TIDMRNO
RNS Number : 1901O
Renold PLC
26 May 2015
Renold plc
("Renold" or the "Group")
Preliminary results for the year ended 31 March 2015
Transition to Growth Phase
Renold, a leading international supplier of industrial chains
and related power transmission products, today announces its
preliminary results for the year ended 31 March 2015, together with
an update on the progress of the Group's Strategic Plan.
Performance highlights
-- Adjusted earnings per share increased 56% to 5.0 pence, following prior year growth of 129%
-- Underlying adjusted operating profit increased 48% to GBP15.5m, ahead of market expectations
-- Chain division delivered full year RoS% over target threshold of 10.0%
-- Business transitioning into growth phase with 2.0% growth in underlying revenue
-- Free cash generation of GBP5.3m breaks long record of organic cash consumption
-- Significant pensions de-risking project completed in April 2015
-- Earnings enhancing revision to core banking relationship
completed in May 2015 with flexibility to support future investment
plans and potential bolt on acquisitions
Financial Summary Year ended 31 March
2015 2014
GBPm GBPm
Underlying[1] revenue 181.4 177.9
Adjusted[2] operating profit as reported 15.5 11.1
Operating profit/(loss) post exceptional
items 12.1 (1.3)
Profit/(loss) before tax 7.7 (5.9)
Basic earnings/(loss) per share 2.5p (4.9)p
Adjusted earnings per share 5.0p 3.2p
Robert Purcell, Chief Executive of Renold plc, said:
"We have made strong gains across a wide range of our key
performance indicators. We delivered a second consecutive year of
significant growth in earnings per share, with the Chain division
surpassing its target threshold RoS of 10.0% being a major factor
in pushing forward Group profit margins. We also put in place some
longer term initiatives to secure a financing arrangement that
supports the current Growth and future Acquisition phases of our
Strategic Plan and successfully completed a de-risking project for
a significant proportion of UK pensioner liabilities just after the
year end.
We are now focusing on our new target of achieving operating
margins in the mid-teens by 2020 whilst delivering steady and
continuous improvements in earnings per share."
26 May 2015
ENQUIRIES:
Renold plc Tel: 0161 498 4500
Robert Purcell, Chief Executive
Brian Tenner, Group Finance Director
Arden Partners (Broker) Tel: 020 7614 5917
Chris Hardie
Instinctif Partners (Public Relations) Tel: 020 7457 2020
Mark Garraway
Helen Tarbet
James Gray
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 and distributors. The Company has
a reputation for quality that is recognised worldwide. Its products
are used in a wide variety of industries including manufacturing,
transportation, energy, metals and mining.
Further information about Renold can be found on their website
at: www.renold.com
Chairman's statement
The Group has delivered a second consecutive year of
significantly improved margins and earnings growth. We continue to
build and develop our three-phase Plan to deliver mid-teens
operating margins by 2020. The new five year financing facility
with access to additional funds positions us well for the next
phases of our strategy.
Overview
The past year has been marked by a number of notable successes.
We delivered a significant reduction in our breakeven point when we
completed the closure of the Bredbury chain facility under budget
and ahead of schedule in the first quarter. During the first half
we also developed a series of five year action plans in each unit
to advance the first two phases of our Strategic Plan. That plan is
now being further developed and communicated to all of our
stakeholders under the banner 'STEP 2020'. These actions are the
multiple individual steps that build to deliver our overall
strategic goal of mid-teens operating margins by 2020.
Re-engineering our future
The successful delivery of the project to close the Bredbury
manufacturing facility and transfer the production to three other
sister sites was only one aspect of the many self-help initiatives
delivered by the Group during the year. Most recently we have also
announced that we are moving our head office to new local premises
in Manchester which are more suited to the size of our business
today, are a better reflection of the culture that we are seeking,
and also reduce our fixed overhead base.
Elsewhere, we continue to develop and enhance our senior
management team with recruitment to a number of posts that will
support the business as it makes the transition into the second
phase of the Strategic Plan, the Growth phase. We continue to work
hard to improve our health and safety culture and performance and
while this year has seen some disappointment in the accident
statistics, we are confident that the continued drive to embed a
'safety first' culture will pay dividends in the long term.
Our Balance Sheet
The amendment and extension to our core banking facilities that
was completed in May 2015, just after the end of the financial
year, put in place an important foundation for the next phases of
our Strategic Plan. The revised facilities give access to longer
term financing that matures in 2020, a flexible GBP20.0m accordion
facility that can be used for major investments or strategically
aligned opportunistic bolt-on acquisitions, and also provide a
lower cost of financing the Group's net debt.
De-risking our exposure to defined benefit pension schemes
remains a key priority. During the year, one scheme in the USA was
terminated at minimal cost to the Group. Just after the year end we
announced an insured buy in of 25% of the higher risk pension
liabilities and cash flows in the UK.
The Group is currently evaluating the potential impact of the
recent changes in UK legislation on flexible retirement planning
which may allow for further de-risking while allowing the members
of the UK scheme access to the flexibility introduced by the
Government. De-risking projects continue to be assessed in various
territories with open defined benefit pension schemes.
Positive outcomes were also delivered in net debt and working
capital. As a result of strong operating cash flows, the Group
finished the year with net debt GBP5.3m lower than the same time
last year.
The Board and Our People
The Board continues to support the Executive team in reviewing
and monitoring our continuous improvement initiatives. All Board
members have given additional time and support on a wide range of
issues during the year. The Board remains closely involved in the
governance of the major projects and further evolution of the
Strategic Plan.
In parallel with developing the detailed five year plan, we are
also working to develop and embed a new Group culture that will
support our change initiatives. The 'Renold Values' have been
rolled out across all of our business units this year and aim to
set standards of behaviour and expectations for all of our
employees that will shape and inform the manner in which we
implement our Strategic Plan.
I am grateful for the continued efforts and new ideas that our
staff bring to the table in support of our Strategic Plan. The pace
of change remains unremitting and it is truly heartening to see the
commitment of all of our employees in making those changes a
success. Through our Values and regular communication with
employees we aim to ensure that all staff are able to contribute
and remain fully engaged, motivated and inspired.
Dividend
The Group has an extensive series of planned capital investments
in the new financial year and capital investment will increase
significantly as a result. The new investments are aimed primarily
at further improving our performance and supporting the delivery of
our strategic objectives. Given these planned investments, the
Board has decided not to recommend the payment of a dividend in the
current financial year. The Board does however recognise the
importance of dividends to shareholders and this will remain under
active review as performance improves further.
Outlook
Our efforts remain focused on self-help initiatives. We have
identified a wealth of internal improvement and growth initiatives
in our detailed strategic planning process. These serve as a
reminder that there remains significant opportunity and scope for
continuous improvement. We will continue our efforts to create and
embed a continuous improvement philosophy in all aspects of our
business, whether front line sales and service, manufacturing
processes or support functions.
Externally, most of our end markets are more stable than would
be suggested by the extreme volatility in the capital and foreign
currency markets. The combination of these market conditions with
our self-help initiatives gives confidence that, as we transition
into the Growth phase of our Strategic Plan, we are well placed to
continue to deliver sustainable longer term gains in adjusted
operating profit and earnings per share.
Achievement of double digit operating margins is fast becoming a
realistic short term opportunity as both operating divisions
already achieve this before head office costs. Robust foundations
for further improvements have already been put in place over the
last year and we expect to accelerate our capital investment
programme over the coming year. The STEP 2020 programme has a
medium term goal of delivering mid-teens operating margins by
2020.
Mark Harper
Chairman
Chief Executive's Review
Our performance
We continue to build sustainable momentum in driving the
business forward. We delivered a 48% increase in underlying
adjusted operating profit and a 56% increase in adjusted earnings
per share underpinned by Chain achieving its 10% RoS threshold
target. The generation of GBP5.3m of free cash flow from organic
activities represents a significant step change from over a decade
of organic cash consumption.
Executive summary
The year was marked by a number of further self-help successes
building on the significant achievements of last year. As a result,
we have delivered a 48% increase in underlying adjusted operating
profit against a background of mixed macro-economic conditions in
our operating geographies.
Underlying revenue increased by 2.0% for the Group as a whole.
In Chain, Europe, the Americas, China and India all delivered
growth while underlying Australasian revenues were marginally down
by 0.1%. The weak commodity dependent Australian market was almost
entirely offset by strong growth in South East Asia.
In Torque Transmission underlying revenue fell 1.1% although the
second half was more encouraging with a small rise of 2.0%. Torque
Transmission also contributed to lowering our breakeven point by
cutting overheads by GBP0.8m.
The complex project to reduce excess capacity in our Chain
division saw completion of the closure of the Bredbury facility
soon after the end of the last financial year. We successfully
moved the production with a minimum of disruption for our customers
and exceeded our business retention target of 90%. Offsetting this
gain were additional transitional costs incurred in recipient sites
for Bredbury production. In order to minimise disruption to
customers, we incurred excess labour and freight costs which more
than offset the gains from retaining the majority of our revenue.
The excess costs were managed out of the business in the second
half of the year and so we expect the lasting annual gains from the
closure project to be approximately GBP3.8m, some GBP0.6m better
than our original estimate.
Our Strategic Plan, STEP 2020, has been developed to take us
through the next five years. STEP 2020, with its detailed unit
specific self-help and growth initiatives will deliver sustainable
margin gains as we move to deliver our new medium term goal of
mid-teens operating margins by 2020.
In summary, adjusted operating profits are now 133% higher than
two years ago when we started to implement our three-phase Plan.
Adjusted earnings per share have more than trebled over the same
period. This clearly emphasises the value generation that is
available through our self-help measures.
Renold Chain performance review
Underlying external revenue of GBP138.3m was 3% ahead of the
prior year. The regional picture was more mixed and reflected
differences in local macro-economic conditions. Our largest region
of Europe delivered growth of 4.5% with the three major territories
of Germany, the UK and France all being up on the prior year while
Switzerland had a particularly strong year on the back of a one-off
major project win. The Americas and India delivered good growth of
1.3% and 10.3% respectively. Underlying revenue in Australasia was
broadly flat (down 0.1%) with the 7.3% fall in Australia almost
being offset by growth in South East Asia. The regional result was
a significant improvement on the 7.4% fall in the prior year though
Australia itself remains challenging (down 7.3% compared to 15.2%
in the prior year). Our Chinese Chain business focuses on
supporting other Group companies and its own direct external sales
saw small but positive growth of 8.9%.
Underlying order intake grew by 2.7% almost matching the growth
in sales. At a regional level, European underlying order intake was
up 1.5% and in the Americas it was up 3.1%. Overall order intake in
Australasia was up 3.5% though again Australia itself was weaker,
down by 6.7%. The smaller regions of China and India, in terms of
externally focused activity, both delivered order intake growth.
The profile of our order intake (and hence our revenue profile)
continues to be more stable with less reliance being placed on
large one off orders which can have an adverse impact by disrupting
our production processes.
Contribution margins, the margin after all variable production
costs, improved during the year. Direct labour costs were
favourable to the prior year by 0.4% of revenue. This figure would
have been better still had it not been for additional temporary
activity undertaken during the transfer of production from the
Bredbury facility to sister sites where extra labour and labour
inefficiencies were treated as normal operating costs. Now that the
recipient sites have fully absorbed the Bredbury production load, a
key task will be to deliver a second phase of operational
efficiencies that will flow from the operating leverage at those
sites.
Underlying net overheads were reduced by GBP2.3m in the year.
The overall gains in the year were part of the global effort to
streamline our processes and structures and are part of our
continuous improvement effort.
As a result of continuing reductions in overheads and measures
to improve our contribution margins, underlying adjusted operating
profit rose 53% to GBP14.2m (2014: GBP9.3m), delivering a Return on
Sales of 10.3% (2014: 6.9%). With the exception of Australasia,
three of the five Chain regions delivered a double digit Return on
Sales with Europe seeing significant benefit from the Bredbury
closure. Margins in the Americas suffered slightly, though still
double digit, due to the excess operating costs incurred in
absorbing Bredbury production transfers. Australia continued to
face the additional challenge of continuing weakness in the foreign
exchange rate for the Australian dollar which made Chinese imports
18% more expensive by the year end. This currency change is
inevitably having an inflationary impact on input costs which we
have taken action to recover with a combination of price rises and
overhead reductions.
Performance improvement projects
We reported last year on the closure of the Bredbury Chain
manufacturing facility and transfer of production to sister
facilities around the world, which was completed ahead of target in
May 2014. The first half of this financial year involved
considerable work to embed the new production capabilities into
routine operations at the recipient sites, and normalise the
manufacture of their extended product ranges. Inevitably this
brought a number of challenges and there was some disruption to
supply from the Einbeck and Morristown sites, resulting in
additional overtime and freight charges. These issues were fully
resolved before the year end and we are seeing initial progress in
the second phase of the project, targeting efficiency gains in the
production of the transferred products.
Rationalisation of the manufacturing sites has been followed by
a series of projects targeting improvements in Customer Service. A
successful pilot programme in the UK that has been delivering
configured transmission chain in market-leading response times has
been expanded to other parts of Europe and is expected to roll out
across all EU territories towards the end of this year. The service
will also be expanded to cover a wider product range in the second
half of the new year.
Preparing for growth
In Europe, new sales offices have been opened in Denmark and
Belgium to improve support to the local markets, with a very
positive response from local customers. Further locations are due
to be opened during the next 18 months. In France we have separated
the activities of the Chain and TT divisions, to provide clearer
focus on each sector.
These are a few of the initiatives already delivered or underway
to support the Group's transition to Phase 2 of our Strategic Plan,
the Growth phase.
Renold Torque Transmission performance review
Underlying external revenue of GBP43.1m was 1.1% below the prior
year which itself had seen a fall of 5.8%. Underlying revenue,
after excluding a low margin mass transit contract that ended in Q1
of the prior year, grew by 1.3%.
Order intake was weak and down 7.8%, primarily as a result of
lower demand for gear products sourced from the UK. This was in
part due to the Chinese business, primarily in the coal fired power
station sector, being slower than the prior year. Work is ongoing
to better understand the power generation sector to identify other
uses to which our products are well suited. Successful contract
wins for escalator drives in Europe and USA partly offset the
reduced Chinese orders.
Recent restructuring activity brought more product focus through
the appointment of leaders responsible for the Couplings and the
Gears product ranges. This has in turn started to deliver new
products such as a new high precision adjustable gear mechanism
used for positioning equipment, launched in February 2015. We are
also delivering new services such as same day despatch for
industrial coupling products. This will translate into further
revenue growth next year.
Contribution margins, the margin after all variable production
costs, improved during the year. In part this was the result of the
lower margin mass transit contract previously mentioned, that came
to an end during the previous year, but it was also supported by
focusing more sales effort on the higher performance products in
the portfolio. Continuous improvement activities in the factories
also contributed to the margin gains with labour and material cost
ratios positive compared to the prior year. Further benefits will
be achieved as we implement more efficient manufacturing processes
using new plant and equipment.
The businesses that make up Torque Transmission are continually
challenging themselves to find better ways of working by
simplifying processes and cutting out waste in every form. This has
resulted in underlying net overheads in the division reducing for
the second consecutive year with GBP0.8m savings as a result of a
number of initiatives in each location rather than one major
restructuring project.
The combination of the gains in contribution margins and ongoing
overhead reductions led to an increase in the adjusted operating
profit from 13.3% to 16.0%. The absolute level of adjusted
operating profit also rose by GBP1.1m to GBP6.9m. This was achieved
despite the fall in underlying external revenue. Operating margin
gains were delivered in five of the seven units, with only the UK
gear business being down year on year.
At the start of the year only one business unit in the division
had implemented the Health and Safety standard OHSAS 18001. During
the year a further five units implemented the standard with the
remaining business expected to complete next year.
The divisional management team continued to be enhanced during
the year. Key changes included a new divisional Finance Director
and, as previously mentioned, new leaders appointed for the
Couplings and Gears businesses. Both businesses are engaged in
change programmes which will impact positively on every part of
their operation. The new leadership is tasked with continuing to
improve business efficiency and deliver growth within the framework
of STEP 2020. Our ongoing commitment to invest in development of
new products and processes using the latest manufacturing
technology in all of Torque Transmission's facilities will continue
to provide solutions with lasting benefits for Renold and our
customers.
Robert Purcell
Chief Executive
Finance Director's review
A fourth consecutive half year of incremental profit growth
underpinned the new five year financing structure completed with
our current banking partners. This immediately lowers our interest
costs and includes new flexibility to support the Group's
investment goals in the Growth phase of the Strategic Plan as well
as providing the capacity to fund potential acquisitions.
Overview
We continue to deliver steady incremental improvements in
profitability, margins and earnings per share. This has been
achieved in parallel with the successful delivery of a number of
the key projects and continuous improvement initiatives that
underpin our Strategic Plan. At the same time, work continues to
strengthen our balance sheet and improve cash generation that will
fund our investment programme and in turn support further margin
growth.
Orders and revenue
Order intake during the year in the Chain division grew at a
similar rate to the growth in revenue with the underlying ratio of
orders to revenue (book to bill) being 100.1% (2014: 100.4%). Four
out of five Chain regions showed growth in underlying external
order intake with only China showing a small GBP0.3m decline. In
Torque Transmission weaker demand for gear boxes in the Chinese
domestic power generation sector was the key driver for a year on
year fall in order intake of GBP3.4m. This resulted in a book to
bill ratio of 91.5%. The results for the Chain and Torque
Transmission divisions are set out in more detail in Note 2
below.
Group revenue for the year decreased by 1.4% to GBP181.4m (2014:
3.3% decrease). On an underlying basis, excluding the impact of
foreign exchange, revenue actually grew by 2.0% or GBP3.6m in
absolute terms (2014 1.6% decrease, GBP2.9m in absolute terms).
Some momentum built in the second half with the period being up
2.4% compared to the prior year and a first half increase of
1.6%.
The Chain division was responsible for the overall growth in
Group revenue with the division delivering underlying growth of
3.0%. Torque Transmission saw a modest fall in underlying revenue
of 1.1%, representing an improvement on the previous year's
decrease of 5.8%.
Operating result
2015 2014
Order intake Revenue Operating profit Order intake Revenue Operating profit/(loss)
GBPm GBPm GBPm GBPm
GBPm GBPm
As reported 177.9 181.4 12.1 183.7 184.0 (1.3)
Impact of FX translation - - - (6.0) (6.1) (0.6)
Exceptional items - - 2.9 - - 11.8
Pension administration costs - - 0.5 - - 0.6
----------------------------- ------------ ------- ---------------- ------------ ------- -----------------------
Underlying/adjusted 177.9 181.4 15.5 177.7 177.9 10.5
The Group generated GBP7.5m of adjusted operating profit in the
first half (2014: GBP5.1m) and GBP8.0m in the second half (2014:
GBP6.0m) with a full year result of GBP15.5m (2014: GBP11.1m). The
second half result was achieved on 1.7% (GBP1.6m) lower underlying
revenue than the first half. This reflects our continuing drive to
improve margins and reduce our costs as we continue to lower our
breakeven point. It also reflects certain excess operating costs
incurred in the first half following the closure of the Bredbury
facility. These costs were reduced in the second half and largely
eliminated by the end of the year.
Trends in Adjusted Operating Profit and RoS
Foreign exchange rates have been extremely volatile during the
year. The Group's diverse operating territories and currencies
provided a natural hedge during the year with Euro weakness almost
fully offset by US$ strength. The net impact of this volatility was
an operating income of GBP0.2m in the year (2014: GBP0.4m charge).
All else being equal, there would be an estimated increase of
GBP0.5m operating profit if the year end exchange rates applied
throughout the year.
Exceptional items
The exceptional charges of GBP2.9m were much reduced on the
prior year (2014: GBP11.8m). A GBP1.2m impairment charge has been
booked against a surplus property in Calais where a depressed local
economy and weak property market are hampering the Group's ability
to realise value from the site. It has therefore been written down
to a nil net book value, which reflects potential clean up costs in
the event of a sale. A GBP0.5m charge arose to increase the
Bredbury factory onerous lease provision as a result of a change in
the interest rate assumption used when discounting future
obligations. The remaining charges are detailed further in Note 3
below.
Financing costs
External net interest costs in the year were GBP1.7m (2014:
GBP1.8m). The annual charge includes GBP0.3m in respect of
amortisation of the refinancing costs paid in 2012 which were being
expensed over the four year term of the facility. Financing costs
also include GBP0.2m of the impact of unwinding discounts on
onerous lease provisions established in the prior year (the
Bredbury factory onerous lease provision).
The new facility terms that were agreed in May 2015, just after
the end of the current financial year (see Note 9), include lower
interest rates and were delivered at a lower one off cost of
re-financing than previously. The annual amortisation charge is
therefore also expected to fall by GBP0.1m to GBP0.2m p.a. as the
costs are amortised over the remaining five year term of the
facility.
Net IAS 19 finance charges (which are a non-cash item) were
GBP2.5m (2014: GBP2.8m), the net movement being due to lower
interest rates on a higher opening liability figure. In the current
year, the actual return on assets was GBP13.7m higher than the
return used in the interest calculation as specified in IAS 19. The
difference appears as a remeasurement gain in the asset
section.
Result before tax
Profit before tax was GBP7.7m (2014: loss of GBP5.9m). The
profit before tax and exceptional items was GBP10.6m (2014:
GBP5.9m).
Taxation
The current year tax charge of GBP2.1m (2014: tax charge of
GBP4.8m) is made up of a current tax charge of GBP1.4m (2014:
charge of GBP1.2m) and a deferred tax charge of GBP0.7m (2014:
charge of GBP3.6m). The Group cash tax paid was much lower at
GBP1.4m (2014: GBP0.9m) and the difference is due to the
utilisation of tax losses and other tax assets in various parts of
the Group.
Group results for the financial period
Profit for the financial year ended 31 March 2015 was GBP5.6m
(2014: loss of GBP10.7m) and the basic and diluted earnings per
share was 2.5p for both (2014: loss 4.9p for both). The basic and
diluted adjusted earnings per share was 5.0p for both (2014:
earnings 3.2p for both).
Balance sheet
Net assets at 31 March 2015 were GBP11.6m (2014: GBP13.9m
restated). The fall was driven by the increase in the present value
of pension liabilities as a result of falling yields on government
and corporate bonds.
The net liability for pension benefit obligations was GBP61.2m
(2014: GBP53.5m restated) after allowing for a net deferred tax
asset of GBP14.5m (2014: GBP11.4m). Overseas schemes now account
for GBP25.3m (41%) of the post tax pension deficits and GBP21.5m of
this is in respect of the German scheme which is not required to be
prefunded.
Following the year end review of deferred tax in respect of the
German pension deficit, it was identified that the prior year asset
was overstated by GBP4.2m. The Balance Sheet and Statement of Other
Comprehensive Income have been restated with the correct balance.
The restatement has had no impact on the prior year or current year
profitability or earnings per share. Further detail is set out in
the Accounting Policies.
Cash flow and borrowings
Cash generated from operations was GBP12.8m (2014: GBP6.1m).
Capital expenditure was marginally down in the year at GBP5.5m
(2014: GBP7.1m). Following the closure of the Bredbury facility and
the transfer of production to sister plants, those recipient plants
were focused on absorbing the transferred production into their day
to day operations. As a result, capital expenditure in the year was
lower than previously anticipated. Capital expenditure in the new
financial year is expected to exceed GBP10.0m with a number of
major projects already committed as at the date of this report.
Further gains were made in working capital management with
reductions equivalent to GBP1.4m.
Group net borrowings at 31 March 2015 of GBP19.5m were GBP5.3m
lower than the opening position of GBP24.8m comprising cash and
cash equivalents of GBP12.6m (2014: GBP6.7m) and borrowings (which
include GBP0.5m of preference stock) of GBP32.1m (2014:
GBP31.5m).
Debt facility and capital structure
Towards the end of the current financial year the Group decided
to ask our current banking partners, Lloyds Bank plc and Svenska
Handelsbanken AB, to amend and extend the terms of the Group's
primary banking facility which was due to mature in October 2016.
The decision to offer the financing to our current banks only was
based on our desire to build a long-term relationship with our
banking partners who have been very supportive during the first two
years of our Strategic Plan. We maintained a firm view on market
pricing through independent advice from Rothschild. The process to
amend and extend the facility completed in May 2015.
The amended facility comprises an unchanged committed GBP41m
Multi-Currency Revolving Credit Facility (MRCF), but now also
includes a GBP20.0m accordion feature. This can be used in the
event of a significant investment or acquisition opportunity. In
the short term, any such acquisition would be likely to be
opportunistic in nature. However, given that the amended facility
has a five year term (matures in May 2020), the facility will also
be available at a time when the Group is likely to enter the third
phase of our Strategic Plan, the Acquisition phase.
The amended facility has also taken advantage of lower interest
rates in the corporate banking market which will have an immediate
positive impact on our financing costs in the first half of the new
financial year. The process to amend and extend the existing
facility was significantly faster, cheaper and less demanding on
management time than a full scale competitive banking re-financing
exercise. The Group saved approximately GBP0.7m in one off costs
compared to the re-financing exercise in 2012.
The principal covenants remain unchanged, being the Net
Debt/Adjusted EBITDA ratio (calculated on a rolling 12 months
basis), which remains at a maximum of 2.5 times until maturity, and
minimum Adjusted EBITDA/Interest cover which is also unchanged at
4.0 times until maturity. The Net Debt/Adjusted EBITDA ratio as at
31 March 2015 is 0.9 times (2014: 1.5 times), based on the period
end net debt of GBP19.5m (2014: net debt GBP24.8m). The Adjusted
EBITDA/interest cover as at 31 March 2015 is 12.1 times (2014: 8.7
times).
At 31 March 2015, the Group had unused credit facilities
totalling GBP10.6m and cash balances of GBP12.6m. Total Group
credit facilities amounted to GBP42.6m with GBP41.0m being
committed.
Treasury and financial instruments
The Group's treasury policy, approved by the Directors, is to
manage its funding requirements and treasury risks without
undertaking any speculative risks. Treasury and financing matters
are assessed further in the section on Principal risks and
uncertainties.
To manage foreign currency exchange risk on the translation of
net investments, certain US Dollar denominated borrowings taken out
in the UK to finance US acquisitions had been designated as a hedge
of the net investment in US subsidiaries. At 31 March 2015 this
hedge was fully effective. The carrying value of these borrowings
at 31 March 2015 was GBP5.8m (2014: GBP5.2m).
At 31 March 2015, the Group had 2% (2014: 2%) of its gross debt
at fixed interest rates. Cash deposits are placed short term with
banks where security and liquidity are the primary objectives. The
Group has no significant concentrations of credit risk with sales
made to a wide spread of customers, industries and geographies.
Policies are in place to ensure that credit risk on individual
customers is kept to a minimum.
Pensions assets and liabilities
The Group's retirement benefit obligations increased from
GBP64.9m (GBP53.5m net of deferred tax) at 31 March 2014 to
GBP75.7m (GBP61.2m net of deferred tax) at 31 March 2015. The main
reason for the change was the sharp decline in UK corporate bond
yields. This was accompanied by a sharp decline in European
interest rates following the launch of Quantitative Easing by the
European Central Bank. It is important to note that the change in
discount rates used to value the schemes' liabilities balance has
no impact on the cash contributions paid to the schemes and these
remain stable.
One of the Group's US pension schemes had all of its members
benefits paid out and the scheme is now in wind up having moved
into surplus during the prior year.
The aggregate expense of administering the pension schemes was
GBP0.5m (2014: GBP0.6m) and is now included in operating costs but
is excluded in arriving at adjusted operating profit.
UK pension schemes merger and asset backed funding structure
The previous three UK defined benefit pension schemes were
merged into the Renold Supplementary Pensions Scheme (subsequently
renamed the Renold Pension Scheme 'RPS') on 26 June 2013. At that
time, 1,316 members took wind-up lump sums to the value of GBP10.4m
and, as a result, a small settlement gain of GBP0.5m was
recognised. The remaining assets of the Renold Group Pension Scheme
and J&S Retirement Benefit Plan were transferred into the RPS
and full wind-up of those schemes was triggered on 27 June 2014.
The merged scheme had 3,502 members as at 31 March 2015 compared to
3,635 at the start of the year.
The most recent triennial actuarial valuation of the RPS was
completed with an effective date of 5 April 2013 and no additional
contributions in excess of those generated by the asset backed
funding structure were deemed necessary. The next triennial
valuation will take place with an effective date of 5 April
2016.
The Group has a mix of UK (82% of gross liabilities) and
overseas (18%) defined benefit pension obligations.
2015 2014 restated
Assets Liabilities Deficit Assets Liabilities Deficit
GBPm GBPm GBPm GBPm GBPm GBPm
Defined benefit schemes
UK funded 156.6 (201.5) (44.9) 144.9 (183.0) (38.1)
Overseas funded 14.7 (19.5) (4.8) 14.1 (17.3) (3.2)
Overseas unfunded - (26.0) (26.0) - (23.6) (23.6)
------------------------------------ ------ ----------- ------- ------ ----------- -------
171.3 (247.0) (75.7) 159.0 (223.9) (64.9)
Deferred tax asset (2014: restated) 14.5 11.4
Net deficit (61.2) (53.5)
Summary
The focus for the management team remains on steady and
continuous improvement in our day to day business processes and
performance. We are working to support this activity with
initiatives to improve our working capital management, including
adding stock or resources to support business development activity.
Separately, we aim to ensure that the legacy issues the Group faces
are ring fenced as much as possible from the day to day operation
of the business to ensure they are neither a distraction nor a
hindrance. The improvements in our cost of debt and pension
liability management represent a series of successful outcomes in
delivering our strategic goal of strengthening our balance
sheet.
Brian Tenner
Finance Director
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
summarised below and set out in more detail in the Annual
Report.
Business strategy
A strategy which does not match the Group's circumstances,
capabilities or potential will fail to create shareholder value.
The Group is developing a new strategy to deliver a turnaround in
performance and to make that performance more stable and less
exposed to revenue volatility. Unless successfully implemented, the
Group will continue to experience volatile results and weak levels
of cash generation. These are basic requirements to allow the
delivery of sustainable and consistent growth in shareholder
value.
Macro-economic and political risks
We operate in 18 countries and sell to customers in over 100 and
therefore we are necessarily exposed to the economic, political and
business risks associated with international operations such as a
recession or the imposition of trade barriers. The continuing
fragile macro-economic climate in the Eurozone and Australia is a
specific source of risk.
Raw material price volatility
Increases in the cost of raw materials may not always be
recoverable or have delays in recovery due to weakness in demand or
competitor actions. If raw material costs fall, the Groupmay face
customer pressure to reduce prices or experience a fall in demand.
The Group mitigates against this risk through continuous monitoring
of different international steel price indices to give early
warning of negative trends. The Group is partiallyinsulated from
movements in raw commodityprices because of intermediary processing
steps in the supply chain. Where contractually possible, we pass on
price increases.
Competitive markets and technological advancements
Renold operates in highly competitive markets with customer
decisions based typically on quality, technology, service and
price. New entrants or consolidation of existing competitors could
restrict our ability to deliver our strategic objectives. We have a
strategic objective to improve service and enhance customer
relationships to deliver a more loyal customer base. We also invest
in new technology and engineering capabilities.
Health and safety in the workplace
A lack of robust safety processes and procedures could result
inaccidents involving Renold employees and others on Renold
premises. Renold actively manages against these risks operating
group wide health and safety policies contained within a documented
management system, 'the Framework'. Healthand safety auditsand
enhanced reporting have also been implemented atall sites and a new
Group HSE Assurance Manager has been appointed.
Manufacturing disruption
The Group's profits and cash flows are dependent on the
continued use of its various facilities. Operational risks include
equipment failure, failure to comply with applicable regulations
and standards, raw materials supply disruptions, labour force
shortages, events impeding or increasing the cost of transporting
the Group's products and natural disasters. Any disruption of the
manufacturing processes can result in delivery delays, interrupt
production or even lead to a full cessation of production. If
production is interrupted, customers may decide to purchase
products from other suppliers. The Group has insurance cover to
mitigate the impact of a number of these risks.
ERP system implementation risks
The Group is presently implementing a global ERP system to
replace numerous legacy systems. The risk continues that an
unsuccessful implementation at an individual site could seriously
impact the Group's business, financial condition, prospects,
customer retention and results of operations. In any event, a
temporary increase in operating costs is inevitable in any major
change process. To mitigate this risk, the Group is making
extensive use of external consultants, the implementation is taking
place in phases and a thorough project plan is in place with agreed
milestones reviewed by the Board.
Compliance risk - laws and regulations
Revision of 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. Renold communicate a clear compliance
culture and training is issued to all employees.
A lack of technical expertise or management skills
The Group's international operations are dependent upon existing
key executives and certain other employees in order to sustain and
grow the business. To ensure this, the Group aims to attract,
retain and motivate highly qualified and trained employees.
Liquidity
At times in the past, the conditions in the banking markets and
Renold's own financial performance have made access to appropriate
debt facilities difficultto achieve. 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. Cash deposits are
placed short term with banks where security and liquidity are the
primary objectives.
Foreign exchange risk
The Group has operations in numerous 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: 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.
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. The
Group continually reviews risks in relation to the Group's pension
schemes and takes action to mitigate them where possible. While the
Group is consulted by the trustees on the investment strategies of
its pension plans, it does not have direct control over these
matters, as trustees are responsible for the strategy.
Consolidated income statement for the year ended 31 March
2015
Note 2015 2014
GBPm GBPm
Revenue 2 181.4 184.0
Operating costs before pension administration costs and exceptional items (165.9) (172.9)
-------- --------
Operating profit before pension administration costs and exceptional items 15.5 11.1
Pension administration costs (0.5) (0.6)
Exceptional items 3 (2.9) (11.8)
-------- --------
Operating profit/(loss) 12.1 (1.3)
-------- --------
Financial costs (1.7) (1.8)
Net IAS 19 financing costs (2.5) (2.8)
Discount on provisions (0.2) -
Net financing costs 4 (4.4) (4.6)
-------- --------
Profit/(loss) before tax 7.7 (5.9)
Taxation 5 (2.1) (4.8)
-------- --------
Profit/(loss) for the financial year 5.6 (10.7)
-------- --------
Attributable to:
Owners of the parent 5.5 (10.9)
Non-controlling interests 0.1 0.2
-------- --------
5.6 (10.7)
======== ========
Earnings/(loss) per share 6
Basic earnings/(loss) per share 2.5p (4.9)p
Diluted earnings/(loss) per share 2.5p (4.9)p
Adjusted[3] earnings per share 5.0p 3.2p
Diluted adjusted earnings per share 5.0p 3.2p
Consolidated statement of comprehensive income for the year
ended 31 March 2015
2015 2014
restated
GBPm GBPm
Profit/(loss) for the year 5.6 (10.7)
------- ----------
Other comprehensive income/(expense):
Items that may be reclassified to profit or loss
in subsequent periods:
Net (losses)/gains on cash flow hedges (0.2) 0.2
Foreign exchange translation differences 4.6 (8.5)
Foreign exchange differences on loans hedging the
net investment in foreign operations (0.6) 0.6
------- ----------
3.8 (7.7)
Items not reclassified to profit or loss in subsequent
periods:
Remeasurement (losses)/gains on retirement benefit
obligations (15.1) 2.9
Tax on remeasurement losses/(gains) on retirement
benefit obligations 3.4 (2.1)
(11.7) 0.8
------- ----------
Other comprehensive expense for the year, net of
tax (7.9) (6.9)
------- ----------
Total comprehensive expense for the year, net of
tax (2.3) (17.6)
======= ==========
Attributable to:
Owners of the parent (2.4) (17.7)
Non-controlling interest 0.1 0.1
------- ----------
(2.3) (17.6)
======= ==========
Consolidated balance sheet as at 31 Note 2015 2014 restated
March 2015 GBPm
GBPm
ASSETS Non-current assets
Goodwill 21.9 19.8
Other intangible assets 6.1 6.1
Property, plant and equipment 39.7 39.3
Investment property - 1.3
Other non-current assets - 0.2
Deferred tax assets 17.3 14.7
Retirement benefit surplus 0.2 0.4
-------- --------------
85.2 81.8
-------- --------------
Current assets
Inventories 35.8 35.9
Trade and other receivables 30.6 29.7
Derivative financial instruments - 0.1
Cash and cash equivalents 12.6 6.7
79.0 72.4
Non-current asset classified as held
for sale 1.4 1.6
-------- --------------
80.4 74.0
-------- --------------
TOTAL ASSETS 165.6 155.8
-------- --------------
LIABILITIES
Current liabilities
Borrowings (0.7) (0.1)
Trade and other payables (36.6) (34.9)
Current tax (1.6) (1.7)
Derivative financial instruments (0.1) -
Provisions (2.1) (2.4)
(41.1) (39.1)
NET CURRENT ASSETS 39.3 34.9
-------- --------------
Non-current liabilities
Borrowings (30.9) (30.9)
Preference stock (0.5) (0.5)
Trade and other payables (1.1) (0.6)
Deferred tax liabilities (0.2) (0.2)
Retirement benefit obligations (75.9) (65.3)
Provisions (4.3) (5.3)
-------- --------------
(112.9) (102.8)
-------- --------------
TOTAL LIABILITIES (154.0) (141.9)
-------- --------------
NET ASSETS 11.6 13.9
EQUITY
Issued share capital 7 26.6 26.6
Share premium account 29.9 29.9
Currency translation reserve 2.3 (1.7)
Other reserves 1.0 1.2
Retained earnings (50.8) (44.6)
-------- --------------
Equity attributable to equity holders
of the parent 9.0 11.4
Non-controlling interests 2.6 2.5
-------- --------------
TOTAL SHAREHOLDERS' EQUITY 11.6 13.9
======== ==============
Approved by the Board on 26 May 2015 and signed on its behalf
by:
Robert Purcell Brian Tenner
Chief Executive Finance Director
Consolidated statement of changes in equity for the year ended
31 March 2015
Share Currency Attributable Non- Total
Share premium Retained translation Other to owners controlling equity
capital account earnings reserve reserves of parent interests restated
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2013 26.5 29.6 (34.8) 6.1 1.2 28.6 2.4 31.0
(Loss)/profit for
the year - - (10.9) - - (10.9) 0.2 (10.7)
Other
comprehensive
income/(expense) - - 0.8 (7.8) 0.2 (6.8) (0.1) (6.9)
--------- --------- --------- ------------ ---------- ------------- ------------ ----------
Total
comprehensive
income
/(expense)
for the year - - (10.1) (7.8) 0.2 (17.7) 0.1 (17.6)
Employee share
options:
- value of
employee
services - - 0.1 - - 0.1 - 0.1
Exercise of share
warrants:
- release of
share
warrant reserve - - 0.2 - (0.2) - - -
- proceeds from
share
issue 0.1 0.3 - - - 0.4 - 0.4
At 31 March 2014
(restated) 26.6 29.9 (44.6) (1.7) 1.2 11.4 2.5 13.9
Profit for the
year - - 5.5 - - 5.5 0.1 5.6
Other
comprehensive
income/(expense) - - (11.7) 4.0 (0.2) (7.9) - (7.9)
--------- --------- --------- ------------ ---------- ------------- ------------ ----------
Total
comprehensive
income/(expense)
for the year - - (6.2) 4.0 (0.2) (2.4) 0.1 (2.3)
Employee share
options:
- value of
employee
services - - 0.2 - - 0.2 - 0.2
- settled share
option
transactions - - (0.2) - - (0.2) - (0.2)
--------- --------- --------- ------------ ---------- ------------- ------------ ----------
At 31 March 2015 26.6 29.9 (50.8) 2.3 1.0 9.0 2.6 11.6
========= ========= ========= ============ ========== ============= ============ ==========
Consolidated statement of cash flows for the year ended 31 March
2015
2015 2014
GBPm GBPm
Cash flows from operating activities (Note
8)
Cash generated from operations 14.2 7.0
Income taxes paid (1.4) (0.9)
------ ------
Net cash from operating activities 12.8 6.1
------ ------
Cash flows from investing activities
Purchase of property, plant and equipment (3.8) (6.0)
Purchase of intangible assets (1.7) (1.1)
Net cash from investing activities (5.5) (7.1)
------ ------
Cash flows from financing activities
Proceeds from issue of ordinary shares - 0.4
Financing costs paid (1.4) (1.5)
Proceeds from borrowings 1.0 8.0
Repayment of borrowings (1.1) (8.0)
Net cash from financing activities (1.5) (1.1)
------ ------
Net increase/(decrease) in cash and cash equivalents 5.8 (2.1)
Net cash and cash equivalents at beginning
of year 6.6 9.2
Effects of exchange rate changes (0.2) (0.5)
------ ------
Net cash and cash equivalents at end of year 12.2 6.6
====== ======
Notes to the Financial Information
1(a) Basis of preparation
The preliminary statement was approved by the Board on 26 May
2015. 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 2015
have been prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union.
The preliminary statement has been prepared on a consistent
basis using the accounting policies set out in the Renold plc
annual report for the year ended 31 March 2014. The financial
information for the year ended 31 March 2014 has been extracted
from the Renold plc annual report for that year as filed with the
Registrar of Companies and restated for the impact of the change
described below. The impact of this change is explained in detail
below.
The 2014 and 2015 financial statements both carry unqualified
audit reports which do not contain an emphasis of matter reference
and do not contain a statement under section 237(2) or 237(3) of
the Companies Act 1985 or section 498(2) or 498(3) of the Companies
Act 2006.
Changes in accounting policies and disclosures
The Group has adopted all applicable amendments to standards
with an effective date from 1 April 2014. Adoption of these
standards did not have any material impact on financial performance
or position of the Group.
Restatement of prior year financial statements:
Following a review of the tax base of the unfunded pension
scheme in Germany, it was identified that the value of the tax base
in relation to the pension deficit that had been used in
calculating the deferred tax asset on the German pension deficit in
2014 was understated. The tax base had been assumed to be nil,
whereas tax relief had been claimed in respect of the pension
scheme, based on actuarial valuations, under German tax law. In
respect of pensions, a deferred tax asset represents the difference
between the carrying amount of a pension deficit and its tax base.
As a result, the deferred tax asset recognised in the accounts in
the prior year was over-stated by GBP4.2m. The prior year
comparatives have been restated to correct for this error. The
deferred tax asset in respect of the pension deficit was correctly
calculated at 2013 and therefore no opening balance sheet at 1
April 2013 is presented.
The effect of this restatement has been to reduce, for the prior
period, the closing recognised deferred tax asset by GBP4.2m. The
tax credit shown in other comprehensive income in the consolidated
statement of comprehensive income in the prior year has been
reduced by the same amount. The restatement has no impact on the
current or prior year income statement, cash flows or earnings per
share.
The restatement has been made in accordance with IAS 8,
'Accounting Policies, Changes in Accounting Estimates and Errors'.
The effect of the restatement to the financial statements including
the related impact on taxation is summarised in the following
table:
2014 2014 2014
Reported Adjustment Restated
GBPm GBPm GBPm
Consolidated statement of comprehensive
income
- Tax credit on remeasurement (gains)
/ losses on retirement benefits obligations 2.1 (4.2) (2.1)
- Other comprehensive expense for
the year, net of tax (2.7) (4.2) (6.9)
---------- ------------ ----------
- Total comprehensive expense for
the year net of tax (13.4) (4.2) (17.6)
========== ============ ==========
Balance Sheet
- Recognised deferred tax assets 18.9 (4.2) 14.7
---------- ------------ ----------
- Total assets 160.0 (4.2) 155.8
---------- ------------ ----------
- Net assets 18.1 (4.2) 13.9
========== ============ ==========
1(b). Basis of preparation - Going Concern
The 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.
The Directors have assessed the future funding requirements of
the Group and the Company and compared them to the level of
available borrowing facilities. The assessment included a detailed
review of financial forecasts, financial instruments and hedging
arrangements for at least the twelve month period from the date of
signing the accounts and a review of cash flow projections. 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 scenarios 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.
1(c). Responsibility Statement of the Directors in respect of
the Annual Report and Accounts
We confirm that to the best of our knowledge:
-- the accounts, prepared in accordance with the applicable set
of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the company
and the undertakings included in the consolidation taken as a
whole; and
-- the directors' report includes a fair review of the
development and performance of the business and the position of the
issuer and undertakings included in the consolidation taken as a
whole, together with a description of the principal risks and
uncertainties that they face.
2. Segmental information
For management purposes, the Group is organised into two
reportable operating segments 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 Companies (NSCs);
-- 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 decisionsabout resource
allocation and performance assessment. The Chief Operating Decision
Maker (CODM) for the purposes of IFRS 8: 'Operating Segments' is
considered to be the Board of Directors of Renold plc. Segment
performance is evaluated based on operating profit and loss and is
measured consistently with operating profit and loss in the
consolidated financial statements. However, Group financing
(including finance costs and finance income), retirement benefit
obligations and income taxes are managed on a Group basis and are
not allocated to operating segments.
Transfer prices between operating segments are on an arm's
length basis in a manner similar to transactions with third
parties.
Chain Torque Head Office Consolidated
Transmission costs and
eliminations
GBPm GBPm GBPm GBPm
Year ended 31 March 2015
Revenue
External customer 138.3 43.1 - 181.4
Inter-segment - 4.6 (4.6) -
------ -------------- -------------- -------------
Total revenue 138.3 47.7 (4.6) 181.4
------ -------------- -------------- -------------
Operating profit/(loss) before
pension administration costs
and exceptional items 14.2 6.9 (5.6) 15.5
Pension administration costs - - (0.5) (0.5)
Exceptional items (2.1) (0.2) (0.6) (2.9)
------ -------------- -------------- -------------
Operating profit/(loss) 12.1 6.7 (6.7) 12.1
Net financing costs (4.4)
-------------
Profit before tax 7.7
-------------
Other disclosures
Working capital 22.3 9.3 (3.0) 28.6
Capital expenditure 4.4 0.9 1.3 6.6
Depreciation and amortisation 3.0 1.1 1.2 5.3
Chain Torque Head Office Consolidated
Transmission costs and
eliminations
GBPm GBPm GBPm GBPm
Year ended 31 March 2014
Revenue
External customer 139.6 44.4 - 184.0
Inter-segment 0.3 5.0 (5.3) -
------- -------------- -------------- -------------
Total revenue 139.9 49.4 (5.3) 184.0
------- -------------- -------------- -------------
Operating profit/(loss) before
pension administration costs
and exceptional items 9.9 5.8 (4.6) 11.1
Pension administration costs - - (0.6) (0.6)
Exceptional items (11.5) (0.3) - (11.8)
------- -------------- -------------- -------------
Operating profit/(loss) (1.6) 5.5 (5.2) (1.3)
Net financing costs (4.6)
-------------
Loss before tax (5.9)
-------------
Other disclosures
Working capital 22.6 8.6 (1.1) 30.1
Capital expenditure 4.8 1.3 1.0 7.1
Depreciation and amortisation 3.1 1.1 1.2 5.4
The Board reviews the performance of the business using
information presented at consistent exchange rates ('underlying').
The prior year results have been restated using this year's
exchange rates as follows:
Chain Torque Head Office Consolidated
Transmission costs and
eliminations
GBPm GBPm GBPm GBPm
Year ended 31 March 2014
Revenue
External customer 139.6 44.4 - 184.0
Foreign exchange (5.3) (0.8) - (6.1)
------ -------------- -------------- -------------
Underlying external sales 134.3 43.6 - 177.9
------ -------------- -------------- -------------
Operating profit/(loss) before
pension administration costs
and exceptional items 9.9 5.8 (4.6) 11.1
Foreign exchange (0.6) - - (0.6)
Underlying operating profit/(loss)
before pension administration
costs and exceptional items 9.3 5.8 (4.6) 10.5
i. Inter-segment revenues are eliminated on consolidation.
ii. Included in Chain external sales is GBP7.2m (2014: GBP7.6m)
of Torque Transmission product sold through the Chain NSCs. The
Torque Transmission businesses may use the Chain NSC framework in
countries where it does not have its own presence.
iii. The measures of segment assets reviewed by the CODM is
total working capital, defined as inventories and trade and other
receivables less trade and other payables. Working capital is also
measured as a ratio of rolling annual sales.
iv. Capital expenditure consists of additions to property, plant
and equipment, and intangible assets (including through
acquisitions).
The UK is the home country of the parent company, Renold plc.
The principal operating territories and sales analysis is shown
below (based on the location of the customer). The analysis of
non-current assets is based on the location of the assets as
follows:
Revenue ratio External revenues Non-current Employee numbers
assets
2015 2014 2015 2014 2015 2014 2015 2014
% % GBPm GBPm GBPm GBPm
United Kingdom 9.3 8.7 16.9 16.0 12.7 13.8 372 558
Rest of Europe 27.8 27.7 50.5 51.0 10.8 12.8 503 405
North America 36.8 37.8 66.7 69.5 28.3 24.8 351 355
Australasia 11.5 12.0 20.8 22.0 6.6 7.0 152 157
China 3.8 4.1 6.8 7.5 3.5 3.5 350 348
India 3.9 3.4 7.1 6.2 4.9 3.8 481 479
Other countries 6.9 6.3 12.6 11.8 0.9 0.8 68 77
------- ------- --------- --------- ------ ------ --------- --------
100 100 181.4 184.0 67.7 66.5 2,277 2,379
------- ------- --------- --------- ------ ------ --------- --------
All revenue relates to the sale of goods and services. No
individual customer, or group of customers, represents more than
10% of Group revenue (2014: none).
Non-current assets consist of goodwill, other intangible assets,
property, plant and equipment, investment property and investment
in jointly controlled entities. Other non-current assets and
deferred tax assets are not included above.
3. Exceptional items
2015 2014
Included in operating costs GBPm GBPm
Bredbury factory closure costs 0.2 4.7
Bredbury site onerous lease provision - 5.7
Increase in onerous lease provision due to change in discount rate 0.5 -
Chain business model review:
- impairment of property, plant and equipment - 0.1
- impairment of inventory and production tooling - 0.5
Impairment of investment property 1.2 -
Impairment of software licences 0.2 -
Other reorganisation and redundancy costs 0.8 0.8
2.9 11.8
====== ======
The current year saw GBP0.2m of residual costs incurred in
relation to the completion of the Bredbury closure project such as
additional redundancy costs and lease termination costs. Even with
these extra costs the project was still completed ahead of it's
estimated cost. In the prior year, closure costs of GBP4.7m and an
onerous lease provision of GBP5.7m were recognised in that period.
The Bredbury site onerous lease provision was increased by GBP0.5m
due to a change in the discount rate used to discount the future
payment obligations.
Also in the current year, an impairment charge of GBP1.2m was
made in relation to an investment property located in Calais,
France, writing down the value of the property to a net book value
of nil. This decision reflects ongoing weakness in the general
economy and property market in particular in that region of France
and therefore we have concluded the property has no material value.
Any alternate use specified by local planning regulations may also
impact any net realisable value.
The impairment of software licences reflects the decision to
change the Group's planned global ERP system and consequently not
to make use of previously acquired licences. As a result, future
periods will include approximately GBP0.2m accelerated amortisation
for 4-5 years to reflect the shorter assumed useful economic life.
Other restructuring and redundancy costs include costs associated
with the agreed re-location of our headquarters in Manchester and
ongoing restructuring of our senior management teams.
4. Net financing costs
2015 2014
GBPm GBPm
Financial costs:
Interest payable on bank loans and overdrafts (1.4) (1.5)
Amortised financing costs (0.3) (0.3)
------ ------
Total financing costs (1.7) (1.8)
Net IAS 19 financing costs (2.5) (2.8)
Discount unwind on provisions (0.2) -
Net financing costs (4.4) (4.6)
====== ======
5. Taxation
Analysis of tax charge/(credit) in the year
2015 2014
GBPm GBPm
United Kingdom
UK corporation tax at 21% (2014: 23%) - -
Less: double taxation relief - -
- -
Overseas taxes
Corporation taxes 1.3 1.0
Withholding taxes 0.1 0.2
Current income tax charge 1.4 1.2
Deferred tax
UK - origination and reversal of temporary
differences (0.3) 3.0
Overseas - origination and reversal of temporary
differences 1.0 0.6
Total deferred tax charge 0.7 3.6
------- -------
Tax charge on profit/(loss) on ordinary activities 2.1 4.8
======= =======
2014 restated
2015 GBPm
GBPm
Tax on items taken to other comprehensive
income
Deferred tax on changes in net pension deficits 3.4 (2.1)
Tax credit/(charge) in the statement of other
comprehensive income 3.4 (2.1)
======== ===============
Factors affecting the Group tax charge for the year
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 has been incorporated into the
closing deferred tax balances in the financial statements.
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.
The actual tax on the Group's loss before tax differs from the
theoretical amount using the UK corporation tax rate as
follows:
2015 2014
GBPm GBPm
Profit/(loss) on ordinary activities before
tax 7.7 (5.9)
======= =======
Theoretical tax charge/(credit) at 21% (2014:
23%) 1.6 (1.4)
Effects of:
Permanent differences 0.8 0.2
Overseas tax rate differences 0.8 0.4
Deferred tax (utilised)/not recognised (1.1) 5.2
Change in tax rate - 0.4
-------
Total tax charge 2.1 4.8
------- -------
6. Earnings/(loss) per share
Earnings/(loss) per share (EPS) is calculated by reference to
the earnings/(loss) for the year and the weighted average number of
shares in issue during the year as follows:
2015 2014
Per Per
share share
Profit Shares amount Loss Shares amount
GBPm (Thousands) (pence) GBPm (Thousands) (pence)
Basic EPS
(Loss) / earnings
attributed to ordinary
shareholders 5.5 223,065 2.5 (10.9) 222,398 (4.9)
Basic EPS 5.5 223,065 2.5 (10.9) 222,398 (4.9)
========== =============== ========== ========== =============== ==========
2015 2014
Per Per
(Loss) share (Loss) share
/ earnings Shares amount / Shares amount
GBPm (Thousands) (pence) Earnings (Thousands) (pence)
GBPm
Adjusted EPS
Basic EPS 5.5 223,065 2.5 (10.9) 222,398 (4.9)
Effect of exceptional items,
after tax:
Exceptional
items
in operating
costs 2.9 1.3 11.4 5.1
Exceptional tax
charge - - 3.5 1.6
Pension
administration
costs included
in
operating costs 0.5 0.2 0.6 0.3
Discount unwind
on
exceptional
items 0.2 0.1 - -
Net pension
financing
costs 2.1 0.9 2.4 1.1
Adjusted EPS 11.2 223,065 5.0 7.0 222,398 3.2
============== =============== ========== ================= =============== ==========
Inclusion of the dilutive securities, comprising 2,489,000
(2014: 1,620,000 restated) additional shares due to share options
in the calculation of basic and adjusted EPS does not change the
amounts shown above (2014: no change).
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. Due to the existence of
unrecognised deferred tax assets, there was no associated tax
credit on some of the exceptional charges and in these instances
exceptional costs are added back in full.
7. Called up share capital Issued
2015 2014
GBPm GBPm
Ordinary shares of 5p each 11.2 11.2
Deferred shares of 20p each 15.4 15.4
------- -------
26.6 26.6
======= =======
At 31 March 2015, the issued ordinary share capital comprised
223,064,703 ordinary shares of 5p each (2014: 223,064,703) and
77,064,703 deferred shares of 20p each (2014: 77,064,703).
8. Additional cash flow information
Reconciliation of operating profit to net cash
flows from operations: 2015 2014
Cash generated from operations: GBPm GBPm
Operating profit/(loss) 12.1 (1.3)
Depreciation and amortisation 5.3 5.4
Impairment of intangible assets 0.2 -
Impairment of investment property 1.2 -
Proceeds from plant and equipment disposals - 0.2
Equity share plans - 0.1
Decrease in inventories 0.7 1.8
(Increase)/decrease in receivables (0.2) 0.8
Increase/(decrease) in payables 0.9 (1.8)
(Decrease)/increase in provisions (1.5) 5.8
Movement on pension plans (4.4) (3.8)
Movement in derivative financial instruments (0.1) (0.2)
------- -------
Cash generated from operations 14.2 7.0
======= =======
Reconciliation of net decrease in cash and cash 2015 2014
equivalents to movement in net debt: GBPm GBPm
Increase/(decrease) in cash and cash equivalents 5.8 (2.1)
Change in net debt resulting from cash flows 0.1 -
Foreign currency translation differences (0.3) 0.4
Non-cash movement (amortisation of re-financing
costs) (0.3) (0.3)
----------- -------
Change in net debt during the period 5.3 (2.0)
Net debt at start of year (24.8) (22.8)
----------- -------
Net debt at end of year (19.5) (24.8)
=========== =======
Net debt comprises:
Cash and cash equivalents 12.6 6.7
Total borrowings (32.1) (31.5)
----------- -------
(19.5) (24.8)
=========== =======
9. Post balance sheet events
Amendment and Extension of the Group's Core Banking Facility
On 13 May 2015 the Group agreed a revision to its existing
banking facilities with its current banking partners, Svenska
Handelsbanken AB and Lloyds Bank plc. The new facility replicates
the previous GBP41m MRCF but also adds a GBP20m accordion feature
that can be triggered by the Group to fund investment or
acquisition opportunities. The revised facility has been extended
to mature in May 2020 whereas the original maturity was in October
2016. The new facility is also priced at current market rates and
will lead to a reduction in average annual interest expense of
approximately GBP0.3m on current debt levels. The main covenants
and security granted to the banks and other terms remain largely
unchanged.
UK Pensions De-risking Project
After the end of the financial year the Group completed a
medically underwritten insured buy-in of approximately GBP25m of
higher risk current pensioner liabilities representing
approximately 25% of current pensioner liabilities. The population
in question is described as high risk because it includes members
with higher annual pensions and therefore a concentration of
longevity risk. The UK pension scheme is the beneficiary of the
insurance contract purchased which creates matching cash flows for
the pensions secured. The transaction will have no impact on the
Group's accounting balance sheet but the price achieved was at a
discount to the funding assumption which will be relevant to future
funding discussions with trustees.
The key benefit of the transaction was the full de-risking
achieved in respect of a significant proportion of current
pensioner liabilities.
[1] Underlying adjusts prior year results to the current year
exchange rates to give a like for like comparison.
[2] "Adjusted" means excluding the impact of exceptional items
and pension administration costs.
[3] Adjusted for the after tax effects of pension administration
costs, exceptional items, changes in discounts on exceptional
provisions and the IAS 19 charge.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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