Last checked at 14 Jul 2009 07:00
Renold plc
("Renold" or the "Group")
2009 Preliminary Results
Renold, a leading international supplier of industrial chains and related power transmission products, today announces its preliminary results for the year ended 31 March 2009.
FINANCIAL SUMMARY
| 2009 £m | 2008 £m | ||
| Continuing operations: | |||
| Revenue | 194.7 | 172.6 | |
| Operating profit | 7.6 | 12.2 | |
| Operating profit before exceptional items | 10.0 | 12.0 | |
| Profit after tax from continuing operations | 2.1 | 6.2 | |
| Other information: | |||
| Diluted earnings per share | 2.8p | 10.8p | |
| Adjusted earnings per share (adjusting for the after tax effects of exceptional items) - continuing operations | 7.3p | 8.5p |
HIGHLIGHTS
Matthew Peacock, Chairman of Renold, said:
"I am pleased to report a robust set of results despite the economic challenges of the second half of the year. These challenges necessitated significant cost cuts and a rapid response from management which has been done.
We will not be satisfied with our current position, however, until we have secured the continued profitable development of the Group and ensured that this new cost base positions us well for the recovery. This is our focus and the commitment to our new three year syndicated bank facility gives us the financial security and flexibility to make this possible."
14 July 2009
Enquiries:
| Renold plc | 0161 498 4517 |
| Robert Davies, Chief Executive | |
| Peter Bream, Finance Director | |
| College Hill | 020 7457 2020 |
| Adam Aljewicz |
NOTES FOR EDITORS:
Renold plc is a global leader in the manufacture of industrial chains and a wide range of precision engineering products which are sold throughout the world to a broad range of original equipment manufacturers and distributors. Its products are used in a wide variety of industries including transportation, energy, steel, manufacturing and mining.
The company has a well deserved reputation for quality that is recognized worldwide.
For more information on Renold, visit www.renold.com
Chairman's statement
Renold re-positioned to take advantage of recovery
Overview
In this, my third year as Chairman of your Board, I am again pleased to report that Renold has delivered a good set of results in what, towards the end of the year, proved to be a very challenging environment. We have delivered revenue growth of 13% and an operating profit of £10.0 million before tax and exceptional items (2008 - £12.0 million).
The Group exceeded management expectations in the first half of the financial year with a 36% increase in the order book and a 33% increase in operating profit. This was a significant improvement over the first half of the year in 2007/08. The Group was in line to meet City expectations of operating profit for 2008/09, however, since the third quarter most parts of the Group have experienced major reductions in orders and sales as a result of the global economic climate. Whilst we appear to be faring better than our competition and we have satisfied ourselves that current issues are as a result of the general economy, we are far from complacent or satisfied with where we find ourselves. Consequently, Renold has aggressively cut costs to ensure it can continue to develop profitably and take advantage of the global recovery, when it arrives.
At the period end, 59% of our direct labour was in low-cost countries compared to zero in 2005 and to the original target of 40% by March 2009. This deserves particular comment as a major development alongside improved profitability over the period.
Strategy
We have strengthened the business over the last year, primarily via delivering cost reductions according to plan and by improved access to low-cost manufacturing facilities. Cost savings, cash generation and capital expenditure targets have been achieved. Risk reduction actions on exchange rate exposure and energy prices were also concluded.
Continued good progress was made on tax efficiency, pension funding and unlocking freehold property value. Perhaps most significantly, the integration of our September 2008 acquisition of a 75% interest in the industrial chain business of L.G. Balakrishnan & Bros Ltd ("LGB") has been successful. This has enabled Renold to promote its existing product range within India's growing market place as well as exploit new product, market and export opportunities. Renold is now the market leader in India for industrial steel chain.
Following the acquisitions in China and India, we initiated the closure of our Polish facility, which will be completed in 2009/10. So, in terms of the execution of the targets we set ourselves and the improvement in profitability over the last few years, I am satisfied we accomplished most of what we had hoped. However, the current climate means we have a renewed challenge. We must reset a firm platform from which Renold can continue to grow profitably, despite the uncertainties of the interim and also take advantage of any recovery in the global economy. We as a Board are committed to this goal.
Looking forward, we will continue to focus on cost reduction and on expanding geographically. Thus far, the emphasis has been on moving the appropriate manufacturing capacity to low-cost countries - a strategy which will continue to yield growth in our core developed market territories. In addition, now that we are physically present in these low-cost markets, we are in an excellent position to expand our highly regarded product range into them. We estimate that an annual industrial chain market of circa £400 million* exists in new territories where we have a current market share of less than 1%.
Financing
In July 2009 we reached agreement (subject to full documentation) to enter into a facility with The Royal Bank of Scotland plc and Fortis Bank S.A./N.V. The credit and ancillary facilities provided are similar in size to the previous facility. The term is for 3 years expiring at the end of June 2012. Interest rates are in line with market rates with covenants set to reflect the volatile industrial environment and flexibility for currency movements. Warrants have been given over 3,500,000 ordinary shares of the company (circa 4.3% of existing ordinary share capital), reflecting the short-term outlook. This renewed facility provides a good base to implement our strategy, providing flexibility through this period of uncertainty.
Your Board
I would particularly like to thank the Board for their support and contribution this year. For the Non-Executive Directors, it has required a considerable commitment of time. For the Executive Directors, it has required a single-minded commitment to rapid and difficult changes. The Board members have been constant this year and are unanimous in their backing of the strategy. Rod Powell will retire from the Board at the Annual General Meeting and I thank him for all his efforts on behalf of Renold, in particular for his input into manufacturing strategy and as Chairman of the Remuneration Committee.
Outlook
The significant downturn in sales last year has continued into this financial year with the first quarter showing a 25% year on year decrease. We have entered our next financial year with caution regarding the outlook for the global economy, notwithstanding that we operate in many diverse geographies and sectors which are somewhat uncorrelated with each other. As a consequence, the Board has decided to recommend that no dividend be paid, but it will consider future dividend policy in the light of results from the business going forward.
We are competitive in all segments of the price/performance pyramid which together with our manufacturing capability, the diverse geography and market sectors we serve, ensures that Renold is well placed for when the global economic climate recovers.
We recognise that the prime focus for 2009/10 is on financial stability and cash management. The Board and executive team are proactive in these areas as well as the continuing identification of cost reductions.
Matthew Peacock
Chairman
* Source: management estimate.
Chief Executive's review
Renold has a 130-year history of organic and acquisitive growth in the industrial chain market and serves a wide range of markets and countries.
Overview
This was a year of two distinct halves. During the first half we delivered on challenging targets and made good progress on our longer term strategic ambitions. Renold was set to achieve expectations for the year. However, the second half was characterised by a significant downturn in orders and sales, as a result of the global economic downturn as well as destocking by customers. During the third quarter, we took decisive action to resize the business to the anticipated new demand levels.
First half
A good set of results were delivered at the end of the first half of the year, which were in line with management expectations. The growth in sales of 16% and the implementation of our manufacturing strategy fed through to an operating profit increase of 33% and a doubling of profit after tax. The order book ended the half 36% higher than the same period of the previous year, which did not include the benefits brought by the Indian acquisition. We were consequently well positioned to meet our expectation of full-year sales and profit growth.
India
In September 2008, Renold acquired a 75% interest in the industrial chain business of an Indian quoted group, LGB. The acquisition gives Renold a market leading position in India and opportunities for further development and cost reduction. The primary strategy is to sell the current range of products manufactured in India through our existing global distribution network. Renold Chain India Private Limited is complementary to the manufacturing business in China both in terms of the product range and the markets served.
Second half
We believed some reduction in demand was likely during the second half and therefore started to reduce costs from October onwards. By the end of December, it became clear that there had been a dramatic change in demand from our customers with a significant reduction in orders from most markets and territories. This reduction continued for the remainder of the year and was particularly severe due to destocking by both the original equipment manufacturers and our distributors. Cost reduction became the prime focus of the second half.
Reduced hours of working were implemented in most facilities and agreement was reached to implement a 10% reduction in pay for all members of the Board, the senior management team and most staff with effect from 1 April 2009.
The reduction in demand resulted in surplus manufacturing capacity in the Group and, towards the end of the financial year, it was decided to close our manufacturing facility in Poland with production ceasing at the end of June 2009. This facility had played a part in reducing manufacturing costs, but following the recent acquisitions of businesses in China and India, it was no longer considered a low-cost location.
In Europe, the sales organisation's office in Brussels was sold and the business relocated to Ghent, Belgium. In North America, fixed costs will continue to be reduced through the appointment of an agent for part of our Canadian operation.
Capital expenditure was constrained during the second half of the year. This will continue except for essential maintenance, health and safety and environmental requirements.
These actions give us a significant reduction in our cost base, which together with an improved contribution margin, partially mitigates the impact of the reduced contribution resulting from lower sales revenues.
I am very proud that all at Renold understood the need to support these actions and responded positively. Our employees deserve recognition and thanks for so doing. I have every confidence that Renold is well positioned to take advantage of recovery when markets stabilise.
Going forward
The clear focus on industrial power transmission and the strategy to extend our manufacturing footprint to lower cost regions of the world remain. This has delivered cost reductions, but equally importantly, has allowed us access to a far wider range of markets.
Manufacturing footprint
The acquisition in China has allowed Renold to be cost-competitive with other manufacturers in the region. Subsequent investments have improved capabilities and raised the quality standards to those expected of a Renold facility. These investments have also increased capacity to the extent that the tonnage of chain that can be delivered from our Chinese facility is in line with the output from our two major European facilities. Customer reaction to the new facility has been positive, with a number of formal approvals being granted. In addition, there are products which we had ceased producing, some in prior periods, that can now be re-introduced into the Renold portfolio at a competitive cost. The full benefits of this facility have yet to be realised.
Market Penetration
The acquisition in India has extended the scope of products that can now be produced in low-cost countries. As with China, good progress has been made, but much more benefit will come as the cycle of development, customer approval and testing completes. Renold's manufacturing footprint has improved significantly in the last three years to become a leader in the field of transmission chain.
Technical differentiation
Renold has always had a reputation for innovation and we intend to continue to build on this in order to maintain and increase our advantage in application solutions. This is where the "added value" lies in our industry. At the same time, we intend to maintain and build on our technological leadership, which is well recognised by customers. In the current economic climate, it is more important than ever to have technical leadership and solutions that add value. The desire and energy to be at the forefront in this area has built strong relationships with both original equipment manufacturers and end users.
Service
The world is becoming a smaller place and increasingly competitive, so Renold has a product offering covering the spectrum of needs from Solution products at one end to more utility products, for less exacting applications, at the other. The goals of effectively managing on-time delivery, quality and cost continue to be key objectives. Our organisation has been changed to meet not only our growth ambitions, but also to improve our service level.
Our customer service organisation in the US has again been recognised by a major customer. Renold was announced as "Supplier of the Year" by the IDC based in Indianapolis, Indiana. This award is recognition of the strength of all the elements of the Renold team including engineering, manufacturing, quality, sales and customer service. This award follows a similar recent recognition by AIT, one of the largest distributors in the USA.
Gears and Couplings
The Gears and Couplings product lines delivered good sales and profit growth. The award of another major contract for a mass transit application was particularly welcomed. This $18 million contract will be delivered over the next two years. These multi-year contracts, with local governments as the end users, have made these product lines more resilient to the recession than Chain. Similarly, the operation in South Africa was not adversely impacted as the major mining customers held up well throughout the year. The capabilities and range of products produced in the Gears and Couplings facility in Beicai, near Shanghai, was increased during the year.
Gears and Couplings are not totally immune to the recession, with a number of large infrastructure projects, particularly in China, being delayed. These projects have not been lost to competition, however, and are expected to return as government stimulus money works its way through the system.
2009 / 10
The results of the changes made to our business model in recent years allow us to better weather the current storm. The financial year 2009/10 will be one of focusing on cost reduction, financial stability and cash management which we are well placed to do.
Robert Davies
Chief Executive
Finance Director's review
Our performance
Overview
The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.
Revenue
Revenue increased by 13% to £194.7 million. Sales in the second half-year, at £99.5 million, were 5% higher than in the first half-year. At constant exchange rates, sales for the full year were up 1% and sales in the second half-year were down 6% on the same period last year.
Operating profit
Operating profit before exceptional items was £10.0 million, down 17% on 2007/08. Return on sales for continuing operations for the year before exceptionals was 5.1% compared with 7.0% for last year. This deterioration was the result of lower sales.
Exceptional items resulted in a £2.4 million charge, compared with a £0.2 million credit in 2007/08. £2.4 million redundancy and restructuring costs were incurred to accommodate the lower activity levels resulting from the global recession. Further details of the exceptional items are given in Note 3.
Financing costs
Total net financing costs increased to £4.7 million (2008 - £2.9 million). Net bank interest cost rose to £2.7 million (2008 - £2.6 million) due to the increased levels of net debt in the period. Amortisation of costs associated with the re-banking in February 2007 was £0.2 million (2008 - £0.2 million). The net interest cost on pension plan balances and the expected return on pension plan assets was a charge of £1.8 million (2008 - £0.1 million).
Profit before tax
Profit before tax and before exceptional items was £5.3 million compared with £9.1 million last year. Profit before tax after exceptional items was £2.9 million compared to £9.3 million in 2007/08.
Taxation
The tax charge on continuing operations of £0.8 million (2008 - £3.1 million) represented an effective rate of approximately 28%, 5% less than that reported in 2007/08 and a continuation of the downward trend.
Group results for the financial period
The profit for the financial year was £2.1 million compared with £7.7 million last year; the basic earnings per share was 2.8p (2008 - 11.0p) and the diluted earnings per share was 2.8p (2008 - 10.8p). The basic adjusted earnings per share (from continuing operations before exceptional items) was 7.3p (2008 - 8.5p).
Balance sheet
Net assets at 31 March 2009 were £40.1 million (2008 - £41.0 million). The liability for retirement benefit obligations was £55.1 million (2008 - £31.2 million) before allowing for a net deferred tax asset of £11.0 million (2008 - £4.8 million). Of the £55.1 million obligation, £22.0 million arises in respect of non-UK unfunded schemes, which are not required to be prefunded.
Cash flow and borrowings
Operating cash inflow from continuing operations was £1.1 million (2008 - £4.5 million). Payment for purchase of property, plant and equipment was £5.5 million (2008 - £7.5 million). Group net borrowings at 31 March 2009 were £37.2 million (2008 - £23.9 million) comprising cash and cash equivalents of £11.3 million (2008 - £15.5 million) and borrowings, including preference shares, of £48.5 million (2008 - £39.4 million).
Net borrowings at 31 March 2009 were impacted by the weaker value of sterling, increasing the translated value of foreign currency borrowings by £5.6 million compared to 31 March 2008. Working capital balances at 31 March 2009 were also higher by £1.2 million as a result of the increased steel prices experienced during the period.
Acquisition
On 29 September 2008, the Group acquired a 75% interest in the industrial chains business of LGB, in India. Initial consideration was £5.0 million with a further £1.7 million (£0.9 million contingent and £0.8 million deferred), to be paid in the financial year 2009/10. The assets acquired comprised goodwill of £2.1 million, property, plant and equipment of £4.5 million, and inventories of £1.7 million.
Renold Chain India is now a market leader for the production of industrial chains in India and provides an established manufacturing base and sales distribution network which will enable Renold to promote its existing product range into India's rapidly growing marketplace.
Treasury and financial instruments
The Group treasury policy, approved by the directors, is to manage its funding requirements and treasury risks without undertaking any speculative risks. The Group maintains a mix of short- and medium-term facilities to ensure that it has sufficient available funds for ongoing operations. A major exposure of the Group earnings and cash flows relates to currency risk on its sales and purchases made in foreign (non-functional) currencies. To reduce such risks, these transactions are covered primarily by forward foreign exchange contracts. Such commitments generally do not extend more than 12 months beyond the balance sheet date, although exceptions can occur where longer term projects are entered into. To manage foreign currency exchange risk on the translation of net investments, certain Dollar-denominated borrowings taken out in the UK to finance US acquisitions have been designated as a hedge of the net investment in US subsidiaries.
The carrying value of these borrowings at 31 March 2009 was £9.1 million (2008 - £6.5 million).
Borrowings issued at variable rates expose the Group to cash flow interest rate risk and borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group reviews the mix of fixed and floating debt and, during the year, had interest rate swaps to manage part of this exposure.
At 31 March 2009, the Group had 3% (2008 - 20%) of its gross debt at fixed interest rates. Cash deposits are placed short-term with banks where security and liquidity are the primary objectives.
The Group has no significant concentrations of credit risk with sales made to a wide spread of customers, industries and geographies. Policies are in place to ensure that credit risk on individual customers is kept to a minimum.
New bank facility
On 13 July 2009 the Group reached agreement (subject to the completion of full documentation) to enter into a three year bank facility with the existing syndicate members led by The Royal Bank of Scotland plc, with Fortis Bank S.A./N.V. as a participant. This agreement is in the form of agreed heads of terms together with a letter of commitment and has received credit committee approval from the banks. It is expected that full documentation will be agreed and signed during July 2009. This facility, described more fully in Note 9, is the Group's principal credit facility, although it does maintain facilities and relationships with a number of other banks in the territories in which it operates.
Pensions
The management of Renold's UK pension schemes continued to be a focus and action was taken. All schemes were closed to new entrants in 2002. However, the continued growth of the deficit due to longevity and the performance of the financial markets required action to limit our future anticipated risk. Pensions will continue to be an area of pro-active management.
Accordingly, we closed the Renold Supplementary Pension Scheme and the Jones and Shipman Scheme to future accrual from 1 August 2008. After a full consultation process, the main pension scheme, the Renold Group Pension Scheme, was also closed to future accrual on 1 June 2009. The new arrangement is the Renold Personal Pension Plan, a defined contribution plan which is administered by Fidelity International.
The gross pension assets and liabilities and resulting gross and net deficits are as follows:
| 2009 | 2008 | |||||
| Assets | Liabilities | Deficit | Assets | Liabilities | Deficit | |
| £m | £m | £m | £m | £m | £m | |
| UK schemes - funded | 130.7 | (157.8) | (27.1) | 158.5 | (168.0) | (9.5) |
| Overseas schemes - funded | 15.6 | (21.6) | (6.0) | 15.2 | (17.1) | (1.9) |
| - unfunded | - | (22.0) | (22.0) | - | (19.8) | (19.8) |
| 146.3 | (201.4) | (55.1) | 173.7 | (204.9) | (31.2) | |
| Deferred tax asset | 11.0 | 4.8 | ||||
| Net | (44.1) | (26.4) | ||||
During the year, the assets of the funded schemes fell by £27.4 million, which was only partly offset by a reduction in funded liabilities of £5.7 million, resulting in an increased deficit in the funded schemes of £21.7 million.
The overseas deficit comprises £6.0 million (2008 - £1.9 million) in respect of funded defined benefit schemes, and £22.0 million (2008 - £19.8 million) relating principally to the unfunded German scheme which, as is common in Germany, is a "pay as you go" scheme which is not required to be prefunded. There is no obligation for deficit funding payments for this type of scheme. The increase in the deficit is largely caused by exchange rate movements.
There are three UK defined benefit pension schemes: (i) the main scheme, which is the Renold Group Pension Scheme (RGPS); (ii) the Renold Supplementary Pension Scheme (RSPS); and (iii) the Jones & Shipman plc Retirement Benefit Plan (J&S). The status of these schemes at 31 March 2009 is summarised below:
| RGPS | RSPS | J&S | Total | |
| As at 31 March 2009 | £m | £m | £m | £m |
| IAS 19 liabilities | (103.8) | (27.2) | (26.8) | (157.8) |
| Market value of assets | 80.7 | 20.2 | 29.8 | 130.7 |
| Deficit/surplus on IAS 19 basis | (23.1) | (7.0) | 3.0 | (27.1) |
| Annual deficit reduction payment (based on funding valuations) | 1.5 | 0.5 | - | 2.0 |
| Total members (approx) | 4,975 | 115 | 1,014 | 6,104 |
The assets and liabilities in the balance sheet include a net £nil (2008 - £nil) balance in respect of a closed South African defined benefit pension scheme. The Group has not recognised that element of the pension surplus within that scheme of £1.1 million (2008 - £1.1 million), which it expects to remain surplus after expected additional payments to pensioner members are taken into account. The Company is undertaking a review of local regulations to clarify if the surplus can be repaid to the Group.
Principal risks and uncertainties
Risk is inherent in our business activities. We take steps at both a Group and subsidiary level to understand and evaluate potential risks and uncertainties which could have a material impact on our performance in order to mitigate them. Accordingly, a risk-aware environment is promoted and encouraged throughout the Group. Details of the principal risks and uncertainties are set out below.
External market
Economic and political risks
We operate in 20 countries and sell to customers in many more. While benefiting from the opportunities and growth in these diverse territories, we are necessarily exposed to the economic, political and business risks associated with international operations such as a global recession, sudden changes in regulation, imposition of trade barriers and wage controls, security risk, limits on the export of currency and volatility of prices, taxes and currencies. Our diversified geographic footprint mitigates against exposure within any one country in which we operate, although we are still exposed to global events.
In particular, the present risk from global recession is significant. The recession has resulted in both lower orders and less forward visibility of, and greater volatility in, future orders as industries react to the global downturn by destocking and reducing output. We take actions with the objective of reducing costs and cash outflow whilst maintaining flexibility. Like many other companies, despite these actions the financial performance and position of the Group will be adversely affected. The severity of the impact will depend upon the depth and duration of the downturn.
Raw material prices
This year has seen volatility to the price of raw steel. Movements in steel prices are driven by global market conditions outside the control of the Group. Where contractually possible, we pass price increases onto our customers. This action could potentially impact customer retention.
Operational
Health, safety and the environment
Revision of environmental legislation in various countries takes time and we monitor this at a local level in order to anticipate the effect on our businesses and customers. Unforeseen legislative changes may increase manufacturing costs, but we believe that they can also drive change to make operations more efficient.
Product liability and warranty claims
As a result of the nature of the products manufactured, we face the inherent business risk of exposure to product failure and warranty claims in the event that a product fails. In order to mitigate these risks, where possible, we maintain product liability and product recall insurance. In order to mitigate the risk of warranty claims for property damage or consequential losses, we have adopted a policy of contractually limiting liability, where possible.
Financial
Liquidity
In the present economic climate, all companies face risk in relation to the availability of debt to fund their ongoing operations. In order to manage this risk, the Group maintains a mix of short - and medium-term facilities to ensure that it has sufficient funds available. The Group has recently entered into a new facility with its main lenders which is described elsewhere in this report. Cash deposits are placed short term with banks where security and liquidity are the primary objectives.
Foreign exchange risk
The Group has operations in 20 countries and sells into many more with the result that two forms of currency risk, transactional and translational exposure, arise.
Transactional exposure: A major exposure of the Group earnings and cash flows relates to currency risk on its sales and purchases made in foreign (non-functional) currencies. To reduce such risks, these transactions are covered primarily by forward foreign exchange contracts or cash flow hedges. Such commitments generally do not extend more than 12 months beyond the balance sheet date, although exceptions can occur where longer-term projects are entered into.
Translational exposure: Translational exposure arises due to exchange rate fluctuations in the translation of the results of overseas subsidiaries into sterling. To manage foreign exchange currency risk on the translation of net investments, certain Dollar-denominated borrowings taken out in the UK to finance US acquisitions have been designated as a hedge of the net investment in US subsidiaries.
Interest rates
Borrowings issued at variable rates expose the Group to cash flow interest rate risk, and borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group reviews the mix of fixed and floating debt and has interest rate swaps to manage part of this exposure.
Pensions
Estimates of the amount and timing of future funding obligations for the Group's pension plans are based upon a number of assumptions including future long-term corporate bond yields, the actual and projected performance of the pension plan assets, legislative requirements and increased longevity of members. In the last year, increased bond yields have reduced the deficit. The Group continually reviews risks in relation to the Group's pensions and takes action to mitigate them where possible. While the Group is consulted by the trustees on the investment strategies of its pension plans, the Group does not have direct control over these matters, as trustees are responsible for the pension strategy.
Consolidated income statement
for the year ended 31 March 2009
| 2009 | 2008 | ||
| Note | £m | £m | |
| Continuing operations: | |||
| Revenue | 2 | 194.7 | 172.6 |
| Operating costs | (187.1) | (160.4) | |
| Operating profit | 7.6 | 12.2 | |
| Operating profit before exceptional items | 10.0 | 12.0 | |
| Exceptional items | 3 | (2.4) | 0.2 |
| Operating profit | 7.6 | 12.2 | |
| Financial costs | (16.0) | (14.7) | |
| Financial revenue | 11.3 | 11.8 | |
| Net financing costs | 4 | (4.7) | (2.9) |
| Profit before tax | 2.9 | 9.3 | |
| Taxation | 5 | (0.8) | (3.1) |
| Profit for the financial year from continuing operations | 2.1 | 6.2 | |
| Discontinued operations: | |||
| Profit for the financial year from discontinued operations | - | 1.5 | |
| Profit for the financial year | 2.1 | 7.7 | |
| Attributable to: | |||
| Equity holders of the parent | 2.1 | 7.7 | |
| Minority interests | - | - | |
| 2.1 | 7.7 | ||
| Earnings per share | 6 | ||
| Basic earnings per share | 2.8p | 11.0p | |
| Diluted earnings per share | 2.8p | 10.8p | |
| Basic earnings per share from continuing operations | 2.8p | 8.9p | |
| Diluted earnings per share from continuing operations | 2.8p | 8.7p | |
| Adjusted earnings per share from continuing operations* | 7.3p | 8.5p | |
| Diluted adjusted earnings per share from continuing operations* | 7.3p | 8.3p |
* Adjusted for the after tax effects of exceptional items and the IAS 19 finance charge.
Consolidated balance sheet
as at 31 March 2009
| 2009 | 2008 | ||
| Notes | £m | £m | |
| ASSETS | |||
| Non-current assets | |||
| Goodwill | 24.5 | 16.3 | |
| Other intangible assets | 1.1 | 1.2 | |
| Property, plant and equipment | 51.1 | 39.5 | |
| Investment property | 2.2 | 1.9 | |
| Other non-current assets | 0.4 | 0.3 | |
| Deferred tax assets | 14.2 | 9.9 | |
| 93.5 | 69.1 | ||
| Current assets | |||
| Inventories | 46.4 | 41.0 | |
| Trade and other receivables | 37.1 | 35.2 | |
| Derivative financial instruments | - | 0.1 | |
| Current tax asset | 0.7 | 0.1 | |
| Cash and cash equivalents | 11.3 | 15.5 | |
| 95.5 | 91.9 | ||
| TOTAL ASSETS | 189.0 | 161.0 | |
| LIABILITIES | |||
| Current liabilities | |||
| Borrowings | (44.4) | (8.3) | |
| Trade and other payables | (37.6) | (41.8) | |
| Derivative financial instruments | (2.9) | (0.9) | |
| Provisions | (2.9) | (3.9) | |
| (87.8) | (54.9) | ||
| NET CURRENT ASSETS | 7.7 | 37.0 | |
| Non-current liabilities | |||
| Borrowings | (3.6) | (30.6) | |
| Provisions | (0.5) | (0.5) | |
| Preference shares | (0.5) | (0.5) | |
| Trade and other payables | (0.5) | (0.7) | |
| Deferred tax liabilities | (0.9) | (1.6) | |
| Retirement benefit obligations | (55.1) | (31.2) | |
| (61.1) | (65.1) | ||
| TOTAL LIABILITIES | (148.9) | (120.0) | |
| NET ASSETS | 40.1 | 41.0 | |
| EQUITY | |||
| Issued share capital | 7 | 19.3 | 17.5 |
| Share premium account | 7 | 9.6 | 6.3 |
| Currency translation reserve | 7 | 7.6 | (1.3) |
| Other reserves | 7 | (1.9) | (0.6) |
| Retained earnings | 7 | 3.9 | 19.1 |
| Equity attributable to equity holders of the parent | 38.5 | 41.0 | |
| Minority interests | 1.6 | - | |
| TOTAL SHAREHOLDERS' EQUITY | 40.1 | 41.0 |
Approved by the Board on 13 July 2009 and signed on its behalf by:
| Matthew Peacock | Robert Davies | |
| Chairman | Director |
Consolidated cash flow statement
for the year ended 31 March 2009
| 2009 | 2008 | |
| £m | £m | |
| Cash flows from operating activities (Note 8) | ||
| Cash generated from operations - continuing | 1.1 | 4.5 |
| Cash generated/(absorbed) by operations - discontinued | - | - |
| 1.1 | 4.5 | |
| Income taxes paid | (1.7) | (2.3) |
| Net cash from operating activities | (0.6) | 2.2 |
| Cash flows from investing activities | ||
| Acquisition of subsidiary undertaking | (5.6) | (2.4) |
| Proceeds from disposal of businesses (net of cash transferred) | - | 0.2 |
| Purchase of property, plant and equipment | (5.5) | (7.5) |
| Purchase of intangible assets | (0.3) | (0.7) |
| Proceeds on disposal of property, plant and equipment | 1.7 | 1.1 |
| Proceeds on disposal of assets held for sale | - | 6.0 |
| Interest received | 0.1 | 0.1 |
| Net cash from investing activities | (9.6) | (3.2) |
| Cash flows from financing activities | ||
| Financing costs paid | (2.5) | (2.8) |
| Proceeds from borrowings | 4.8 | 7.1 |
| Repayment of borrowings | (4.6) | (5.8) |
| Issue of ordinary shares | 5.1 | 0.3 |
| Payment of finance lease liabilities | (0.1) | (0.1) |
| Net cash from financing activities | 2.7 | (1.3) |
| Net decrease in cash and cash equivalents | (7.5) | (2.3) |
| Net cash and cash equivalents at beginning of year | 14.2 | 15.4 |
| Effects of exchange rate changes | 1.9 | 1.1 |
| Net cash and cash equivalents at end of year | 8.6 | 14.2 |
Consolidated statement of recognised income and expense
for the year ended 31 March 2009
| 2009 | 2008 | |
|
| £m | £m |
| Profit for the year | 2.1 | 7.7 |
| Net income/(expense) recognised directly in equity: | ||
| Recycling of losses on cash flow hedges to the income statement | 0.5 | 0.2 |
| Net losses on cash flow hedges taken to equity | (1.8) | (0.8) |
| Foreign exchange translation differences | 3.4 | (0.7) |
| Gains on fair value of hedging net investments in foreign operations | 5.5 | 0.6 |
| Actuarial (losses)/gains on retirement benefit obligations | (22.3) | 16.0 |
| Tax on items taken directly to equity | 4.6 | (6.3) |
| Total (expense)/income recognised directly in equity | (10.1) | 9.0 |
| Total recognised income and (expense) for the year | (8.0) | 16.7 |
| Attributable to: | ||
| Equity shareholders of the Company | (8.0) | 16.7 |
| Minority interest | - | - |
|
| (8.0) | 16.7 |
Notes to the consolidated financial statements
1 (a). Basis of preparation
The preliminary statement was approved by the Board on 13 July 2009. The preliminary statement does not represent the full consolidated financial statements of Renold plc and its subsidiaries which will be delivered to the Registrar of Companies following the Annual General Meeting. The audited consolidated financial statements of Renold plc for the year ended 31 March 2009 have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.
The preliminary financial statements have been prepared on a consistent basis using the accounting policies set out in the Renold plc Annual Report for the year ended 31 March 2008. The financial information for the year ended 31 March 2008 has been extracted from the Renold plc Annual Report for that year as filed with the Registrar of Companies.
The 2008 and 2009 financial statements both carry unqualified audit reports which do not contain an emphasis of matter reference and do not contain a statement under s237 (2) or (3) of the Companies Act 1985.
1 (b). Basis of preparation - Going Concern
The consolidated financial statements have been prepared on a going concern basis. In determining the appropriate basis of preparation of the financial statements, the directors are required to consider whether the Group can continue in operational existence for the foreseeable future.
On 13 July 2009, the Group reached agreement (subject to the completion of full documentation) to enter into a three year bank facility with the existing syndicate members led by The Royal Bank of Scotland plc, with Fortis Bank S.A/N.V. as a participant. Key terms for the new facility are described in Note 9. The agreement is in the form of agreed heads of terms together with a letter of commitment and has received credit committee approval from the banks. It is expected that full documentation based on these heads of terms will be agreed and signed during July 2009.
In the event that full banking documentation is not completed on the terms agreed the Group would continue discussion with its bank lenders with a view to agreeing alternative banking terms, but the directors cannot determine at this stage whether, or on what basis, alternative terms would be agreed.
In the event that the full banking documentation is not completed on the terms agreed the Group's ability to continue operating as a going concern would be dependent, therefore, on the outcome of these discussions with its lending banks.
The directors have assessed the future funding requirements of the Group and the Company and compared them to the level of available borrowing facilities including the proposed facility referred to above. The assessment included a detailed review of financial forecasts, financial instruments, financial covenants, and hedging arrangements for at least the twelve month period from the date of signing the accounts and a review of cash flow projections. Recognising the impact of the global recession, the directors considered a range of potential scenarios within the key markets the Group serves and how these might impact on the Group's cash flow, facility headroom and banking covenants. The directors also considered what mitigating actions the Group could take to limit any adverse consequences. The Group's forecasts and projections, taking account of reasonably possible scenario's show that the Group should be able to operate within the level of its borrowing facilities and covenants.
Having undertaken this work, the directors are of the opinion that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing the annual report and accounts.
2. Segmental information
Primary reporting format - business segment
The Group's continuing activities are in one class of business, Industrial Power Transmission. The consolidated income statement for continuing operations therefore relates wholly to the Industrial Power Transmission business.
Segment assets and liabilities
Shown below is a summary of the assets and liabilities of Industrial Power Transmission:
| 2009 | 2008 | |
|
| £m | £m |
| Assets | ||
| Industrial Power Transmission | 160.6 | 133.6 |
| Unallocated assets (see below) | 28.4 | 27.4 |
| Total assets | 189.0 | 161.0 |
| Liabilities | ||
| Industrial Power Transmission | (96.6) | (78.1) |
| Borrowings | (48.5) | (39.4) |
| Derivative financial instruments | (2.9) | (0.9) |
| Current and deferred tax | (0.9) | (1.6) |
| Total liabilities | (148.9) | (120.0) |
Secondary reporting format - geographical segments
The operations of the Group are based in four main geographical areas. The UK is the home country of the parent company, Renold plc. The main operations in the principal territories are as follows:
United Kingdom
Rest of Europe
United States and Canada
Other countries.
The sales analysis in the table below is based on the location of the customer; the analysis of assets and capital expenditure is based on the location of the assets:
| Revenue (continuing) | Assets | Capital expenditure | ||||
| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |
|
| £m | £m | £m | £m | £m | £m |
| United Kingdom | 19.9 | 20.0 | 29.1 | 30.7 | 1.7 | 2.4 |
| Rest of Europe | 63.9 | 56.1 | 37.0 | 38.8 | 0.7 | 2.6 |
| North America | 67.8 | 57.6 | 53.6 | 40.1 | 1.2 | 0.8 |
| Other countries | 43.1 | 38.9 | 40.9 | 24.0 | 2.2 | 2.4 |
| 194.7 | 172.6 | 160.6 | 133.6 | 5.8 | 8.2 | |
| Unallocated assets | - | - | 28.4 | 27.4 | - | - |
|
| 194.7 | 172.6 | 189.0 | 161.0 | 5.8 | 8.2 |
| Unallocated assets comprise: | ||||||
| Current and deferred tax assets | 14.9 | 10.0 | ||||
| Cash and cash equivalents | 11.3 | 15.5 | ||||
| Investment property |
|
| 2.2 | 1.9 |
|
|
|
|
|
| 28.4 | 27.4 |
|
|
All revenue relates to the sale of goods.
3. Operating costs and exceptional items (continuing operations)
Exceptional items
| 2009 | 2008 | |
| £m | £m | |
| Profit on disposal of asset held for sale (Burton factory) | - | (2.6) |
| Reorganisation and redundancy costs | 2.4 | 2.4 |
| 2.4 | (0.2) |
Exceptional costs associated with the restructuring of the continuing Group's manufacturing and distribution facilities have originated as follows: UK £0.5 million (2008 - £0.5 million), Germany £0.6 million (2008 - £1.6 million), Poland £0.6 million (2008 - £nil) and other countries £0.7 million (2008 - £0.3 million).
4. Net financing costs
| 2009 | 2008 | ||||||||
|
| £m | £m | £m | £m | |||||
| Financial costs: | |||||||||
| Interest payable on bank loans and overdrafts | (2.8) | (2.7) | |||||||
| Costs associated with refinancing | (0.2) |
| (0.2) |
| |||||
| Interest cost on financial liabilities not at fair value through the income statement | (3.0) | (2.9) | |||||||
| Interest cost on pension plan balances |
| (13.0) |
| (11.8) | |||||
| Total financial costs | (16.0) | (14.7) | |||||||
| Financial revenue: | |||||||||
| Interest receivable on bank deposits and cash equivalents | 0.1 |
| 0.1 |
| |||||
| Interest income on financial assets not at fair value through the income statement | 0.1 | 0.1 | |||||||
| Expected return on pension plan assets |
| 11.2 |
| 11.7 | |||||
| Total financial revenue |
| 11.3 |
| 11.8 | |||||
| Net financing costs |
| (4.7) |
| (2.9) | |||||
5. Taxation
Analysis of tax charge in the year
| 2009 | 2008 | |
|
| £m | £m |
| United Kingdom | ||
| UK corporation tax at 28% (2008 - 30%) | 0.2 | 0.2 |
| Less: double taxation relief | (0.2) | (0.2) |
| - | - | |
| Overseas taxes | ||
| Corporation taxes | 0.9 | 1.2 |
| Amount underprovided in previous years | - | 0.4 |
| Current income tax charge | 0.9 | 1.6 |
| Deferred tax | ||
| United Kingdom - origination and reversal of temporary differences | 0.2 | 0.5 |
| Impact of change in tax rate on deferred tax | - | 0.4 |
| Overseas - origination and reversal of temporary differences | (0.3) | 0.6 |
| Total deferred tax | (0.1) | 1.5 |
| Tax charge on profit on ordinary activities | 0.8 | 3.1 |
| Analysed as: | ||
| Continuing | 0.8 | 3.1 |
| Discontinued | - | - |
|
| 0.8 | 3.1 |
6. Earnings per share
Earnings per share are calculated by reference to the earnings for the year and the weighted average number of shares in issue during the year as follows:
| 2009 | 2008 | |||||
| Earnings £m | Weighted Average number of shares Thousands | Per-share amount Pence | Earnings £m | Weighted average number of shares Thousands | Per-share amount Pence | |
| Basic EPS | ||||||
| Earnings attributed to ordinary shareholders | 2.1 | 74,363 | 2.8 | 7.7 | 69,807 | 11.0 |
| Effect of dilutive securities: | ||||||
| Employee share options | - | 17 | - | - | 1,589 | (0.2) |
| Diluted EPS | 2.1 | 74,380 | 2.8 | 7.7 | 71,396 | 10.8 |
| Earnings per share from continuing operations | ||||||
| Basic EPS | 2.1 | 74,363 | 2.8 | 7.7 | 69,807 | 11.0 |
| Adjustments to fair value less costs to sell | ||||||
| and losses on disposal | - | - | (1.5) | (2.1) | ||
| Basic EPS from continuing operations | 2.1 | 74,363 | 2.8 | 6.2 | 69,807 | 8.9 |
Inclusion of the dilutive securities, shown above, in the calculation of basic EPS from continuing operations changes the amount shown to 2.8p (2008 - 8.7p).
| Earnings per share from discontinued operations | ||||||
| Basic EPS | ||||||
| Post-tax profit from discontinued operations | - | 74,363 | - | 1.5 | 69,807 | 2.1 |
| Basic EPS from discontinued operations | - | 74,363 | - | 1.5 | 69,807 | 2.1 |
Inclusion of the dilutive securities changes the amount shown for basic EPS for discontinued operations to nil (2008 - 2.1p).
| Adjusted EPS for continuing activities | ||||||
| Basic EPS from continuing operations | 2.1 | 74,363 | 2.8 | 6.2 | 69,807 | 8.9 |
| Effect of exceptional items, after tax: | ||||||
| Redundancy and restructuring | 2.0 | 2.7 | (0.3) | (0.4) | ||
| Net finance costs arising on pension plan assets | 1.3 |
| 1.8 | - |
| - |
| Adjusted EPS | 5.4 | 74,363 | 7.3 | 5.9 | 69,807 | 8.5 |
Inclusion of the dilutive securities, shown above, in the calculation of adjusted EPS changes the amount shown to 7.3p (2008 - 8.3p).
The adjusted earnings per share numbers have been provided in order to give a useful indication of underlying performance by the exclusion of exceptional items.
7. Analysis of changes in shareholders' equity
| Share | Currency | ||||||
| Share | premium | Retained | translation | Other | Minority | Total | |
| capital | account | earnings | reserve | reserves | interest | equity | |
|
| £m | £m | £m | £m | £m | £m | £m |
| At 1 April 2007 | 17.4 | 6.1 | 1.6 | (1.2) | - | - | 23.9 |
| Profit for the year | - | - | 7.7 | - | - | - | 7.7 |
| Recycling of losses on cash flow hedges | |||||||
| to the income statement | - | - | - | - | 0.2 | - | 0.2 |
| Net losses on cash flow hedges taken to equity | - | - | - | - | (0.8) | - | (0.8) |
| Foreign exchange difference | - | - | - | (0.7) | - | - | (0.7) |
| Actuarial gains and losses | - | - | 16.0 | - | - | - | 16.0 |
| Gains on fair value of hedging net investments in foreign operations | - | - | - | 0.6 | - | - | 0.6 |
| Tax on items recognised directly in equity | - | - | (6.3) | - | - | - | (6.3) |
| Share premium | - | 0.2 | - | - | - | - | 0.2 |
| Employee share options: | |||||||
| - value of employee services | - | - | 0.1 | - | - | - | 0.1 |
| - proceeds from shares issued | 0.1 | - | - | - | - | - | 0.1 |
| At 31 March 2008 | 17.5 | 6.3 | 19.1 | (1.3) | (0.6) | - | 41.0 |
| Profit for the year | - | - | 2.1 | - | - | - | 2.1 |
| Recycling of losses on cash flow hedges | |||||||
| to the income statement | - | - | - | - | 0.5 | - | 0.5 |
| Net losses on cash flow hedges taken to equity | - | - | - | - | (1.8) | - | (1.8) |
| Foreign exchange translation difference | - | - | - | 3.4 | - | - | 3.4 |
| Actuarial gains and losses | - | - | (22.3) | - | - | - | (22.3) |
| Gains on fair value of hedging net investments in foreign operations | - | - | - | 5.5 | - | - | 5.5 |
| Tax on items recognised directly in equity | - | - | 4.6 | - | - | - | 4.6 |
| Proceeds from share placing | 1.8 | 3.5 | - | - | - | - | 5.3 |
| Associated costs of placing | - | (0.2) | - | - | - | - | (0.2) |
| Employee share options: | |||||||
| - value of employee services | - | - | 0.4 | - | - | - | 0.4 |
| Minority interest arising on acquisition | - | - | - | - | - | 1.6 | 1.6 |
| At 31 March 2009 | 19.3 | 9.6 | 3.9 | 7.6 | (1.9) | 1.6 | 40.1 |
8. Additional cash flow information
Reconciliation of profit before tax to net cash flows from operations:
| 2009 | 2008 | |
| £m | £m | |
| Cash generated from operations: | ||
| Continuing operations: | ||
| Profit before taxation | 2.9 | 9.3 |
| Depreciation and amortisation | 4.7 | 5.1 |
| Profit on plant and equipment disposals | (0.7) | (3.0) |
| Equity share plans | 0.4 | 0.1 |
| Net finance costs | 4.7 | 2.9 |
| Decrease/(increase) in inventories | 3.4 | (5.0) |
| Decrease/(increase) in receivables | 3.8 | (3.0) |
| (Decrease)/increase in payables | (13.0) | 2.4 |
| Decrease in provisions | (2.0) | (0.3) |
| Movement on pension plans | (3.9) | (4.0) |
| Movement in derivative financial instruments | 0.8 | - |
| Cash generated from continuing operations | 1.1 | 4.5 |
| Discontinued operations | ||
| Profit before taxation | - | 1.5 |
| Decrease in provisions | - | (1.3) |
| Offset of proceeds from disposal of businesses | - | (0.2) |
| Cash generated/(absorbed) by discontinued operations | - | - |
| Cash generated from operations | 1.1 | 4.5 |
| Reconciliation of net increase/(decrease) in cash and cash equivalents to movement in net debt:
|
| |
| 2009 | 2008 | |
|
| £m | £m |
| Decrease in cash and cash equivalents | (7.5) | (2.3) |
| Change in net debt resulting from cash flows | (0.2) | (1.3) |
| Foreign currency translation differences | (5.6) | (0.9) |
| Change in net debt during the period | (13.3) | (4.5) |
| Net debt at start of year | (23.9) | (19.4) |
| Net debt at end of year | (37.2) | (23.9) |
| Net debt comprises: | ||
| Cash and cash equivalents | 11.3 | 15.5 |
| Total borrowings | (48.5) | (39.4) |
|
| (37.2) | (23.9) |
9. Events after the balance sheet date
Closure of the Polish factory
On 1 April 2009, it was announced that the factory located in Goleniow, Poland is to close. Work is underway to transfer assets and activities to other Renold facilities. The impact of this event on the Group financial statements is unknown at present but management anticipate that the impact will be immaterial.
Closure of pension plans
Future accrual to the RGMPS defined-contribution-type fund and the RGPS defined- benefit-type fund has ceased in April 2009 and May 2009 respectively. This is anticipated to reduce the IAS 19 pension obligation by approximately £1.0 million.
From 6 April 2009 all current and future employees have the opportunity to join the Renold Personal Pension Plan which is a contract- based defined benefit scheme.
Funding
On 13 July 2009, the Group reached agreement (subject to the completion of full documentation) to enter a three year bank facility with the existing syndicate members led by The Royal Bank of Scotland plc, with Fortis Bank S.A/N.V. as a participant. This facility is the Group's principal credit facility and is for the same amount as the facility it replaces. The agreement is in the form of agreed heads of terms together with a letter of commitment and has received credit committee approval from the banks. It is expected that full documentation will be agreed and signed during July 2009. The key terms of the new agreement are as follows:
Total facilities of £31 million, including a Multicurrency Revolving Credit Facility (MRCF) maturing on 30 June 2012 of £20 million and a Multicurrency Term -Loan Facility (MLTF) maturing on 30 June 2012 of £11 million;
Margin on the MRCF a maximum of 4.5% above LIBOR, subject to a reducing margin ratchet down to 2.5% based on leverage;
Cash margin of 6% above LIBOR and a PIK margin commencing at 7.5% and increasing by 0.5% every six months on the MLTF;
Leverage, interest cover and operating cash flow covenants tested quarterly
Capital expenditure covenant tested annually;
Warrants over 3,500,000 shares of the Company, approximately 4.3% of the fully diluted share capital as at the closing date.