014 to 4.0% at 30 September 2014). In Germany discount rates fell by 0.9%. These impacts were substantially offset by superior asset returns with the UK assets returning more than double the assumed rate of return.

The aggregate expense of administering the pension schemes was £0.3m (2013: £0.4m) which is now included in operating costs following the adoption of IAS 19R in the prior year. However, it is excluded in arriving at adjusted operating profit as it relates to closed legacy pension schemes which bear no relation to the ongoing business and its performance. The net financing expense on pension scheme balances was £1.2m (2013: £1.5m). It is similarly excluded when calculating adjusted EPS.

Dividend

In light of the ongoing actions being taken to improve the performance of the business, and the opportunities we have to invest in new capital equipment, the Board has decided not to declare an interim dividend. The dividend policy will remain under review as performance continues to improve.

Risks and uncertainties

The principal risks and uncertainties affecting the business activities of the Group, as well as the risk mitigating controls put in place, remain those detailed in the 2013/14 Annual Report. The exception to this is the specific risk regarding the Bredbury site closure which has now diminished significantly. These include macro-economic risks as well as various risks relating to Group treasury activities. Key operational risks are raw material prices and other input cost prices.

During the period, foreign exchange rates have proved highly volatile. These have had an adverse translational impact on Group revenue and operating profit. The anticipated £0.5m adverse full year impact on operating profit actually materialised in the first half alone. A similar impact is expected in the second half if exchange rates remain unchanged. Underlying business performance has not been significantly impacted. The Group's business and assets are spread across multiple currencies and this provides a form of natural hedge against some currency risks.

The valuation of retirement benefit obligations can be significantly impacted by changes to the market based yields on corporate bonds and inflation prospects. The schemes investment strategies do provide a partial hedge against these risks. However, it should be noted that the cash flows of the pension schemes are more stable and subject to long term funding plans which are reviewed every three years.

Outlook

In this first phase of our Strategic Plan, our attention remains focussed on delivering internal self help measures. A detailed planning exercise is underway in each of our operating units and has already identified a wide range of opportunities for further continuous improvement. These activities will remain an ongoing value adding feature of our business even as we transition into the 'Organic Growth' phase towards the end of the current financial year. Preparations for that transition are already underway. As the remainder of the year progresses, we expect to increase revenue investments in activities to support growth.

The Board's expectations for full year adjusted operating profit remain in line with current market forecasts.

Statement of directors' responsibilities

The directors confirm that to the best of their knowledge:

· the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union;

· the interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of interim financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions described in the last annual report that could do so.

The directors of Renold plc are listed in the Annual Report for the year ended 31 March 2014. A list of current directors is maintained on the Group website at www.renold.com.

By order of the Board

Chief Executive Finance Director

25 November 2014 25 November 2014

RENOLD PLC

Condensed Consolidated Income Statement

for the six months ended 30 September 2014

RENOLD PLC

Condensed Consolidated Statement of Comprehensive Income

for the six months ended 30 September 2014

RENOLD PLC

Condensed Consolidated Statement of Financial Position

as at 30 September 2014

RENOLD PLC

Condensed Consolidated Statement of Cash Flows

for the six months ended 30 September 2014

RENOLD PLC

Condensed Consolidated Statement of Changes in Equity

for the six months ended 30 September 2014

Notes to the Interim Condensed Consolidated Financial Statements

1 Corporate information

The interim condensed consolidated financial statements for the six months to 30 September 2014 were approved by the Board on 25 November 2014. These statements have not been audited or reviewed by the Group's auditor pursuant to the Auditing Practices Board guidance on the Review of Interim Financial Information.

Renold plc is a limited liability company, incorporated and registered under the laws of England and Wales, whose shares are publicly traded. The principal activities of the Company and its subsidiaries are described in Note 3 and the performance in the half year is set out in the Interim Management Report.

These interim condensed consolidated financial statements do not constitute statutory accounts of the Group within the meaning of Section 434 of the Companies Act 2006. The statutory accounts for the year ended 31 March 2014 have been filed with the Registrar of Companies. The auditor's report on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498(2) or Section 498(3) of the Companies Act 2006.

2 Accounting policies

Basis of preparation

The interim condensed consolidated financial statements for the six months ended 30 September 2014 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34 "Interim Financial Reporting" as adopted by the European Union. It does not include all the information and disclosures required in the annual consolidated financial statements, and should be read in conjunction with the Group's annual consolidated financial statements for the year ended 31 March 2014.

Except as described below, the accounting policies, presentation and methods of computation applied by the Group in these interim condensed consolidated financial statements are the same as those applied in the Group's latest audited annual consolidated financial statements for the year ended 31 March 2014.

Changes in accounting policy

The Group has adopted all applicable amendments to standards with an effective date from 1 April 2014.

The Group has adopted IFRS 10, IFRS 12 and IAS 27 Separate Financial Statements, IAS 32 Offsetting Financial Assets and Financial Liabilities, IAS 36 Recoverable Amount Disclosures for Non-Financial Assets, IAS 39 Novation of Derivatives and Continuation of Hedge Accounting and IFRIC 21 Levies all effective from 1 January 2014.

Adoption of these standards did not have any material impact on financial performance or position of the Group.

Going concern

The directors have a reasonable expectation that the business has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis in preparing the condensed consolidated interim financial information.

Significant accounting judgements, estimates and assumptions

The preparation of these interim condensed consolidated financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were of the same type as those applied to the annual consolidated financial statements for the year ended 31 March 2014, namely;

· assumptions used to evaluate potential impairment of non-financial assets;

· recognition of deferred tax assets; and

· assumptions used in the valuation of retirement benefit obligations.

Financial risk management

The Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements for the year ended 31 March 2014.

3 Segment information

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

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

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

No operating segments have been aggregated to form the above reportable segments. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment.

The segment results for the period ended 30 September 2014 were as follows:

The segment results for the period ended 30 September 2013 were as follows:

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

The segment results for the year ended 31 March 2014 were as follows:

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

4 Exceptional items

During the period the Board concluded a review of the Group's Strategy for a single integrated Enterprise Resource Planning ('ERP') system. While the merits of a single ERP remain a compelling business case, the Board concluded that a successful global implementation could best be achieved by changing to a different system whose logic and functionality was already better understood in the business. As a result, a number of licences for the previous ERP of choice will now no longer come into use and they have therefore been written off.

Those sites where the previous ERP of choice has already been implemented will continue to use that system in the medium term and the carrying value of expenditure to date is supported by the cash flows of those business units. The already installed ERP system is expected to continue in use for four to five years which is approximately one year less than the originally assessed useful economic life. Therefore, future periods will include approximately £0.2m per annum of accelerated depreciation to reflect the shorter useful economic life.

The Bredbury factory closure costs incurred in the period primarily result from operational decisions to upgrade to new equipment or new processes following production transfers and these resulted in the write off of some additional machinery and stock. The project and its charges completed during the first quarter.

Details of the exceptional Bredbury closure and site onerous lease provision costs as reported in the full year 2013/14 can be found in the Group's annual consolidated financial statements for the year ended 31 March 2014.

5 Net financing costs

6 Taxation

The UK Finance Act 2013 reduced the main rate of UK corporation tax from 23% to 21% from 1 April 2014 and then 20% from 1 April 2015. The effect of these reductions have been incorporated into the closing deferred tax balances in the periods ended 30 September 2013, 31 March 2014 and 30 September 2014.

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

7 Earnings/(loss) per share

Basic earnings per share is calculated by dividing the profit/(loss) for the period by the weighted average number of shares in issue during the period. Diluted earnings per share takes into account the dilutive effect of the options and awards outstanding under the Group's employee share schemes. The calculation of earnings per share is based on the following data: