TIDMRNO
RNS Number : 0331Q
Renold PLC
16 June 2020
Renold plc
("Renold" or the "Group")
Preliminary results for the year ended 31 March 2020
16 June 2020
Renold, a leading international supplier of industrial chains
and related power transmission products, today announces its
preliminary results for the year ended 31 March 2020.
Financial highlights
Year ended 31 March
2020 2019(1)
GBPm GBPm
Revenue 189.4 199.6
Adjusted(2) operating profit 13.4 14.8
Adjusted2 operating margin 7.1% 7.4%
Statutory operating profit 10.1 15.4
Basic earnings per share 1.5p 3.0p
Adjusted earnings per share 2.9p 3.1p
------------------------------ ----------- -------------
1. The results for the year ended 31 March 2019 have been
re-presented to reflect discontinued operations and changes to the
treatment of adjusting items, see Note 19.
2. See overleaf for reconciliation of reported and adjusted figures.
Trading and operational highlights
-- Significant disruption in the final months of the year ended
31 March 2020 from Covid-19 related factory closures
-- Continued improvement in operational efficiency, in
particular at the Chinese chain facility, reflected in stable
adjusted operating margin despite 5.1% revenue decline due to
challenging markets and the initial impact of Covid-19
-- Strong activity in the Torque Transmission division
delivering revenue growth and profit improvement
-- Completed the GBP1.8m purchase of JV partner's 25% share of
the Indian chain business; now a wholly owned subsidiary operating
in a market with significant potential
-- Substantial, multi-year infrastructure change programme
completed successfully, with significantly reduced future costs of
change expected, supporting higher free cash generation
Covid-19 update
-- All sites now operational, although some at reduced capacity
-- Supply chains remain resilient with the Group able to continue to support customers
-- Cost mitigation and cash preservation actions taken swiftly,
including utilisation of government support to maintain employment,
temporary pay reductions, curtailment of discretionary spend,
reduced capital expenditure and deferral of net UK pension scheme
contributions
-- Financial position strengthened by agreement with lenders to
amend banking covenants, creating increased flexibility through to
September 2021
-- Focus on preserving capability to ensure a strong response as
markets recover and to maintain strategic momentum
-- Cash generative and profitable in the first months of the new financial year
Robert Purcell, Chief Executive, commented:
"Prior to the Covid-19 pandemic, the Group was on track to
deliver improved adjusted operating margins despite a challenging
market backdrop resulting in a revenue decline. The combination of
a number of strands of the strategic plan were expected to be
sufficient to overcome the operational gearing effect of falling
revenue.
"During the final quarter of the year, the initial impact of the
Covid-19 pandemic created short-term disruption and a number of
operational challenges. Renold reacted quickly to these challenges,
ensuring the safety and welfare of all our employees, compliance
with local restrictions and continuity of supply to customers,
while at the same time taking steps to reduce costs and preserve
cash flow.
"The uncertainty caused by the Covid-19 pandemic is likely to
result in a period of volatile demand, preventing the Board from
giving specific guidance for the year ahead at this stage. The
Group's financial position has been strengthened by the flexibility
provided by our lenders and the Trustee of the UK pension scheme.
Together with the cost and cash actions taken, this supports the
Board's confidence that the Group will be able to manage through
the current period of disruption.
"Renold holds a leading position in many of its markets and the
strategic programme that has been undertaken over the past years
has delivered a business far more resilient and better placed to
overcome the current challenges. Having successfully completed the
substantial infrastructure change programme, we will have greater
cash resources with which to accelerate our growth initiatives. As
a result, the Group is well positioned to capture the significant
opportunities available to it as markets stabilise and demand
recovers."
Reconciliation of reported and adjusted results
Revenue Operating Profit Earnings per
share
2018/19 2018/19 2018/19
2019/20 (re-presented(1) 2019/20 (re-presented(1) 2019/20 (re-presented(1)
) ) )
GBPm GBPm GBPm GBPm pence pence
From continuing
operations 189.4 199.6 10.1 15.4 1.5 3.0
Restructuring costs
and other adjusting
items - - 2.4 (1.5) 1.1 (0.2)
Amortisation of acquired
intangible assets - - 0.9 0.9 0.3 0.3
Continuing adjusted 189.4 199.6 13.4 14.8 2.9 3.1
Exchange impact - 2.3 - 0.2 - -
---------
Continuing adjusted
(at constant exchange
rates) 189.4 201.9 13.4 15.0 2.9 3.1
------------------------- --------- ------------------ --------- ------------------ --------- ------------------
1 Results for the year ended 31 March 2019 have been
re-presented for discontinued activities associated with the
disposal of the South Africa business unit and certain changes to
the treatment of adjusting items (see Note 19).
ENQUIRIES:
Renold plc Peel Hunt LLP Instinctif Partners
Robert Purcell, Chief Mike Bell Mark Garraway (07771
Executive 860 938)
Ian Scapens, Group Finance Ed Allsopp Rosie Driscoll (07891
Director 564 641)
0161 498 4500 020 7418 8900 020 7457 2020
Cautionary statement regarding forward-looking statements
Some of the information in this document may contain projections
or other forward-looking statements regarding future events or the
future financial performance of Renold plc and its subsidiaries
(the Group). You can identify forward-looking statements by terms
such as "expect", "believe", "anticipate", "estimate", "intend",
"will", "could", "may" or "might", the negative of such terms or
other similar expressions. Renold plc (the Company) wishes to
caution you that these statements are only predictions and that
actual events or results may differ materially. The Company does
not intend to update these statements to reflect events and
circumstances occurring after the date hereof or to reflect the
occurrence of unanticipated events. Many factors could cause the
actual results to differ materially from those contained in
projections or forward-looking statements of the Group, including
among others, general economic conditions, the competitive
environment as well as many other risks specifically related to the
Group and its operations. Past performance of the Group cannot be
relied on as a guide to future performance.
ANALYSTS AND INVESTORS
A virtual meeting for investors and analysts will be held on 16
June 2020 at 9.00 am. If you wish to attend this meeting please
contact Renold@instinctif.com or call Rosie Driscoll of Instinctif
(07891 564 641) before 8.45 am to be provided with access
details.
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 Letter
During the year ended 31 March 2020, the Group has faced a
series of macro-economic challenges on a global scale, and it is
satisfying to see the progress Renold has made in being able to
face up to and overcome these challenges. While in the past, such
challenges may have converted profits to losses or required direct
shareholder support to recapitalise the Group, the strategic
progress that has been made over the past years has delivered a
business that is more resilient and far better positioned to
weather these storms. This is true for financial performance, but
it is also true for the flexibility and adaptability of our people
across the world who have been key to delivery in this
unprecedented global environment.
Reaction to the Covid-19 pandemic
In the Chief Executive's Review, Robert outlines the impact of
the Covid-19 pandemic on Renold and the actions we have delivered
to ensure the safety of our employees and continuity of supply to
customers plus the cost and cash measures implemented to protect
the financial strength of the Group.
With our manufacturing facility in China, we gained early
exposure to the operational changes required to ensure the safety
of our employees in a Covid-19 environment. These changes were
fully implemented upon reopening of the Chinese factory in late
February 2020. As Covid-19 spread across the world, particularly to
Europe and America, we were well placed to share best practice and
quickly implement safe working environments in our other locations.
The welfare and safety of our employees have remained paramount
throughout the current crisis.
One of the key strengths of Renold is the broad spread of
end-use applications for our products and the broad base of
customers that we serve. Throughout the various geographic
lock-downs across the world, we have sought, where appropriate and
safe to do so, to keep our manufacturing operations open in support
of various industries that are essential in the current
environment. Whether the end application is in agriculture, food
processing, energy or a myriad of other essential industries,
Renold is playing its part in ensuring our customers can continue
to operate.
The changes that we have implemented can only be successful with
the support of our employees across the world. Their willingness to
adapt and adopt new working practices, including where these incur
personal hardships, has highlighted their commitment and loyalty to
Renold. Whether that is changing shift patterns, reducing working
hours or accepting temporary pay reductions, all of our employees
have stepped forward to support us in addressing the current
challenges.
Our markets
At the half year, we outlined tougher market conditions,
particularly in the European and US chain markets and, as expected,
these conditions continued into the second half of the year. Market
disruption and uncertainty created by increasing tariff barriers,
Brexit and slowing capital investment have impacted elements of our
customer base.
Other than domestic orders in China, disruption related to the
Covid-19 pandemic occurred too late in the year to have a material
impact on market demand, and order levels were not significantly
reduced until the final weeks of March. However, supply chain and
operational disruption in our manufacturing facilities caused by
Covid-19 reduced our production output and revenue in the final
months of the year.
Trading performance
Revenue from continuing operations declined by 5.1% in the year
(6.2% at constant exchange rates), reflecting the weakening market
conditions which accelerated in the final quarter of the year as
the impact of operational disruption from the Covid-19 pandemic
materialised.
The volatile market conditions impacted most acutely on the
Chain division which experienced a revenue decline of 7.6% (8.6% at
constant exchange rates). Unsurprisingly, this affected
profitability and adjusted return on sales for the division
declined to 9.2% (2019: 11.2%). However, the revenue reduction
masks the progress made in improving underlying operational
effectiveness.
Torque Transmission's revenue from continuing operations
increased by 6.4% (5.0% at constant exchange rates) as project wins
were more than sufficient to offset the weakening market
conditions. Adjusted return on sales increased in the year to 13.4%
(2019: 9.4%) reflecting actions taken to improve the profitability
at the Gears business unit and the benefit of successful project
wins.
There are a number of accounting changes that affect adjusted
operating profit, including adoption of IFRS 16 'Leases' (increases
adjusted operating profit by GBP0.5m in year ended 31 March 2020;
no change in adjusted profit before tax), consistent treatment of
the disposed South African Torque Transmission business as
discontinued activities and re-presentation of adjusting items to
no longer adjust for ongoing pension costs (reduces adjusted
operating profit in each of the years ended 31 March 2019 and 2020
by GBP0.8m). Details of these accounting changes are included in
the accounting policies on pages 31 and 32, and Note 19.
After applying these changes, adjusted operating profit from
continuing operations decreased to GBP13.4m (2019: GBP14.8m) with
an adjusted operating margin of 7.1% (2019: 7.4%). Statutory
operating profit was GBP10.1m (2019: GBP15.4m).
Strategic Developments
During the year, Renold made good progress in delivering
strategic change across the Group.
The transfer of the Chinese factory to a new purpose-built
facility in Jintan was completed in March 2019. Improvements in
productivity ultimately took longer to achieve than originally
anticipated with a newly recruited work force to train but were
being delivered prior to the Covid-19 extended shutdown during
January and February 2020.
As outlined in the Interim Results announcement on 13 November
2019, during the first half of the year we disposed of the
non-core, loss making South African Torque Transmission business
unit to management for nominal consideration. We also completed the
purchase of our joint venture partner's remaining 25% share of the
Indian chain business in November 2019, which became a wholly owned
subsidiary creating greater flexibility to source inter-group
supply without diluting returns.
During June 2019, we completed the transfer of the Company's
listing to AIM in order to improve the Group's ability to execute
acquisitions. The rationale for this transfer remains valid, as
does the strategic benefit of pursuing an acquisition strategy.
While acquisitions are unlikely in the near term as we navigate the
uncertainty of the current environment, the greater flexibility
offered through trading on AIM positions the Group to react quickly
as opportunities arise and markets recover.
The year to 31 March 2020 also represented the final year of the
major infrastructure change programme which has provided the
platform for the efficiency improvements that the Group has
achieved. This is significant for the Group as it will free up cash
and so provide Renold with greater capital resources which can be
allocated to both organic and inorganic growth opportunities.
We have also made strong progress in improving the control
environment, implementing the recommendations identified following
the independent review into the previously announced, historical
accounting issues at the Gears business unit.
The Board
Consistent with the cost actions being delivered across the
Group, the Board has elected to take a temporary reduction in
fees/salary of 20% for Non-Executive Directors and 25% for
Executive Directors. Initially, these pay reductions are for a
period of four months commencing on 1 April 2020, but will be
reviewed and adjusted as required by trading conditions being
experienced by the Group.
As previously reported, Ian Griffiths, the Senior Independent
Director and Chair of the Remuneration Committee, retired on 12
November 2019 after nine years of service to the Company.
Consistent with the succession plan outlined in previous Chairman's
Letters, Tim Cooper, who joined the Board in November 2018 with a
view to taking over Ian Griffiths's remuneration responsibilities,
has been appointed as the chair of the Remuneration Committee.
David Landless, the Chair of the Audit Committee, was appointed
to the role of Senior Independent Director to replace Ian. I
continue to Chair the Nominations Committee.
Also as previously announced, Ian Scapens, Group Finance
Director, will be leaving the Company in June 2020. On 12 May 2020,
we announced that James Haughey will replace Ian as Group Finance
Director, and is expected to commence his role in November
2020.
I would like to extend my thanks to both Ian Griffiths and Ian
Scapens for their contributions during their tenure.
Pensions
The latest triennial actuarial valuation of the UK pension
scheme, with an effective date of 5 April 2019, was agreed in March
2020 with no change to future contribution arrangements. This
valuation assessed the deficit at 5 April 2019 to be GBP9.1m, with
the shortfall to be recovered from expected asset outperformance.
The Group's net retirement benefit obligations as determined by IAS
19R decreased in the year to GBP97.6m (2019: GBP101.9m).
In the period since 31 March 2020, reflecting the uncertainty in
short-term outlook caused by the Covid-19 pandemic, Renold
approached the Trustee with a request to defer contributions to the
UK scheme for a 12-month period to 31 March 2021. The Trustee
supported this proposal and it was agreed that the deferred
contributions will be repaid over a five-year period commencing on
1 April 2022. Certain other conditions were required to secure the
deferral including an additional contribution to the scheme of 25%
of any dividends paid (above the existing 25% requirement) until
such time as the deferred contributions have been made good.
Going concern
Due to the uncertainty in the operating environment caused by
Covid-19 and the potential impact on underlying markets, the Board
has stress-tested a number of detailed downside scenarios to inform
its assessment of going concern. Due to the risk of a breach of
banking covenants in the most severe downside scenario, the
Directors' assessment includes reference to material uncertainty,
in common with many other businesses. The Directors confirm, that
after due consideration, they have a reasonable expectation that
the Group has adequate resources to continue to trade for the
foreseeable future and have thereby continued to adopt the going
concern basis in preparing the financial statements. More detail on
the consideration the Directors have given to going concern is
outlined in the Finance Director's Review.
Dividend
The Board fully recognises the importance of dividends to
shareholders. However, given the volatile operating environment
created by the Covid-19 pandemic and the likely impact on market
demand, the Board has decided not to recommend the payment of a
dividend on ordinary shares for the year ended 31 March 2020. This
approach will remain under active review for future periods.
Summary
In these uncertain times, we have taken swift action to protect
our people, to ensure continuity of supply for our customers and to
reduce costs and preserve cash. As a direct result of the strategic
change that has been delivered, the Group is far more resilient and
better positioned to navigate the uncertain market conditions
arising from the Covid-19 pandemic. I would like to thank all of
our employees around the world for their flexibility and commitment
in helping the Group manage through these unprecedented times.
Mark Harper
Chairman
Chief Executive's Review
Overview
The year ended 31 March 2020 has proved to be uniquely
challenging, and we can take some comfort that, prior to the
outbreak of the Covid-19 pandemic, we were seeing significant
progress across the business.
More challenging market conditions, particularly in our key
European and US markets, adversely impacted demand. However, the
more streamlined and flexible operating model developed through
several years of strategic change was proving robust and we had an
expectation of improving adjusted operating margins despite lower
revenues.
As outlined in our announcement on 28 February 2020, the initial
disruption resulting from the Covid-19 related extended shutdown
across China impacted our manufacturing capability and supply of
chains in certain markets. As lock-downs spread across the world in
the final weeks of our financial year, Renold, like many other
businesses, experienced manufacturing disruption, either from
enforced closure of manufacturing sites or due to increased absence
as employees self-isolated or had childcare responsibilities.
As a result of these factors, Group revenue from continuing
operations declined by 5.1% to GBP189.4m, with adjusted operating
profit 9.5% lower at GBP13.4m (2019: GBP14.8m). Statutory operating
profit was GBP10.1m (2019: GBP15.4m). Despite a 5.1% reduction in
revenue, adjusted operating margin fell only slightly by 0.3
percentage points to 7.1% (2019: 7.4%).
Group order intake reflected the more challenging market
conditions through the year and, with the onset of Covid-19 related
lock-downs in the final weeks of our financial year, declined by
11.0% for the year at constant exchange rates. At constant exchange
rates, the Group's closing order book at 31 March 2020 was 10.9%
lower than the prior year.
The longer-term impact of the Covid-19 pandemic on macroeconomic
conditions and our markets is as yet uncertain and, therefore, the
Group is taking a prudent approach to reduce costs and conserve
cash, as outlined in more detail below.
Covid-19 - Impact on operations and Renold's response
The first impact of the Covid-19 pandemic occurred in the
Group's Chinese operations. Following the normal closure of the
Chinese factory for the Chinese Spring Festival in January, the
government enforced lock-down resulted in almost four weeks of
additional closure. This closure reduced sales to domestic Chinese
markets and created some disruption in the Group's supply chains
for Chinese manufactured product. In addition, our Australasian
Chain businesses source some products from other Chinese suppliers,
and the extended shutdown resulted in delayed supply of product to
them.
Upon release of the Chinese lock-down, operations in our Chinese
factory recovered quickly with minimal supply chain disruption and
slightly outperformed our expectations in March 2020.
As the Covid-19 pandemic spread around the world, governments
took different approaches resulting in inconsistent impacts in
different parts of the world. New Zealand, Malaysia and India
enforced complete lock-downs, including requirements for complete
closure of factories. Across Europe, our manufacturing sites
remained open, but with increased levels of absence as school
closures resulted in childcare responsibilities for a number of
employees and as strict self-isolation procedures were applied. Our
US sites followed state requirements which resulted in different
approaches. Our Chain factory in Tennessee remained open,
designated as an essential supplier. Our Torque Transmission
manufacturing site in New York state initially closed but then
partially reopened as an essential business. As lock-downs have
started to be relaxed across the world, all our locations have
reopened.
The geographically different Covid-19 restrictions and the speed
with which they have been introduced has required our management
teams around the world to quickly assess the impact and
requirements on a localised basis. Throughout this period, our
highest priority has been the safety and welfare of our employees.
Each location has established a Covid-19 operational planning team
with best practice and learning being shared across the different
geographic teams. The solutions implemented differ by location but
include employees not required in our factories working from home,
changes to shift patterns to reduce the number of individuals on
site at any point in time, changes to operational processes to
ensure social distancing is enforced and strict approaches to
self-isolation for individuals who are at risk of having been
exposed to anybody showing symptoms or having been diagnosed as
having the virus.
As we enter the new financial year, the Covid-19 pandemic is
causing significant disruptions to our end markets and their
respective supply chains, with customer demand falling as activity
levels have reduced. In expectation of falling demand, a number of
actions have been implemented to reduce costs and preserve cash.
These include:
-- suspending all discretionary spend and restricting non-committed capital expenditure;
-- flexing working hours or operational headcount to match labour to demand;
-- rephasing or renegotiating payments on leased properties,
direct and indirect tax payments and recovery of over-estimated
corporate taxes where paid on account;
-- agreeing, with the scheme Trustee, a deferral of
contributions to the UK pension fund for 12 months; and
-- temporary pay reductions for indirect employees, including a
25% reduction for the Executive Directors and 20% for the
Non-Executive Directors.
The above actions include making use of government support
packages being provided in different territories, particularly the
UK, Germany and USA, where we have sought to avoid redundancies
where possible.
In addition to the actions noted above to reduce costs and
preserve cash, we have also worked with our banks to revise
covenant structures creating additional flexibility in uncertain
operating conditions. More details of these temporary changes to
borrowing facilities are outlined in the Finance Director's
Review.
At 31 March 2020, our committed borrowing facilities were
GBP65.5m and the Group had headroom of GBP13.1m under these
committed facilities in addition to GBP15.6m of cash. Following the
early stages of implementation of the cash preservation actions
noted above, the Group's net debt at 31 May 2020 was GBP35.8m,
being GBP0.8m lower than at 31 March 2020. The Group was profitable
in both April and May 2020.
Chain performance review
2020 2019
GBPm GBPm
----------------------------------------------- ----- -----
Revenue 151.4 163.9
Foreign exchange - 1.8
----------------------------------------------- ----- -----
Revenue at constant exchange rates 151.4 165.7
Adjusted operating profit 14.0 18.4
Foreign exchange - 0.1
----------------------------------------------- ----- -----
Adjusted operating profit at constant exchange
rates 14.0 18.5
Statutory operating profit 11.2 15.3
----------------------------------------------- ----- -----
The Chain division experienced weakening market conditions
through the year with the most significant impact in the key
European and US markets. In the final quarter of the year, Covid-19
related disruption, initially in China, but more widespread in
March, further weakened revenue.
Partly as a result of market conditions, but also arising from
the ongoing strategic programme, productivity focused projects and
general cost reduction activities resulted in reduced headcount for
the division which at 31 March 2020 was 10.6% lower than at 31
March 2019. Revenue of GBP151.4m for the year was GBP14.3m (8.6%)
below the prior year at constant exchange rates.
European constant exchange rate revenue declined by 5.2% in the
first half of the year with the reduction accelerating to 7.7% in
the second half of the year, most significantly in March as
Covid-19 related disruption affected a number of markets across
Europe.
In the Americas, the market decline in the first half of the
year was more pronounced with fewer large projects resulting in
revenue reducing by 7.6% at constant exchange rates. Again, this
reduction accelerated in the second half of the year which was
16.3% lower at constant exchange rates. The combined 12.0%
reduction for the full year is not significantly affected by
Covid-19 and represents a significant slowdown across US markets,
especially for larger, capital-project chains.
In Australasia, a strong first half performance supported by
large projects was more than offset by the closure of the Malaysia
factory during March under Covid-19 restrictions and supply chain
disruption in Australia for Chinese sourced materials, resulting in
a constant exchange rate revenue decline for the year of 6.4%.
Domestic revenues in India also suffered in the year with
constant exchange rate revenue 12.2% lower. Growth in domestic
Chinese revenues was from a reduced base in the prior year as we
relocated the factory and revenue, at constant exchange rates, grew
by 5.8%, albeit from a low absolute base.
At constant exchange rates, order intake for the Chain division
of GBP148.3m was GBP19.0m (11.4%) below the previous year and total
orders for the year finished GBP3.0m (2.0%) behind sales.
Despite the revenue reduction, contribution margin, that is the
margin after all variable production costs as a percentage of
revenue, remained stable as variable costs, including direct
labour, were flexed in line with revenue.
The combined effect of these movements was the delivery of an
adjusted operating profit margin of 9.2% (2019: 11.2%).
Torque Transmission performance review
2020 2019 (re-presented)(1)
GBPm GBPm
------------------------------------------------------ ----- ----------------------
Revenue from continuing operations 38.0 35.7
Foreign exchange - 0.5
------------------------------------------------------ ----- ----------------------
Revenue from continuing operations at constant
exchange rates 38.0 36.2
Adjusted operating profit 5.1 3.3
Foreign exchange - 0.1
------------------------------------------------------ ----- ----------------------
Adjusted operating profit from continuing operations
at constant exchange rates 5.1 3.4
Statutory operating profit from continuing operations 4.7 3.3
------------------------------------------------------ ----- ----------------------
1 Results for the year ended 31 March 2019 have been
re-presented for discontinued activities associated with the
disposal of the South Africa business unit (see Note 19).
Revenue from continuing operations of GBP38.0m increased by
5.0%, at constant exchange rates, from the GBP36.2m delivered in
the prior year. On a statutory basis, revenue increased by
6.4%.
The Torque Transmission division experienced more challenging
market conditions as the year progressed, following similar trends
to the Chain division. However, the revenue phasing of the large
multi-year Couplings contract, combined with strong growth in key
customer projects in our US operations, was sufficient to more than
offset the market decline.
The Gears business unit made good progress following the
challenges that were encountered earlier in the year and which were
outlined in detail in the 31 March 2019 Revised Annual Report and
Accounts. New management for the business unit, along with a
re-energised team, have delivered margin improvements and cost
reductions while improving customer service.
The South African business unit was largely a stand-alone
operation within the division with only small levels of sourcing
from other manufacturing units in the division. The deteriorating
market environment in South Africa, along with small, but
consistent operating losses resulted in a business unit that was
likely to require continued cash investment, but with limited
future upside. This profile resulted in the business being
considered non-core and it was sold to its management team in
September 2019 for nominal consideration.
After adjusting for the discontinued South African operations,
the revenue growth was delivered with largely unchanged overheads
resulting in a 54.5% increase in adjusted operating profit to
GBP5.1m (2019: GBP3.3m). It is pleasing to note that all business
units in the division increased their adjusted operating profit in
the year. Statutory operating profit from continuing operations was
GBP4.7m (2019: GBP3.3m).
Order intake was GBP35.3m, which is 9.7% below the prior year at
constant exchange rates. Total orders finished the year GBP2.7m
(7.1%) behind sales.
Strategic Plan - update on progress
As previously outlined, the relocation of the Chinese factory to
Jintan was a major project, upgrading the infrastructure and
capability of our business in China. Having opened the new factory
and completed the transfer from the old factory by 31 March 2019,
the focus for the year was to improve operational productivity.
Upon transfer to the new site, a largely new operational workforce
was recruited and productivity suffered, as expected. Although not
as fast as originally envisaged, productivity has progressively
improved through the year with employee numbers reducing by almost
20% while increasing output. The financial benefit of this
operational improvement in the second half of the year was largely
offset by the Covid-19 related extended shutdown which impacted
profitability in China. However, as the site has returned to work,
productivity gains have returned quickly, positioning the facility
for improved performance when volumes recover.
As part of the Chinese factory move, we bought out our Chinese
partner's minority stake creating a wholly owned Chinese
subsidiary. In November 2019, the Group also purchased our joint
venture partner's remaining 25% share in the Indian chain business
unit. These projects complete the significant period of major
change in the Chain division and deliver on our objective of having
wholly owned chain manufacturing capabilities in each of the key
territories in which we operate.
Not only do these transactions ensure we have full ownership and
control in markets that are expected to grow significantly in the
coming years, they also support these manufacturing facilities
playing a greater part in the Group's supply chain strategies
without diluting profits through sharing with joint venture
partners.
Initial benefits from this strategy have already commenced with
India now fully participating within the Group's supply chain. As
the US introduced tariffs on Chinese manufactured products, Renold
was able to resource certain products from India, ensuring
continued supply. For European customers, India now provides
additional capability in conveyor chain applications. Short lead
time product can continue to be supplied through the Bredbury
service centre in the UK. However, this can now be supplemented by
lower cost but longer lead time product from India, ensuring
greater product coverage for our European customer base.
Progressive future investment will be required to upgrade and
align manufacturing capability across the chain facilities, but
this, along with increasingly standardised products and components
will allow us to access greater economies of scale and production
efficiencies.
The South African Torque Transmission business unit had been
loss making for a number of years. Despite a number of false
starts, the unit had been unable to grow revenue streams without
continuing to invest capital. While there were potential
opportunities that existed from operating in the South African
market, increasingly difficult market conditions and greater
opportunities for the Group elsewhere in the world resulted in the
unit being classified as non-core. The business unit was sold to
its management team for nominal consideration.
These projects highlight an intentional trend in capital
allocation decisions for the Group. With the large infrastructure
projects complete, capital allocation decisions are now less
frequently limited by a site's capability, but are focused on
customer service and optimising profitability. Especially for the
Chain division, this allows us to access economies of scale and
offer a truly global service.
Macroeconomic landscape and business positioning
We are living in unprecedented times, with levels of uncertainty
that do not permit any realistic assessment of market conditions
today, or whether such market conditions will continue into the
near-term future.
With this level of short-term uncertainty, it is necessary to
look at the underlying fundamentals of the Group and the markets we
serve. Many of these fundamentals are unchanged from when I joined
the Group seven years ago and include:
-- Valued and recognised brand and engineering expertise
Renold's brand has been built up over our 150 year history and
is trusted by customers.
-- Global market position and unique geographical manufacturing capability
Renold's global market position has existed for many years, but,
following significant strategic restructuring in the Chain
division, the geographical manufacturing footprint is unique,
permitting us to service customer demand with unparalleled levels
of flexibility - a critical factor in rapidly changing market
environments.
-- Low component cost, but critical products
Chain and torque transmission products are fundamental elements
of applications into which they are incorporated. Our products are
often a small proportion of cost when compared with the overall end
application, but without their seamless, reliable functioning can
undermine the entire product.
-- Broad base of customers and end-user markets
Renold's products are used in an extremely diverse range of end
applications resulting in a huge spread of customers and markets
served. While some markets will win and some markets will lose in
the current dynamically changing environment, Renold will benefit
from both diversification as well as the ability to focus
commercial efforts where opportunities are the greatest.
-- High specification products that deliver environmental benefits for customers
The Group's products have always been highly specified, premium
products which deliver environmental benefits to customers. Whether
through product efficiency leading to lower power usage, longer
life leading to lower overall usage of materials and energy, or
lower lubrication requirements, Renold's products are well placed
for an increasingly environmentally aware marketplace.
The progress made in leveraging these fundamentals through the
strategic plan has been significant with:
-- improvements in productivity and operational efficiency in
the year, continuing the improving trend in sales per employee
which has increased by almost 20% over five years;
-- improvement in levels of customer service being delivered
through the Group's 'Step 2 Service' programme; and
-- greater flexibility in the cost base as we start to reduce
the direct link between revenue and direct labour.
While revenue needs to recover to fully realise the financial
benefits of these improvements, the significant investment in
infrastructure and cost to change is largely at an end. As markets
recover, cash generated from trading will no longer be required to
support investment in substantial change programmes creating more
flexibility in capital allocation decisions.
In the near term, market demand will certainly fluctuate as the
world addresses the Covid-19 pandemic and certain aspects of life
may never return to pre Covid-19 norms. However, through the
benefits of the strategic programme already delivered, Renold is
more resilient and well positioned to navigate this period of
uncertainty.
Outlook
Prior to the Covid-19 pandemic, the Group was on track to
deliver improved adjusted operating margins despite a challenging
market backdrop resulting in a revenue decline. The combination of
a number of strands of the strategic plan were expected to be
sufficient to overcome the operational gearing effect of falling
revenue.
During the final quarter of the year, the initial impact of the
Covid-19 pandemic created short-term disruption and a number of
operational challenges. Renold reacted quickly to these challenges,
ensuring the safety and welfare of all our employees, compliance
with local restrictions and continuity of supply to customers,
while at the same time taking steps to reduce costs and preserve
cash flow.
The uncertainty caused by the Covid-19 pandemic is likely to
result in a period of volatile demand, preventing the Board from
giving specific guidance for the year ahead at this stage. The
Group's financial position has been strengthened by the flexibility
provided by our lenders and the Trustee of the UK pension scheme.
Together with the cost and cash actions taken, this supports the
Board's confidence that the Group will be able to manage through
the current period of disruption.
Renold holds a leading position in many of its markets and the
strategic programme that has been undertaken over the past years
has delivered a business far more resilient and better placed to
overcome the current challenges. Having successfully completed the
substantial infrastructure change programme, we will have greater
cash resources with which to accelerate our growth initiatives. As
a result, the Group is well positioned to capture the significant
opportunities available to it as markets stabilise and demand
recovers.
Robert Purcell
Chief Executive
Finance Director's Review
More challenging market conditions and the impacts of the
Covid-19 pandemic affected trading performance in the year.
However, the effect on adjusted operating margins has been
significantly mitigated as a result of cost reduction actions and
the benefits of strategic projects.
Re-presentation of results for the year ended 31 March 2019 and
impact of adoption of new accounting standards
Consistent with the treatment applied in the interim results for
the six months to 30 September 2019, we have revised the
presentation of 'adjusted' results in the income statement for the
year ended 31 March 2020. In previous years, the pension
administration costs and the IAS 19R finance charges have been
treated as adjusting items as they relate to historical pension
schemes which are not indicative of the underlying performance of
the operating businesses. While this continues to be the case,
Renold's treatment of these items differs from other companies in
the peer group and in order to assist users of the financial
statements, the legacy pension costs will no longer be treated as
adjusting items. The results for the year ended 31 March 2019 have
been re-presented on this basis.
As part of this re-presentation, and following the disposal of
the South African Torque Transmission business unit in the year,
the results for the year ended 31 March 2019 have also been
adjusted to separately identify the results of this business unit
as discontinued. A full reconciliation of this re-presentation is
set out in Note 19.
Renold has adopted IFRS 16 'Leases' with effect from 1 April
2019. Adoption of this standard changes the presentation of the
statement of comprehensive income and introduces right-of-use
assets and lease liabilities to the balance sheet. For the year
ended 31 March 2020, this has had the effect of increasing
operating profit by GBP0.5m, which is offset in finance costs with
no net impact in profit before tax. More details of the impact of
adoption of the accounting standard is set out in the accounting
policies note on pages 31 and 32. As the impact on operating profit
is considered small, particularly at the business unit level, I
have not attempted to adjust for this change when outlining year on
year changes in this report, or in other sections of the
announcement.
Orders and revenue
2019 (re-presented(1)
2020 )
--------------------------- ---------------------------
Order Operating Order Operating
Reconciliation to reported intake Revenue profit intake Revenue profit
results GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------- ------- --------- ------- ------- ---------
Continuing operations 183.6 189.4 10.1 203.9 199.6 15.4
Restructuring costs - - 2.4 - - 2.9
Pension past service credits - - - - - (4.4)
Amortisation of acquired
intangible assets - - 0.9 - - 0.9
------------------------------ ------- ------- --------- ------- ------- ---------
Adjusted 183.6 189.4 13.4 203.9 199.6 14.8
Impact of foreign exchange - - - 2.5 2.3 0.2
Adjusted at constant exchange
rates 183.6 189.4 13.4 206.4 201.9 15.0
------------------------------ ------- ------- --------- ------- ------- ---------
1 Results for the year ended 31 March 2019 have been
re-presented for discontinued activities associated with the
disposal of the South Africa business unit and certain changes to
the treatment of adjusting items (see Note 19).
Order intake for the Chain division was impacted by increasingly
challenging market conditions through the year with a reduction of
6.0%, at constant exchange rates, in the first half of the year
(2019: growth of 5.5%), accelerating to 17.5% in the second half
(2019: 4.0%). Together, this resulted in an overall decline in
constant exchange rate order intake of 11.4% for the year. Order
intake in the Chain division fell slightly behind revenue with the
ratio of orders to revenue (book-to-bill) being 98.0% in the year
(2019: 101.0%).
Orders from continuing operations in the Torque Transmission
division were also impacted by the deteriorating market conditions,
falling by 9.7% (2019: 4.2% reduction) at constant exchange rates.
The book-to-bill ratio for continuing operations for the division
was 92.8% (2019: 107.9%).
Group revenue from continuing operations for the year reduced by
GBP10.2m (5.1%) to GBP189.4m. Deteriorating market conditions
through the year combined with Covid-19 related disruption in the
final months of the year. As a result, reductions in constant
exchange rate revenue from continuing operations of 2.6% in the
first half of the year accelerated to a 9.7% reduction for the
second half.
On a divisional basis, the Chain division saw constant exchange
rate revenue from continuing operations decrease by 8.6% while
Torque Transmission increased by 5.0%.
Operating profit
The Group generated an adjusted operating profit from continuing
operations for the year of GBP13.4m (2019: GBP14.8m). Reported
operating profit from continuing operations after adjusting items
was GBP10.1m (2019: GBP15.4m).
Despite a 5.1% reduction in revenue from continuing operations,
adjusted operating margins fell by only 0.3 percentage points
during the year to 7.1% (2019: 7.4%). The operational leverage
acting on reducing revenue would normally result in a large drop in
adjusted operating margins. However, cost reductions in the face of
increasingly challenging market conditions combined with the
benefits of a number of strategic projects to mitigate a large
proportion of the negative operational leverage.
Foreign exchange rates
Foreign exchange rates have remained volatile during the year,
reflecting a depreciation of sterling against a number of
currencies through the year. The rates of our major currencies, USD
and EUR, have not moved significantly between our half year at 30
September 2019 to our year end at 31 March 2020. However, this
masks a period of significant volatility in the second half of the
year. The most significant movement for Renold has been the 5%
strengthening of the US dollar against sterling between March 2019
to March 2020. However, due to the phasing of movements over the
current and prior years, the impact on the weighted average
exchange rate used to translate US dollar only reflects a 3%
strengthening of the US dollar based on a weighted average rate of
1.27 for the year ended 31 March 2020 (2019: 1.31).
The sterling to euro rate has experienced similar volatility,
although the euro ended the year 3% stronger at 31 March 2020 when
compared to 31 March 2019. Again, phasing of movements over the
current and prior year mean the weighted average exchange rate used
to translate euro trading results is less volatile, strengthening
by 1% based on a rate of 1.14 for the year ended 31 March 2020
(2019: 1.13).
Mar 19 Sep 19 Sep 19 Mar 20 Mar 20
FX Rates (% of Group sales) FX rate FX rate Var % FX rate Var %
---------------------------- -------- -------- ------ -------- ------
GBPGBP / Euro (27%) 1.16 1.13 (3%) 1.13 (3%)
GBPGBP / US$ (37%) 1.30 1.23 (5%) 1.24 (5%)
GBPGBP / C$ (5%) 1.74 1.64 (6%) 1.77 2%
GBPGBP / A$ (5%) 1.83 1.83 nil% 2.03 11%
---------------------------- -------- -------- ------ -------- ------
If the year-end exchange rates had applied throughout the year,
there would be an estimated increase of GBP0.9m to revenue and no
change to operating profit.
Adjusting items
Costs of GBP1.5m, disclosed as a loss from discontinued
operations, relate to the disposal of the South African Torque
Transmission business unit and comprise asset write-downs (GBP1.2m)
and operating losses in the period (GBP0.3m).
Restructuring costs of GBP2.4m, shown as adjusting items in
calculating adjusted operating profit, arise principally from the
costs associated with headcount reductions, but also include costs
associated with the Indian joint venture purchase, the costs of
investigating the historical overstatement of profit in the Gears
business unit and closure costs associated with Australian branch
restructuring.
Financing costs
Total net interest costs in the year were GBP5.2m (2019:
GBP5.0m).
Total loan financing costs include external interest on bank
loans and overdrafts of GBP2.1m (2019: GBP1.9m), amortisation of
arrangement fees and costs of refinancing, including the additional
costs from the refinancing completed in March 2019, of GBP0.2m
(2019: GBP0.3m), and, for the first time following adoption of IFRS
16, GBP0.5m of interest expense on lease liabilities. In the prior
year, the cost of writing off remaining bank facility arrangement
fees from the old facility, arising as a result of amending and
extending the facility, was GBP0.3m.
The net IAS 19R finance charge (which is a non-cash item)
reduced slightly to GBP2.2m (2019: GBP2.4m).
Financing costs also include GBP0.2m resulting from the
unwinding of discounts on the deferred build costs of the Chinese
factory, classified as non-current trade and other payables. In the
prior year, the GBP0.1m on discount unwind on provision related to
the onerous lease provisions established for the Bredbury factory
site. Following adoption of IFRS 16, a stand-alone provision for
the onerous lease is no longer required but is included within
lease liabilities.
Profit before tax
Profit before tax was GBP4.9m (2019: GBP10.4m). Adjusted profit
before tax, which excludes restructuring costs and amortisation of
acquired intangible assets (plus in the prior year amortisation of
financing costs and discounts on provisions), was GBP8.2m (2019:
GBP10.2m).
Taxation
The current year tax charge of GBP1.5m (2019: GBP3.5m) is made
up of a current tax charge of GBP0.6m (2019: GBP1.1m) and a
deferred tax charge of GBP0.9m (2019: GBP2.4m). The tax charge in
the year to 31 March 2019 was high as a result of the deferred tax
charge on the pension past service credit arising in the year.
The Group cash tax paid was GBP1.6m (2019: GBP1.8m).
Group results for the financial period
A profit after tax of GBP1.9m was achieved for the financial
year ended 31 March 2020 (2019: GBP6.7m). Adjusted earnings per
share was 2.9p (2019: 3.1p). Basic earnings per share of 1.5p
compares to 3.0p for the year ended 31 March 2019.
Balance sheet
Net liabilities at 31 March 2020 were GBP0.4m (2019: net
liabilities GBP0.9m). Although net profit of GBP1.9m was delivered
for the year, including the impact of other elements, including the
adoption of IFRS 16 and acquisition of the Indian joint venture
share, ultimately results in a small decrease in net
liabilities.
Net liabilities continue to be impacted by the pension deficit
which, on an IAS 19R basis, decreased to GBP97.6m (2019:
GBP101.9m). The net liability for pension benefit obligations was
GBP80.2m (2019: GBP85.3m) after allowing for a net deferred tax
asset of GBP17.4m (2019: GBP16.6m). Overseas schemes now account
for GBP29.6m (30.3%) of the net pension deficits and GBP23.9m of
this is in respect of the German scheme which is unfunded.
Cash flow and borrowings
Cash generated from operating activities was GBP10.9m (2019:
GBP8.3m) and reflects the impact of changes to lease accounting
under IFRS 16. Gross capital expenditure in the year was GBP9.2m
(2019: GBP10.8m).
Working capital was GBP4.5m higher than in the prior year,
reflecting increased inventory holdings in support of improving
customer service through the 'Step 2 Service' programme and a
reduction in outstanding payables from the high level at 31 March
2019.
Group net debt at 31 March 2020 of GBP36.6m was GBP6.3m higher
than the opening position of GBP30.3m comprising cash and cash
equivalents of GBP15.6m (2019: GBP17.6m) and borrowings of GBP52.2m
(2019: GBP47.9m). The increase in net debt reflects the investment
in the new Chinese factory, purchase of the Indian joint venture
share plus capital investment across the Group.
Debt facility and capital structure
In March 2019, the Group's core banking facilities were amended
and extended to March 2024. Following the amendment, the Group's
committed multi-currency revolving credit facility (MCRF) totalled
GBP61.5m, with an additional GBP20.5m accordion facility providing
a route to additional funding if required, although this element is
not committed. As a result of the extension of term, the facility
matures in March 2024.
At 31 March 2020, the Group had unused credit facilities
totalling GBP13.1m and cash balances of GBP15.6m. Total Group
credit facilities amounted to GBP65.5m, all of which were
committed.
The Group's facilities contain both leverage and interest cover
covenants, tested semi-annually. The net debt/adjusted EBITDA ratio
as at 31 March 2020 was 1.7 times (covenant requirement: up to 2.5
times; 2019: 1.3 times), calculated in accordance with the banking
agreement. The adjusted EBITDA/interest cover as at 31 March 2019
was 9.0 times (covenant requirement: greater than 4.0 times; 2019:
10.0 times), again in accordance with the banking agreement.
While liquidity remains sufficient under the bank facility, the
unprecedented economic uncertainty arising from the Covid-19
pandemic results in a degree of risk around the Group's ability to
remain within its leverage covenant in the future. Therefore, the
Group has agreed with its banking partners to amend the covenant
structure over the next 16 months to September 2021. This revised
structure replaces the net debt to EBITDA and EBITDA to net
financing charge tests with minimum rolling 12-month EBITDA and
minimum available liquidity tests at quarterly test dates, creating
additional flexibility in uncertain operating conditions. We expect
to remain within the revised covenant levels, even in a severe but
plausible scenario which the Group has modelled, and which is
described in the Going Concern section below.
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.
Further information in relation to the Group's business
activities, together with the factors likely to affect its future
development, performance and position is set out in the Chairman's
Letter, the Chief Executive's Review, the Finance Director's Review
and the Principal Risks and Uncertainties which are summarised on
pages 18 to 23. Additional details of the Group's cash balances and
borrowings and facility are included in Notes 13, 14 and 17.
The facility has historically been subject to two covenants,
which are tested semi-annually: net debt to EBITDA (leverage) and
EBITDA to net finance charges. In recognition of the current
macroeconomic uncertainty, the Group's banks have amended the
covenant test structure, replacing the existing tests with minimum
rolling 12-monthly EBITDA and minimum available liquidity tests,
tested on a quarterly basis for the period to March 2021. After
March 2021, the facility reverts to the original net debt to EBITDA
and EBITDA to net finance charge covenants, but with a greater
level of flexibility (i.e. 3.5 times net debt to EBITDA versus
original 2.5 times) until September 2021 when the original covenant
tests resume.
The Directors believe that the Group is well placed to manage
its business risks and, after making enquiries including a review
of forecasts and predictions, taking account of reasonably possible
changes in trading performances and considering the existing
banking facilities, including the available liquidity and amended
covenant structure, have a reasonable expectation that the Group
has adequate resources to continue in operational existence for the
next 12 months following the date of approval of the financial
statements.
The uncertainty as to the future impact on the Group of the
current Covid-19 pandemic has been considered as part of the
Group's adoption of the going concern basis. Our Chinese
manufacturing facility reopened in March 2020 and all other
facilities which had been closed due to national restrictions have
now reopened, although some with reduced staffing levels. Across
the Group, public health measures advised by governments are being
followed, operating costs have been reduced, including by utilising
government-backed support schemes to maintain employment, and
capital expenditure and other cash demands are being managed.
As part of its assessment, the Board has considered downside
scenarios that reflect the current unprecedented uncertainty in the
global economy and which we consider to be severe but plausible.
The results of these scenarios show that there is sufficient
liquidity in the business for a period of at least 12 months from
the date of approval of these financial statements. However, the
most severe downside case indicates the potential for a covenant
breach during the test period, notwithstanding the recent changes
to the covenants over the period to 30 September 2021 which create
greater headroom. Lenders remain supportive, as indicated by the
recent covenant amendments, and further flexibility may be
available in the future if required. The most severe scenario
considered assumed Group revenue being more than 20% below revenues
for the year ended 31 March 2020, and more than 25% below revenues
in the year ended 31 March 2019, being the last period which was
not impacted by the Covid-19 pandemic. Set against this were
mitigating actions including discretionary cost reductions,
management of headcount, utilisation of government schemes to
maintain employment, pay reductions across a broad range of global
employees, and cash preservation actions including deferral of
contributions to the UK pension scheme, deferral of rent and tax
payments and significant reductions to capital expenditure.
The most severe but plausible downside scenario, arising due to
risk over level of future revenue, indicates a material uncertainty
related to events or conditions which may cast significant doubt
over the Company's and Group's ability to continue as a going
concern in the event that, following a covenant breach, lenders
elected to trigger a repayment of outstanding debt. In such
circumstances and without further mitigating actions, the Company
and Group may be unable to realise assets and discharge liabilities
in the normal course of business. The Company and Group
consolidated financial statements do not include the adjustments
that would result if the Company and Group were unable to continue
as a going concern.
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
consolidated financial statements.
Treasury and financial instruments
The Group's treasury policy, approved by the Board, 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 are designated as a hedge of
the net investment in US subsidiaries. At 31 March 2020 this hedge
was fully effective. The carrying value of these borrowings at 31
March 2020 was GBP7.3m (2019: GBP6.7m).
At 31 March 2020, the Group had 1% (2019: 1%) 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.
Pension assets and liabilities
The Group has a mix of UK (82% of gross liabilities) and
overseas (18%) defined benefit pension obligations as shown
below.
2020 2019
------------------------ ---------------------------- ----------------------------
Assets Liabilities Deficit Assets Liabilities Deficit
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ------ ----------- ------- ------ ----------- -------
Defined benefit schemes
UK scheme 128.9 (196.9) (68.0) 138.6 (211.2) (72.6)
Overseas schemes 12.8 (42.4) (29.6) 13.8 (43.1) (29.3)
------------------------ ------ ----------- ------- ------ ----------- -------
141.7 (239.3) (97.6) 152.4 (254.3) (101.9)
Deferred tax asset 17.4 16.6
------------------------ ------ ----------- ------- ------ ----------- -------
Net deficit (80.2) (85.3)
------------------------ ------ ----------- ------- ------ ----------- -------
The Group's retirement benefit obligations decreased from
GBP101.9m (GBP85.3m net of deferred tax) at 31 March 2019 to
GBP97.6m (GBP80.2m net of deferred tax) at 31 March 2020. The
largest element of the decrease relates to the UK scheme where the
deficit decreased from GBP72.6m to GBP68.0m. Reflecting changes in
assumptions for discount rates and inflation rates, the deficit of
the overseas schemes increased by GBP0.3m to GBP29.6m.
UK funded scheme
The deficit of the UK scheme decreased in the year to GBP68.0m
(2019: GBP72.6m) reflecting a number of changes in assumptions and
factors.
The net reduction in liabilities of GBP14.3m arises from a
combination of the inflation assumption reducing (CPI of 2.0%
compared with 2.4% in the prior year), experience gains from
mortality being greater than assumed in the calculation of
liabilities and settlement of liabilities through pension payments
and transfers out of the scheme.
Offsetting the reduction in liabilities is a reduction in scheme
assets through the combined effects of payments of benefits and
reductions in asset values reflecting the impact on equity markets
of the Covid-19 pandemic, partially offset by contributions paid
into the scheme.
The latest triennial actuarial valuation of the UK Scheme, with
an effective date of 5 April 2019, was agreed in March 2020 and
identified a deficit of GBP9.1m. This is significantly lower than
the IAS 19R deficit, largely as the triennial valuation places a
value on the Group's future cash payments to the scheme under the
central asset reserve structure established in June 2013. It is
expected that the triennial valuation deficit can be recovered
through asset outperformance, above the prudent levels assumed in
the valuation, over the remaining life of the scheme. As a result,
there are no changes to the contribution arrangements.
Contributions in the year ended 31 March 2020 were GBP3.1m (2019:
GBP3.0m), increasing annually in future by RPI plus 1.5% capped at
5%. Additional contributions will be due to the scheme in future
based on 25% of any dividend paid or GBP1.0m per annum if the Group
delivers adjusted operating profit of over GBP16.0m. The next
triennial valuation date will be as at 5 April 2022.
In the period since 31 March 2020, reflecting the uncertainty in
short term outlook caused by the Covid-19 pandemic, Renold
approached the Trustees with a request to defer contributions to
the UK scheme for a 12-month period to 31 March 2021. The Trustees
supported this proposal and it was agreed that the deferred
contributions will be repaid over a five-year period commencing on
1 April 2022. Certain other conditions were required to secure the
deferral including an additional contribution to the scheme of 25%
of any dividends paid (above the already existing 25%) until such
time as the deferred contributions have been made good.
Overseas schemes
The largest element of the overseas schemes is the German
unfunded scheme, with a total deficit of GBP23.9m. Other overseas
funded schemes comprise a number of smaller schemes around the
world, with a combined deficit of GBP5.7m. The combined deficits of
all the overseas schemes were largely unchanged, increasing by
GBP0.3m. These changes were most significantly a reduction in the
liability of the unfunded German scheme due to reduced inflation
assumptions, offset by increased liabilities in the US schemes due
to reduced discount rates.
For overseas pension schemes, the Company contributions in the
year were GBP1.3m (2019: GBP1.6m).
Control environment improvements in response to historical
misstatement of results in the Gears business unit
Following the events reported on in the revised Annual Report
and Accounts for the year ended 31 March 2019 relating to the
historical misstatement of results in the Gears business unit,
significant progress has been made in implementing the findings and
recommendations from the independent investigation and from the
Group's Auditor. Control environment enhancements include:
-- Greater levels of approval, review and oversight across all levels of financial reporting.
-- Ongoing activity designed to reduce the level of manual input
required, with certain solutions being rolled out alongside the
wider M3 ERP system roll-out across the Group.
-- Additional manual compliance and control checks being
implemented until the adoption of systemised solutions being rolled
out across the Group.
-- Amendment of the Group's internal audit programme with a
greater focus on financial control compliance.
Ian Scapens
GROUP 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.
1 MACROECONOMIC AND POLITICAL VOLATILITY
----------------------------------------------------------------------- ---------------------------------------------
DETAILED RISK POTENTIAL IMPACT
Material changes in prevailing Potential touchpoints include:
macroeconomic or political conditions -- Commodity prices which have
could have a detrimental impact a negative impact on demand in
on business performance. We operate the whole supply chain. -- Changes
in 17 countries and sell to customers to tariffs and import duties which
in over 100 and therefore we are can distort customer buying decisions.
necessarily exposed to economic -- Foreign exchange volatility
and political risks in these territories. can impact customer buying patterns,
leading to lower demand or the
need to rapidly switch supply
chains.
--------------------------------------------------------------------- -----------------------------------------------
EXISTING MITIGATION CONTROLS
-- Our diversified geographic footprint inherently exposes us
to more countries where risks arise but conversely provides
some degree of resilience and flexibility. -- Actions to lower
the Group's overall breakeven point also serve to reduce the
impact of any global economic slowdown. -- A focus on 'predict
and respond', e.g. sales forecasting and raw material price
monitoring, leading to operational change such as sales price
increases or cost reductions. -- Strong core banking group with
multi-currency debt facility. Covenants amended for period to
30 September 2021.
FY20 risk trend impacted by political risk, restricting free
movement of goods, combined with an increased macroeconomic
risk arising from the after-effects of the Covid-19 pandemic.
Significant management actions have been implemented in mitigation.
----------------------------------------------------------------------------------------------------------------------
2 STRATEGY EXECUTION
-------------------------------------------------------------------------- --------------------------------------
DETAILED RISK POTENTIAL IMPACT
The Group's strategy requires While these projects are designed
the co-ordinated delivery of a to deliver targeted benefits,
number of complex projects, e.g. they have the potential to negatively
during the year we have been improving impact the Group's operations
the performance of the recently if not appropriately managed.
relocated Chinese factory.
------------------------------------------------------------------------ ----------------------------------------
EXISTING MITIGATION CONTROLS
-- The Strategic Plan has been developed to deliver a turnaround
in performance and to make that performance more stable and
less exposed to revenue volatility. -- The Board reviews progress
against the different strategic projects in each of its meetings.
This is based on a regularly updated report from the CEO which
groups the individual projects into themes linked directly to
our Strategic Objectives. -- Major projects are all managed
in accordance with best practice project management techniques
with at least one member of the Executive team on the relevant
Steering Committees.
FY20 risk trend decreasing as major infrastructure changes (such
as the China factory relocation) are largely completed.
------------------------------------------------------------------------------------------------------------------
3 CORPORATE TRANSACTIONS/BUSINESS DEVELOPMENT
------------------------------------------------------------------------------ --------------------------------------
DETAILED RISK POTENTIAL IMPACT
Part of the Group's strategy is -- Any corporate transaction involves
to grow through selective acquisitions. risks at various stages of the
Performance of acquired businesses project life cycle. -- During
may not reach expectations, impacting the acquisitions phase, value
Group profitability and cash flows. can be lost through over-paying,
Similarly, poorly managed asset missing key issues in due diligence
sales may result in under-achievement or potential value leakage through
of value. poor contract negotiation. Value
can also be lost through a poorly
planned or executed integration
phase. Finally, failure to deliver
anticipated benefits during the
'business as usual' phase can
also lead to a loss of value.
-- A poorly managed asset sale
or corporate disposal may realise
a lower value.
---------------------------------------------------------------------------- ----------------------------------------
EXISTING MITIGATION CONTROLS
-- Monitoring of specific acquisition targets: Business Acquisition
Process incorporating Concept Evaluation, Business Case, Indicative
Offer/Heads of Terms, Due Diligence (covering a range of criteria),
Integration Planning and Execution and Post Integration Appraisal
which in turn feeds back to the Business Acquisition Process.
-- Use of third party specialists to address risks specific
to each corporate transaction. -- Formation of top-down cross-functional
project teams and plans. These specifically address any issues
or risks identified during the planning and due diligence processes.
-- Deployment of detailed benefits realisation plans.
FY20 risk trend unchanged.
----------------------------------------------------------------------------------------------------------------------
4 HEALTH AND SAFETY IN THE WORKPLACE
---------------------------------------------------------------------------- ----------------------------------------
DETAILED RISK POTENTIAL IMPACT
The risk of death or serious injury Accidents caused by a lack of
to employees or third parties robust safety procedures could
associated with Renold's worldwide result in life-changing impacts
operations. for employees, visitors or contractors.
We are proud of the progress we This will always be unacceptable.
have made in recent years, but In addition, accidents could result
recognise that we have more to in civil or criminal liability
do. for both the Group and the Directors
and officers of the Group and
Group companies, leading to financial
loss or reputational damage.
-------------------------------------------------------------------------- ------------------------------------------
EXISTING MITIGATION CONTROLS
-- Group policies and a Group-wide management system known as
the Framework, to set control expectations, with a support training
programme for all managers. -- The Group operates a rolling
programme of health and safety audits to assess compliance against
the Framework. -- Continual hazard assessments to ensure awareness
of risks. -- Live tracking of accident rates and root cause
analysis via the IRMS plus monthly Board reporting focused on
a range of KPIs. -- Specific initiatives include the BAT (Be
safe; Act safe; Think safe) safety logo and the Annual Health
and Safety Awards Scheme to recognise success.
FY20 risk trend unchanged. No matter what mitigating actions
are undertaken, there remains a risk of death or serious injury.
We therefore continue to assess the risk as the highest possible
impact, but through the mitigation actions seek to reduce the
likelihood. Significantly improving our health and safety performance
continues to be our number one strategic objective.
----------------------------------------------------------------------------------------------------------------------
5 EFFECTIVE DEPLOYMENT AND UTILISATION OF INFORMATION TECHNOLOGY
SYSTEMS
----------------------------------------------------------------------- ---------------------------------------------
DETAILED RISK POTENTIAL IMPACT
We seek to leverage the use of -- Interruption or failure of
IT to achieve competitive advantage. IT systems (including the impact
The Group continues to implement of a cyber-attack) would negatively
a global ERP system to replace impact or prevent some business
numerous legacy systems which activities from occurring. If
inherently brings with it the the interruption was long lasting,
risks associated with a large-scale significant damage could be done
change programme. to the business. -- It is essential
that we are able to rely on the
data derived from our business
system to feed routine but fundamental
business performance monitoring.
-- An unsuccessful implementation
of the global ERP system has the
potential to materially impact
that site's, and possibly the
Group's, performance.
--------------------------------------------------------------------- -----------------------------------------------
EXISTING MITIGATION CONTROLS
-- Short-term stabilisation of existing hardware and legacy
software platforms. -- Governance and control arrangement operating
over the Group's ERP implementation programme. -- New ERP systems
are successfully implemented at four locations. -- Use of specialist
external consultants and recruitment of experienced personnel.
-- Phased implementation rather than 'big bang', along with
project assurance and 'lessons learned' reviews to continuously
improve the quality of successive roll-outs. -- Steering Committee
in operation with cascading project management disciplines.
-- A range of preventative and detective controls to manage
the risk of a cyber-attack, including technical solutions in
addition to employee training programmes. -- Regular system
maintenance and upgrades, including patching, to ensure known
vulnerabilities are protected.
The overall risk for FY20 is unchanged, as the decreasing risk
of system reliance as we roll out new systems is offset by the
increased cyber-crime and cyber-fraud environment.
----------------------------------------------------------------------------------------------------------------------
6 PROLONGED LOSS OF A MANUFACTURING SITE
------------------------------------------------------------------------- -------------------------------------------
DETAILED RISK POTENTIAL IMPACT
A catastrophic loss of the use -- In the short or long term,
of all or a significant portion a related risk event could adversely
of a strategic production facility. affect the Group's ability to
This could result from an accident, meet the demands of its customers.
a strike by employees, a significant -- Specifically, this could entail
disease outbreak, major disruption significant repair costs or costs
to supply chains, fire, severe of alternate supply. A significant
weather or other cause outside proportion of the Group's revenue
of management control. is on relatively short lead times
and a break in our supply chain
could result in loss of revenue.
All of this translates into lower
sales and profits and reduced
cash flow.
----------------------------------------------------------------------- ---------------------------------------------
EXISTING MITIGATION CONTROLS
-- Preventative maintenance programmes and new investments to
reduce risk of interruption of manufacturing. -- A Group Fire
Safety Policy mandating preventative, detective and containment
controls. -- Alternate manufacturing capacity exists for a growing
portion of the Group's product range, with this manufacturing
capability spread across geographic territories. -- Inventory
maintained to absorb and flatten out shorter-term raw material
supply and production volatility risks. -- The Group has comprehensive
insurance policies to mitigate the impact of a number of these
risks, albeit subject to carve out of cover for specific risks
(e.g. SARS and related disease outbreak) and claim limits. --
Amendments to operational processes to permit social distancing
along with other Covid-19-related disease transmission procedures
implemented at all operational sites.
The risk trend for FY20 is categorised as unchanged, largely
as a result of already being classified at maximum risk levels.
The Covid-19 pandemic has crystallised this risk at certain
locations, but changes to operating procedures and other health
and safety actions have been implemented in mitigation.
----------------------------------------------------------------------------------------------------------------------
7 PEOPLE AND CHANGE
------------------------------------------------------------------------- -------------------------------------------
DETAILED RISK POTENTIAL IMPACT
The Group's operations are dependent Failure to retain, attract or
upon the ability to attract and motivate the required calibre
retain the right people with an of employees will negatively impact
appropriate range of skills and business performance. The delivery
experience. of the Strategic Plan and our
Succession planning and the ability strategic goals may also be delayed.
to swiftly replace staff retiring
or leaving is also critical.
----------------------------------------------------------------------- ---------------------------------------------
EXISTING MITIGATION CONTROLS
-- Competitive reward programmes, focused training and development,
and a talent retention programme. -- Ongoing reviews of succession
plans based on business needs. -- Performance management and
personal development programmes introduced alongside training
initiatives. -- Management team strengthened with new capability
from external hires and internal promotions. -- The Renold Values,
launched in 2015, continue to be embedded and are linked to
recruitment processes for new employees.
FY20 risk trend increasing as higher levels of employment are
increasing the challenge of attracting high quality individuals.
----------------------------------------------------------------------------------------------------------------------
8 LIQUIDITY, FOREIGN EXCHANGE AND BANKING ARRANGEMENTS
------------------------------------------------------------------------ --------------------------------------------
DETAILED RISK POTENTIAL IMPACT
A lack of sufficient liquidity -- Potentially cause under-investment
and flexibility in banking arrangements and sub-optimal short-term decision
could inhibit the Group's ability making. -- Limiting investment
to invest for the future or, in could prevent efficiency savings
extremes, restrict day-to-day and reduce competitiveness. --
operations. In an extreme situation, the Group's
In the past, banking markets and ability to operate as a going
Renold's own performance have concern could also be jeopardised.
made access to debt facilities
difficult.
---------------------------------------------------------------------- ----------------------------------------------
EXISTING MITIGATION CONTROLS
-- The Group's primary banking facility expires in March 2024
and is fully available given current levels of profitability.
-- The facility includes additional drawdown capability, accessible
as long as financial covenants are complied with. -- Covenants
amended through to 30 September 2021 in response to uncertainty
arising from the Covid-19 pandemic and its global macroeconomic
impact. -- Rolling foreign exchange forward contracts covering
expected future cash flows.
FY20 risk trend increased. Facilities continue through to March
2024, but uncertainty arising due to the Covid-19 pandemic reduces
visibility of future performance and increases the risk of a
future covenant breach.
----------------------------------------------------------------------------------------------------------------------
9 PENSIONS DEFICIT VOLATILITY
----------------------------------------------------------------------- ---------------------------------------------
DETAILED RISK POTENTIAL IMPACT
The principal pensions risk is -- Given the Group's cash needs
that short-term cash funding requirements to invest in the business, the
of legacy pension schemes diverts pace of performance improvement
much needed investment away from could be slowed if cash has to
the Group's operations. be diverted to the pension schemes.
Secondly, the size of the reported -- The balance sheet pension deficit
balance sheet deficit can operate and its volatility could act as
as a disincentive to potential a disincentive to potential investors
investors or other stakeholders and could reduce the Group's ability
limiting the Group's ability to to raise new equity or debt financing,
raise financing on capital markets. limiting the strategic options
Thirdly, balance sheet deficits open to the Group.
can fluctuate based on market
conditions outside the control
of management.
--------------------------------------------------------------------- -----------------------------------------------
EXISTING MITIGATION CONTROLS
-- The UK triennial funding review has been updated to March
2022. -- The major UK pension cash flows (over 50% of all defined
benefit pension cash costs) are stable under the 25-year asset-backed
funding scheme put in place during 2013. A further 25% of the
annual cash flows are pensions in payment in Germany in a mature
scheme that has passed its peak funding requirement.
FY20 risk trend is unchanged as underlying factors have not
significantly changed from the prior year.
----------------------------------------------------------------------------------------------------------------------
10 REGULATORY AND LEGAL COMPLIANCE
------------------------------------------------------------------ --------------------------------------------------
DETAILED RISK POTENTIAL IMPACT
The risk of censure, fine or business Failure by the Group or its representatives
prohibition as a result of any to abide by applicable laws and
part of the Group failing to comply regulations could result in:
with regulatory or legal obligations. -- Administrative, civil or criminal
Risks related to regulatory and liability. -- Significant fines
legislative changes include the and penalties. -- Suspension of
inability of the Group to comply the Group from trading. -- Reputational
with current, changing or new damage.
requirements.
Many of the Group's business activities
are subject to increasing regulation
and enforcement by relevant authorities.
---------------------------------------------------------------- ----------------------------------------------------
EXISTING MITIGATION CONTROLS
-- Communication of a clear compliance culture. -- Risk assessments
and ongoing compliance reviews at least annually at all major
locations. -- Published up-to-date policies and procedures with
clear guidance and training issued to all employees. -- Monitoring
of compliance with nominated accountable managers in each business
unit.
FY20 risk trend unchanged.
----------------------------------------------------------------------------------------------------------------------
Responsibility statement of the Directors on the annual report
and financial statements
The responsibility statement below has been prepared in
connection with the company's full annual report for the year
ending 31 March 2020. Certain parts thereof are not included within
this announcement.
We confirm to the best of our knowledge:
-- the financial statements, prepared in accordance with
International Financial Reporting Standards as adopted by the EU,
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;
-- the strategic report includes a fair review of the
development and performance of the business and the position of the
company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties they face; and
-- the annual report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for shareholders to assess the company's performance,
business model and strategy.
Consolidated Income Statement
for the year ended 31 March 2020
2019 (re-presented(2)
2020 )
Statutory Adjustments Adjusted(1) Statutory Adjustments Adjusted(1)
Note GBPm GBPm GBPm GBPm GBPm GBPm
============================== ===== ========== ============ ============ ========== ============ ============
Revenue 1 189.4 - 189.4 199.6 - 199.6
Operating costs 2 (179.3) 3.3 (176.0) (184.2) (0.6) (184.8)
------------------------------ ----- ---------- ------------ ------------
Operating profit 10.1 3.3 13.4 15.4 (0.6) 14.8
---------- ------------ ------------
Operating profit is analysed
as: 2
Before adjusting items 10.1 - 10.1 15.4 - 15.4
Restructuring costs - 2.4 2.4 - 2.9 2.9
Amortisation of acquired
intangible assets - 0.9 0.9 - 0.9 0.9
Pension past service
credits - - - - (4.4) (4.4)
Operating profit 10.1 3.3 13.4 15.4 (0.6) 14.8
------------------------------ ----- ---------- ------------ ------------ ---------- ------------ ------------
Net financing costs 3 (5.2) - (5.2) (5.0) 0.4 (4.6)
------------------------------ ----- ---------- ------------ ------------ ---------- ------------ ------------
Profit before tax 4.9 3.3 8.2 10.4 (0.2) 10.2
Taxation 4 (1.5) - (1.5) (3.5) 0.5 (3.0)
Profit for the financial
year from continuing
operations 3.4 3.3 6.7 6.9 0.3 7.2
Discontinued operations 19 (1.5) 1.5 - (0.2) 0.2 -
------------------------------ ----- ---------- ------------ ------------ ---------- ------------ ------------
Profit for the financial
year 1.9 4.8 6.7 6.7 0.5 7.2
------------------------------ ----- ---------- ------------ ------------ ---------- ------------ ------------
Attributable to:
Owners of the parent 1.8 6.5
Non-controlling interest 0.1 0.2
1.9 6.7
------------------------------ ----- ---------- ------------ ------------ ---------- ------------ ------------
Earnings per share from
continuing operations 5
Basic earnings per share 1.5p 2.9p 3.0p 3.1p
Diluted earnings per
share 1.5p 2.9p 2.9p 3.0p
Earnings per share from
continuing and discontinued
operations 5
Basic earnings per share 0.8p 2.9p
Diluted earnings per
share 0.8p 2.8p
------------------------------ ----- ---------- ------------ ------------ ---------- ------------ ------------
1. Adjusted: In addition to statutory reporting, the Group
reports certain financial metrics on an adjusted basis. Definitions
of adjusted measures, and information about the differences to
statutory metrics are provided in Note 20.
2. The results for the year ended 31 March 2019 have been
re-presented to reflect discontinued operations and changes to the
treatment of adjusting items, see Note 19 for further details.
Consolidated Statement of Comprehensive Income
for the year ended 31 March 2020
2020 2019
GBPm GBPm
============================================================
Profit for the financial year 1.9 6.7
Other comprehensive income/(expense):
Items that may be reclassified to the income statement
in subsequent periods:
Exchange differences on translation of foreign operations 1.8 2.7
Loss on hedges of the net investment in foreign operations (0.4) (0.5)
Cash flow hedges:
Loss arising on cash flow hedges during the period (0.3) (0.7)
Less: Cumulative gain arising on cash flow hedges
reclassified to profit and loss 0.4 -
Income tax relating to items that may be reclassified
subsequently to profit or loss 0.1 -
------------------------------------------------------------ ------
1.6 1.5
Items not to be reclassified to the income statement
in subsequent periods:
Remeasurement gains/(losses) on retirement benefit
obligations 3.1 (11.2)
Tax on remeasurement gains/losses on retirement benefit
obligations - excluding impact of statutory rate change (0.7) 2.1
Effect of changes in statutory tax rate on deferred
tax assets 1.3 -
------------------------------------------------------------
3.7 (9.1)
------------------------------------------------------------ ------ -------
Other comprehensive income/(expense) for the year,
net of tax 5.3 (7.6)
------------------------------------------------------------ ------ -------
Total comprehensive income/(expense) for the year,
net of tax 7.2 (0.9)
------------------------------------------------------------ ------ -------
Attributable to:
Owners of the parent 7.1 (1.1)
Non-controlling interest 0.1 0.2
------------------------------------------------------------
7.2 (0.9)
------------------------------------------------------------ ------ -------
Consolidated Balance Sheet
as at 31 March 2020
2020 2019
Note GBPm GBPm
============================================== ===== ======== ========
ASSETS
Non-current assets
Goodwill 7 24.0 23.1
Other intangible assets 8 8.0 6.6
Property, plant and equipment 9 53.3 55.5
Right-of-use assets 10 11.3 -
Deferred tax assets 20.4 21.5
117.0 106.7
---------------------------------------------- ----- -------- --------
Current assets
Inventories 11 46.1 44.3
Trade and other receivables 12 35.8 37.5
Current tax 1.5 -
Cash and cash equivalents 13 15.6 17.6
99.0 99.4
---------------------------------------------- ----- -------- --------
TOTAL ASSETS 216.0 206.1
---------------------------------------------- ----- -------- --------
LIABILITIES
Current liabilities
Borrowings 14 (0.3) -
Trade and other payables 15 (37.6) (42.1)
Lease liabilities 10 (3.0) -
Current tax (1.0) (0.4)
Derivative financial instruments (0.3) (0.4)
Provisions 16 (0.7) (0.8)
(42.9) (43.7)
---------------------------------------------- ----- -------- --------
NET CURRENT ASSETS 56.1 55.7
---------------------------------------------- ----- -------- --------
Non-current liabilities
Borrowings 14 (51.4) (47.4)
Preference stock 14 (0.5) (0.5)
Trade and other payables 15 (5.3) (5.4)
Lease liabilities 10 (14.1) -
Deferred tax liabilities (4.6) (5.6)
Retirement benefit obligations (97.6) (101.9)
Provisions 16 - (2.5)
(173.5) (163.3)
---------------------------------------------- ----- -------- --------
TOTAL LIABILITIES (216.4) (207.0)
---------------------------------------------- ----- -------- --------
NET LIABILITIES (0.4) (0.9)
---------------------------------------------- ----- -------- --------
EQUITY
Issued share capital 11.3 11.3
Share premium account 30.1 30.1
Capital redemption reserve 15.4 15.4
Currency translation reserve 11.9 10.4
Other reserves (0.3) (0.4)
Retained earnings (68.8) (69.9)
---------------------------------------------- ----- --------
Equity attributable to equity holders of the
parent (0.4) (3.1)
Non-controlling interests - 2.2
---------------------------------------------- ----- -------- --------
TOTAL SHAREHOLDERS' DEFICIT (0.4) (0.9)
---------------------------------------------- ----- -------- --------
Approved by the Board on 16 June 2020 and signed on its behalf
by:
Robert Purcell Ian Scapens
CHIEF EXECUTIVE FINANCE DIRECTOR
Consolidated Statement of Changes in Equity
for the year ended 31 March 2020
Share Currency Capital Attributable Non-
Share premium Retained translation redemption Other to owners controlling Total
capital account earnings reserve reserve reserves of parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================== ======== ======== ========= ============ =========== ========= ============= ============ =======
At 31 March
2018 11.3 30.1 (67.7) 7.1 15.4 1.4 (2.4) 2.0 (0.4)
Profit for
the year - - 6.5 - - - 6.5 0.2 6.7
Other
comprehensive
income/(expense) - - (9.1) 3.3 - (1.8) (7.6) - (7.6)
------------------ -------- -------- --------- ------------ ----------- --------- ------------- ------------ -------
Total
comprehensive
income/(expense)
for the year - - (2.6) 3.3 - (1.8) (1.1) 0.2 (0.9)
Share based
payments - - 0.4 - - - 0.4 - 0.4
------------------ -------- -------- --------- ------------ ----------- --------- ------------- ------------ -------
At 31 March
2019 11.3 30.1 (69.9) 10.4 15.4 (0.4) (3.1) 2.2 (0.9)
Impact of
adoption of
IFRS 16 - - (4.3) - - - (4.3) - (4.3)
------------------ -------- -------- --------- ------------ ----------- --------- ------------ -------
At 1 April
2019 11.3 30.1 (74.2) 10.4 15.4 (0.4) (7.4) 2.2 (5.2)
Profit for
the year - - 1.8 - - - 1.8 0.1 1.9
Other
comprehensive
income - - 3.7 1.5 - 0.1 5.3 - 5.3
Total
comprehensive
income for
the year - - 5.5 1.5 - 0.1 7.1 0.1 7.2
Acquisition
of
non-controlling
interest - - 0.5 - - - 0.5 (2.3) (1.8)
Share based
payments - - (0.6) - - - (0.6) - (0.6)
At 31 March
2020 11.3 30.1 (68.8) 11.9 15.4 (0.3) (0.4) - (0.4)
------------------ -------- -------- --------- ------------ ----------- --------- ------------- ------------ -------
Consolidated Statement of Cash Flows
for the year ended 31 March 2020
2020 2019
GBPm GBPm
========================================================= ======= =======
Cash flows from operating activities (Note 17)
Cash generated from operations 12.5 10.1
Income taxes paid (1.6) (1.8)
Net cash flow from operating activities 10.9 8.3
--------------------------------------------------------- ------- -------
Cash flows from investing activities
Proceeds from property disposals 0.1 -
Purchase of property, plant and equipment (6.7) (9.2)
Purchase of intangible assets (2.5) (1.6)
Disposal of business (0.1) -
Consideration paid for acquisition of minority interest (1.8) -
Net cash flow from investing activities (11.0) (10.8)
--------------------------------------------------------- ------- -------
Cash flows from financing activities
Repayment of principal under lease liabilities (3.3) -
Financing costs paid (2.7) (3.0)
Proceeds from borrowings 7.5 12.0
Repayment of borrowings (4.2) -
Net cash flow from financing activities (2.7) 9.0
--------------------------------------------------------- ------- -------
Net (decrease)/increase in cash and cash equivalents (2.8) 6.5
Net cash and cash equivalents at beginning of year 17.4 12.3
Effects of exchange rate changes 0.5 (1.4)
--------------------------------------------------------- -------
Net cash and cash equivalents at end of year (Note
13) 15.1 17.4
--------------------------------------------------------- ------- -------
Accounting Policies
Basis of preparation
The financial information for the year ended 31 March 2020 and
the year ended 31 March 2019 does not constitute the company's
statutory accounts for those years. Statutory accounts for the year
ended 31 March 2019 have been delivered to the Registrar of
Companies. The statutory accounts for the year ended 31 March 2020
will be delivered to the Registrar of Companies following the
Company's Annual General Meeting.
The auditors' reports on the accounts for the years ended 31
March 2020 and 31 March 2019 were unqualified and did not contain a
statement under 498(2) or 498(3) of the Companies Act 2006. The
auditors' report on the accounts for the year ended 31 March 2019
included an emphasis of matter as follows:
We draw attention to the Accounting Policies and Notes 27 and 28
in the financial statements, which describe the need for revision
of the consolidated financial statements arising from the
identification of historical accounting errors over the three years
ending 31 March 2017, 2018 and 2019, arising from an intentional
overstatement of certain asset values, understatement of certain
liabilities, and thus an overall overstatement of profit over this
period relating to the Renold Gears division. The original group
financial statements were signed on 28 May 2019 and our previous
audit report was signed on that date. We have not performed a
subsequent events review for the period from the date of our
previous auditor's report to the date of this report. Our opinion
is not modified in this respect.
The auditors' report on the accounts for the year ended 31 March
2020 included a reference to a material uncertainty related to
going concern as follows:
We draw attention to the going concern section in the accounting
policies to the financial statements, which indicates that a
material uncertainty exists that may cast doubt on the Group's and
Company's ability to continue as a going concern.
The Group has secured facilities that contain covenants
requiring the Group to maintain specified financial ratios and
certain other financial covenants. Following the event of Covid-19
and general economic uncertainty, these covenants were successfully
renegotiated with the lenders and now include minimum rolling 12
month EBITDA and minimum available liquidity tests tested quarterly
up to March 2021, and then net debt to EBITDA and EBITDA to finance
charge covenants tested until September 2021. Following this
period, the covenants revert to original conditions in place prior
to the event of Covid-19.
In performing their assessment of going concern, the Directors
have considered forecast cash flows to March 2022. The current
economic uncertainty that exists because of Covid-19 means that a
number of key assumptions within the forecasts, principally
concerning future revenue levels, are not wholly within
management's control. As such, management have performed additional
possible downside forecast scenarios, principally focused on the
risk over further future potential falls in revenue. The most
severe scenario considered assumed revenue being more than20% below
revenues for the year ended 31 March 2020, and more than 25% below
revenues in the year ended 31 March 2019, being the last period
which was not impacted by the Covid-19 pandemic.
This scenario shows that without mitigating actions, a covenant
breach would occur, and thus in such circumstances the Company and
Group may be unable to realise assets and discharge liabilities in
the normal course of business.
As stated in the going concern section in the accounting
policies to the financial statements, these events or conditions,
along with the other matters as set forth in this section, indicate
that a material uncertainty exists that may cast significant doubt
over the group's and the company's ability to continue as a going
concern. Our opinion is not modified in respect of this matter.
The Annual Report and Accounts for the year ended 31 March 2020
will be published on or before 27 June 2020.
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.
Further information in relation to the Group's business
activities, together with the factors likely to affect its future
development, performance and position is set out in the Chairman's
Letter, the Chief Executive's Review, the Finance Director's Review
and the Principal Risks and Uncertainties which are summarised on
pages 18 to 23. Additional details of the Group's cash balances and
borrowings and facility are included in Notes 13, 14 and 17.
The facility has historically been subject to two covenants,
which are tested semi-annually: net debt to EBITDA (leverage) and
EBITDA to net finance charges. In recognition of the current
macroeconomic uncertainty, the Group's banks have amended the
covenant test structure, replacing the existing tests with minimum
rolling 12-monthly EBITDA and minimum available liquidity tests,
tested on a quarterly basis for the period to March 2021. After
March 2021, the facility reverts to the original net debt to EBITDA
and EBITDA to net finance charge covenants, but with a greater
level of flexibility (i.e. 3.5 times net debt to EBITDA versus
original 2.5 times) until September 2021 when the original covenant
tests resume.
The Directors believe that the Group is well placed to manage
its business risks and, after making enquiries including a review
of forecasts and predictions, taking account of reasonably possible
changes in trading performances and considering the existing
banking facilities, including the available liquidity and amended
covenant structure, have a reasonable expectation that the Group
has adequate resources to continue in operational existence for the
next 12 months following the date of approval of the financial
statements.
The uncertainty as to the future impact on the Group of the
current Covid-19 pandemic has been considered as part of the
Group's adoption of the going concern basis. Our Chinese
manufacturing facility reopened in March 2020 and all other
facilities which had been closed due to national restrictions have
now reopened, although some with reduced staffing levels. Across
the Group, public health measures advised by governments are being
followed, operating costs have been reduced, including by utilising
government-backed support schemes to maintain employment, and
capital expenditure and other cash demands are being managed.
As part of its assessment, the Board has considered downside
scenarios that reflect the current unprecedented uncertainty in the
global economy and which we consider to be severe but plausible.
The results of these scenarios show that there is sufficient
liquidity in the business for a period of at least 12 months from
the date of approval of these financial statements. However, the
most severe downside case indicates the potential for a covenant
breach during the test period, notwithstanding the recent changes
to the covenants over the period to 30 September 2021 which create
greater headroom. Lenders remain supportive, as indicated by the
recent covenant amendments, and further flexibility may be
available in the future if required. The most severe scenario
considered assumed Group revenue being more than 20% below revenues
for the year ended 31 March 2020, and more than 25% below revenues
in the year ended 31 March 2019, being the last period which was
not impacted by the Covid-19 pandemic. Set against this were
mitigating actions including discretionary cost reductions,
management of headcount, utilisation of government schemes to
maintain employment, pay reductions across a broad range of global
employees, and cash preservation actions including deferral of
contributions to the UK pension scheme, deferral of rent and tax
payments and significant reductions to capital expenditure.
The most severe but plausible downside scenario, arising due to
risk over level of future revenue, indicates a material uncertainty
related to events or conditions which may cast significant doubt
over the Company's and Group's ability to continue as a going
concern in the event that, following a covenant breach, lenders
elected to trigger a repayment of outstanding debt. In such
circumstances and without further mitigating actions, the Company
and Group may be unable to realise assets and discharge liabilities
in the normal course of business. The Company and Group
consolidated financial statements do not include the adjustments
that would result if the Company and Group were unable to continue
as a going concern.
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
consolidated financial statements.
Adoption of new accounting standards
The Group has adopted all applicable amendments to standards
with an effective date from 1 April 2019. With the exception of
IFRS 16 'Leases' detailed below, adoption of these standards did
not have any material impact on financial performance or position
of the Group.
IFRS16 'Leases'
From 1 April 2019 the Group has adopted IFRS 16 'Leases' on a
modified retrospective basis. As permitted under the standard no
restatement of prior year comparatives has been performed and the
adjustments arising on adoption have been recognised in the opening
balance sheet at 1 April 2019.
-- Approach to transition
On adoption of IFRS 16, the Group recognised lease liabilities
in relation to leases which had previously been classified as
operating leases. These liabilities were measured at the present
value of the remaining lease payments, discounted using the Group's
incremental borrowing rate as of 1 April 2019. The associated
right-of-use assets were measured on a retrospective basis as if
the new rules had always been applied.
In applying IFRS 16 for the first time, the Group has used the
following practical expedients permitted by the standard:
-- The use of a single discount rate to a portfolio of leases
with reasonably similar characteristics;
-- Reliance on previous assessment of whether leases are onerous
and deduction of onerous lease provisions from the initial
right-of-use asset recognised;
-- The exclusion of initial direct costs for the measurement of
the right-of-use asset at the date of initial application;
-- The use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease; and
-- Not to reassess whether a contract is or contains a lease.
The Group's weighted average incremental borrowing rates applied
to lease liabilities as at 1 April 2019 are 2.6% in respect of
property leases, 4.3% in respect of plant and equipment leases and
4.1% in respect of vehicle leases.
-- Financial impact
As the Group has used the modified retrospective approach in
adopting IFRS 16, comparatives have not been restated. The adoption
of this new accounting policy resulted in the following changes to
the opening balance sheet at 1 April 2019:
GBPm
=========================================== =======
Increase in right-of-use assets 10.4
Decrease in property, plant and equipment (1.0)
Decrease in onerous lease provisions 3.2
Increase in lease liabilities (17.0)
Net decrease in retained earnings (4.3)
------------------------------------------- -------
Of the total GBP10.4m of right-of-use assets recognised at 1
April 2019, GBP7.7m related to leases of property and GBP2.7m to
leases of plant and machinery.
The impact on profit or loss for the year ended 31 March 2020
was the following:
GBPm
======================================= ======
Increased depreciation charge (2.5)
Decreased lease rental expense 3.0
Net increase in operating profit 0.5
Increased finance costs (0.5)
--------------------------------------- ------
Net increase in profit for the period -
--------------------------------------- ------
Accounting Policies (continued)
IFRS16 'Leases' (continued)
The adoption of IFRS 16 has also had an impact on the
presentation of the payment of lease rentals in the cash flow
statement. In the comparative periods, lease rentals were recorded
in operating expenses (or where relevant, against the associated
onerous lease provision) and therefore deducted in cash flows from
operating activities. In the year ended 31 March 2020, operating
expenses includes a depreciation charge which has subsequently been
added back within cash flows from operating activities. The
interest element of lease repayments is presented within finance
costs paid and the principal element of the lease payment has been
included within cash flows from financing activities. Short-term
lease payments and payments for leases of low-value assets are
presented within cash flows from operating activities.
The impact on the cash flow statement for the year ended 31
March 2020 is as follows:
GBPm
========================================================= ======
Increased operating profit 0.5
Increased depreciation of property, plant and equipment 2.5
Movement in provisions for onerous leases 0.8
Net increase in cash from operating activities 3.8
Repayment of principal element of lease liabilities (3.3)
Repayment of interest element of lease liabilities (0.5)
Net decrease in cash used in financing activities (3.8)
--------------------------------------------------------- ------
Net change in cash and cash equivalents -
--------------------------------------------------------- ------
Total cash outflows for leases in the year ended 31 March 2020
were GBP4.0m, including GBP0.2m cash outflows in relation to
short-term leases and leases of low-value assets.
A reconciliation of total operating lease commitments to the
IFRS 16 lease liability at 1 April 2019 is as follows:
GBPm
========================================================== ======
Operating lease commitments disclosed under IAS 17 at 31
March 2019 18.8
Effect of discounting (4.5)
Other(1) 2.7
Lease liabilities recognised at 1 April 2019 17.0
---------------------------------------------------------- ------
1. 'Other' principally includes inflationary increases of
GBP3.7m on long property leases (48 years). These inflationary
increases were not previously recognised in the IAS 17 operating
lease commitment disclosure.
Notes to the Consolidated Financial Statements
1. Segmental information
For management purposes, the Group is organised into two
operating segments according to the nature of their products and
services and these are considered by the Directors to be the
reportable operating segments of Renold plc as shown below:
-- The Chain segment manufactures and sells power transmission
and conveyor chain and also includes sales of torque transmission
products through Chain National Sales Companies (NSCs); and
-- The Torque Transmission segment manufactures and sells torque
transmission products, such as gearboxes and couplings.
No operating segments have been aggregated to form the above
reportable segments.
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. Management monitor the results of the
separate reportable operating segments based on operating profit
and loss which is measured consistently with operating profit and
loss in the consolidated financial statements. The same segmental
basis applies to decisions about resource allocation. Disclosure
has not been included in respect of the operating assets of each
segment as they are not reported to the CODM on a regular basis.
However, Group net financing costs, retirement benefit obligations
and income taxes are managed on a Group basis and therefore 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.
Head office
Chain costs and
(2) Torque Transmission eliminations Consolidated
Year ended 31 March 2020 GBPm GBPm GBPm GBPm
======================================== ====== ==================== ============== =============
Revenue
External customer 151.4 38.0 - 189.4
Inter-segment(1) 1.1 4.6 (5.7) -
----------------------------------------
Total revenue 152.5 42.6 (5.7) 189.4
---------------------------------------- ------ -------------------- -------------- -------------
Adjusted operating profit/(loss) 14.0 5.1 (5.7) 13.4
Restructuring costs (1.9) (0.4) (0.1) (2.4)
Amortisation of acquired intangible
assets (0.9) - - (0.9)
----------------------------------------
Operating profit/(loss) 11.2 4.7 (5.8) 10.1
Net financing costs (5.2)
----------------------------------------
Profit before tax from continuing
operations 4.9
Taxation (1.5)
Discontinued operations (1.5)
---------------------------------------- ------ -------------------- -------------- -------------
Profit after tax and discontinued
operations 1.9
---------------------------------------- ------ -------------------- -------------- -------------
Other disclosures
Working capital(3) 34.1 9.7 0.5 44.3
Capital expenditure(4) 6.8 1.0 1.3 9.1
Depreciation and amortisation included
in adjusted operating profit/loss 6.8 2.0 1.7 10.5
Amortisation of acquired intangibles 0.9 - - 0.9
----------------------------------------
Total depreciation and amortisation 7.7 2.0 1.7 11.4
---------------------------------------- ------ -------------------- -------------- -------------
1. Segmental information (continued)
Head office
costs and
Chain(2) Torque Transmission eliminations Consolidated
Year ended 31 March 2019 (re-presented(5)
) GBPm GBPm GBPm GBPm
=========================================== ========= ==================== ============== =============
Revenue
External customer 163.9 35.7 - 199.6
Inter-segment(1) 1.0 4.4 (5.4) -
-------------------------------------------
Total revenue 164.9 40.1 (5.4) 199.6
------------------------------------------- --------- -------------------- -------------- -------------
Adjusted operating profit/(loss) 18.4 3.3 (6.9) 14.8
Pension past service credit - - 4.4 4.4
Restructuring costs (2.2) - (0.7) (2.9)
Amortisation of acquired intangible
assets (0.9) - - (0.9)
-------------------------------------------
Operating profit/(loss) 15.3 3.3 (3.2) 15.4
Net financing costs (5.0)
-------------------------------------------
Profit before tax from continuing
operations 10.4
Taxation (3.5)
Discontinued operations (0.2)
Profit after tax and discontinued
operations 6.7
------------------------------------------- --------- -------------------- -------------- -------------
Other disclosures
Working capital(3) 26.8 10.6 2.0 39.4
Capital expenditure(4) 13.0 0.9 1.3 15.2
Depreciation and amortisation
included in adjusted operating
profit/loss 5.0 1.6 1.1 7.7
Amortisation of acquired intangibles 0.9 - - 0.9
-------------------------------------------
Total depreciation and amortisation 5.9 1.6 1.1 8.6
------------------------------------------- --------- -------------------- -------------- -------------
1. Inter-segment revenues are eliminated on consolidation.
2. Included in Chain external sales is GBP6.4m (2019: GBP4.2m)
of Torque Transmission product sold through the Chain NSCs, usually
in countries where Torque Transmission does not have its own
presence.
3. The measure 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.
4. Capital expenditure consists of additions to property, plant
and equipment and intangible assets.
5. The results for the year ended 31 March 2019 have been
re-presented to reflect discontinued operations and changes to the
treatment of adjusting items, see Note 19 for further details.
In addition to statutory reporting, the Group reports certain
financial metrics on an adjusted basis (alternative performance
measures, APMs). Definitions of adjusted measures, and information
about the differences to statutory metrics are provided in Note 20
to the financial statements.
Constant exchange rate results are retranslated to current year
exchange rates and therefore only prior year comparatives would be
deemed an alternative performance measure. A reconciliation is
provided below and in Note 20.
Head office
costs and
Chain Torque Transmission eliminations Consolidated
Year ended 31 March 2019 (re-presented(1)
) GBPm GBPm GBPm GBPm
=========================================== ====== ==================== ============== =============
Revenue
External revenue from continuing
operations 163.9 35.7 - 199.6
Foreign exchange retranslation 1.8 0.5 - 2.3
External revenue from continuing
operations at constant exchange
rates 165.7 36.2 - 201.9
------------------------------------------- ------ -------------------- -------------- -------------
Adjusted operating profit/(loss)
from continuing operations 18.4 3.3 (6.9) 14.8
Foreign exchange retranslation 0.1 0.1 - 0.2
Adjusted operating profit/(loss)
from continuing operations at
constant exchange rates 18.5 3.4 (6.9) 15.0
------------------------------------------- ------ -------------------- -------------- -------------
1. The results for the year ended 31 March 2019 have been
re-presented to reflect discontinued operations and changes to the
treatment of adjusting items, see Note 19 for further details.
1. Segmental information (continued)
Geographical analysis of external sales by destination,
non-current asset location and average employee numbers
The UK is the home country of the parent company, Renold plc.
The principal operating territories, the proportions of Group
external revenue generated in each (customer location), external
revenues, non-current assets (asset location) and average employee
numbers in each are as follows:
Revenue ratio External revenues Non-current assets
from continuing from continuing (excluding deferred
operations operations tax) Employee numbers
=================== ==================== ======================= ===================
2020 2019 2020 2019 2020 2019
========= ========
% % GBPm GBPm GBPm GBPm 2020 2019
================= ========= ======== ========= ========= =========== ========== ========= ========
United
Kingdom 8.1 7.5 15.3 15.0 18.6 12.5 297 321
Rest of
Europe 29.4 30.8 55.7 61.5 22.0 18.9 510 558
Americas 42.3 41.8 80.1 83.4 32.0 31.1 315 328
Australasia 9.6 9.7 18.1 19.4 3.9 2.7 135 125
China 4.5 4.2 8.6 8.4 14.9 14.1 278 339
India 4.3 4.2 8.1 8.4 5.2 5.1 372 392
Other countries 1.8 1.8 3.5 3.5 - 0.8 - 35
100.0 100.0 189.4 199.6 96.6 85.2 1,907 2,098
----------------- --------- -------- --------- --------- ----------- ---------- --------- --------
All revenue relates to the sale of goods and services. No
individual customer, or group of customers, represents more than
10% of Group revenue (2019: None).
Non-current assets consist of goodwill, other intangible assets,
property, plant and equipment and investment property. Other
non-current assets and deferred tax assets are not included
above.
2. Adjusting items
In addition to statutory reporting, the Group reports certain
financial metrics on an adjusted basis (alternative performance
measures, APMs). Definitions of adjusted measures, and information
about the differences to statutory metrics are provided in Note 20
to the financial statements.
2020 2019
GBPm GBPm
===================================================== ===== ======
Included in operating costs
Strategic Plan restructuring costs 2.0 2.4
Other 0.4 0.5
----------------------------------------------------- ----- ------
Restructuring costs 2.4 2.9
Pension past service credit - (4.4)
Amortisation of acquired intangible assets (Note 8) 0.9 0.9
Adjusting items in operating profit 3.3 (0.6)
----------------------------------------------------- ----- ------
2020 2019
GBPm GBPm
===================================================== ===== ======
Included in net financing costs
Discount unwind on onerous lease provision - 0.1
Amortisation of financing costs on refinancing - 0.3
Adjusting items in net financing costs - 0.4
----------------------------------------------------- ----- ------
2. Adjusting items (continued)
Restructuring costs
Restructuring costs were incurred in the year as part of the
Strategic Plan, including redundancy costs associated with
headcount reductions and various other smaller costs associated
with restructuring. A further GBP0.4m of other costs were incurred
in relation to the investigation of the historical overstatement of
profit in the Gears business unit and the purchase of the
non-controlling interest in the Group's Indian operations.
Prior year restructuring costs included GBP1.8m for the
multi-year project to transfer the China Chain manufacturing
facility (which completed ahead of schedule in the second half of
the 2019 financial year), the final costs associated with the
European restructuring project and the closure of the Singapore
site. Other costs included those associated with transferring the
company's stock market listing to AIM.
Restructuring costs are recognised as adjusting items because
they are considered material and non-recurring.
Pension past service credit
The prior year pension past service credit of GBP4.4m related to
the UK pension scheme and was the net impact of an GBP8.2m gain,
following the move of certain future pension increases from RPI to
CPI, offset by a GBP3.8m past service cost relating to GMP
equalisation.
This item is included in adjusting as it is non-recurring and
relates to legacy pension liabilities.
Amortisation of acquired intangible assets
Acquisition related intangible asset amortisation costs of
GBP0.9m (2019: GBP0.9m) were recognised in the current year. This
is considered to be an adjusting item on the basis that these
charges result from acquisition accounting and do not relate to
current trading activity.
Adjusting finance costs items
The financing elements of adjusting liabilities, including the
unwind of discount on provisions, are excluded from adjusted
finance costs because these provisions were originally recognised
as adjusting and the treatment has been maintained for ongoing
costs and credits.
3. Net financing costs
2020 2019
GBPm GBPm
========================================================= ====== ======
Financing costs:
Interest payable on bank loans and overdrafts* (2.1) (1.9)
Interest expense on lease liabilities* (0.5) -
Amortised financing costs* (0.2) (0.3)
Amortisation of financing costs on refinancing* - (0.3)
--------------------------------------------------------- ------ ------
Loan financing costs (2.8) (2.5)
Net IAS 19R financing costs (2.2) (2.4)
Discount unwind on non-current trade and other payables (0.2) -
Discount unwind on provisions - (0.1)
--------------------------------------------------------- ------ ------
Net financing costs (5.2) (5.0)
--------------------------------------------------------- ------ ------
* Amounts arising on financial liabilities measured at amortised
cost.
4. Taxation
Analysis of tax charge in the year
2020 2019
GBPm GBPm
============================================================== ====== ======
United Kingdom
UK corporation tax at 19% (2019: 19%) - -
Overseas taxes
Corporation taxes 0.9 1.6
Adjustments in respect of prior periods (0.5) (0.6)
Withholding taxes 0.2 0.1
Current income tax charge 0.6 1.1
-------------------------------------------------------------- ------ ------
Deferred tax
UK - origination and reversal of temporary differences 0.2 1.0
Overseas - origination and reversal of temporary differences 1.9 1.8
Effect of changes in corporate tax rates (0.1) -
Adjustments in respect of prior periods (1.1) (0.4)
Total deferred tax charge (Note 17) 0.9 2.4
Tax charge on profit on ordinary activities 1.5 3.5
-------------------------------------------------------------- ------ ------
2020 2019
GBPm GBPm
===================================================== ====== ======
Tax on items taken to other comprehensive income
Deferred tax on changes in net pension deficits 0.7 (2.1)
Effect of changes in statutory tax rate on deferred (1.3) -
tax assets
Tax on fair value of derivatives direct to reserves (0.1) -
Tax credit in the statement of other comprehensive
income (0.7) (2.1)
----------------------------------------------------- ------ ------
Factors affecting the Group tax charge for the year
The current year UK deferred tax charge relates to pensions with
the charge arising on the net of the past service credit, interest
charges, and cash contributions. Overseas deferred tax relates to
the utilisation of recognised deferred tax assets. The increase in
overseas current corporate tax relates to jurisdictions where
historical tax losses have now been fully utilised.
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
in accordance with IAS 12.39.
4. Taxation (continued)
The actual tax on the Group's profit before tax differs from the
theoretical amount using the UK corporation tax rate as
follows:
2019
(re-presented(1)
2020 )
GBPm GBPm
================================================ ====== ===================
Profit on ordinary activities before tax 4.9 10.4
Theoretical tax charge at 19% (2019: 19%) 0.9 2.0
Effects of:
Permanent differences 0.3 0.2
Overseas tax rate differences 0.3 0.7
Effect of changes in corporate tax rates (0.1) -
Adjustments in respect of prior periods (1.6) (1.0)
Movement in unrecognised deferred tax 1.7 1.6
Total tax charge 1.5 3.5
------------------------------------------------ ------ -------------------
Comprising:
Total tax charge on adjusted profit before tax 1.5 3.0
------
Taxation on adjusting items:
Amortisation of acquired intangible assets - (0.3)
Pension past service credits - 0.8
Taxation (credit)/charge on adjusting items - 0.5
------
Taxation on discontinued operations - -
Total tax charge 1.5 3.5
------------------------------------------------ ------ -------------------
1. The results for the year ended 31 March 2019 have been
re-presented to reflect discontinued operations and changes to the
treatment of adjusting items, see Note 19 for further details.
Effective tax rate
The effective tax rate of 31% (2019: 34%) is higher than the UK
tax rate of 19% (2019: 19%) due to the following factors:
-- Losses in jurisdictions where, due to uncertain future
profitability, deferred tax assets are not recognised;
-- Permanent differences including items that are disallowed
from a tax perspective such as entertaining and certain employee
costs;
-- Differences in overseas tax rates, typically being higher
than the rates in the UK; offset by
-- Prior year adjustments arising as tax submissions are
finalised and agreed in specific jurisdictions.
Tax payments
Cash tax paid in the year of GBP1.6m (2019: GBP1.8m) is higher
than the current tax charge as payments on account exceeded the
calculated liabilities for the year.
5. Earnings per share
Earnings per share (EPS) is calculated by reference to the
earnings for the year and the weighted average number of shares in
issue during the year as follows:
2020 2019 (re-presented(1)
)
=================================== ========================
Per share Per share
Earnings Shares amount Earnings Shares amount
===============================
GBPm (thousands) (pence) GBPm (thousands) (pence)
=============================== ========= ============ ========== ========== ============ ==========
Basic EPS from continuing
and discontinued operations
Profit attributed to
ordinary shareholders 1.8 225,418 0.8 6.5 225,418 2.9
Loss for the period
from discontinued operations 1.5 0.7 0.2 0.1
Basic EPS from continuing
operations 3.3 225,418 1.5 6.7 225,418 3.0
------------------------------- --------- ------------ ---------- ---------- ------------ ----------
2020 2019 (re-presented(1)
)
=================================== ========================
Per share Per share
Earnings Shares amount Earnings Shares amount
GBPm (thousands) (pence) GBPm (thousands) (pence)
================================== ========= ============ ========== ========== ============ ==========
Adjusted EPS
Basic EPS from continuing
operations 3.3 225,418 1.5 6.7 225,418 3.0
Effect of adjusting
items, after tax:
Restructuring costs
in operating costs 2.4 1.1 2.9 1.3
Pension past service
cost - - (3.6) (1.6)
Refinancing costs - - 0.3 0.1
Discount unwind on restructuring - - 0.1 -
costs
Amortisation of acquired
intangible assets 0.9 0.3 0.6 0.3
Adjusted EPS 6.6 225,418 2.9 7.0 225,418 3.1
---------------------------------- --------- ------------ ---------- ---------- ------------ ----------
1. Adjusted: In addition to statutory reporting, the Group
reports certain financial metrics on an adjusted basis. Definitions
of adjusted measures, and information about the differences to
statutory metrics are provided in Note 29.
Inclusion of the dilutive securities, comprising 1,944,433
(2019: 7,820,809) additional shares due to share options, in the
calculation of basic, basic continuing and adjusted EPS changes the
amounts shown above to 0.8p, 1.5p and 2.9p respectively (2019:
basic EPS 2.8p, basic continuing EPS 2.9p, adjusted EPS 3.0p).
The adjusted EPS numbers have been provided in order to give a
useful indication of underlying performance by the exclusion of
adjusting items. Due to the existence of unrecognised deferred tax
assets there were no associated tax credits on some of the
adjusting items and in these instances adjusting items are added
back in full.
6. Dividends
No ordinary dividend payments were paid or proposed in either
the current or prior year.
7. Goodwill
2020 2019
GBPm GBPm
========================================= ===== =====
Cost
At 1 April 26.6 25.0
Exchange adjustment 1.0 1.6
----------------------------------------- ----- -----
At 31 March 27.6 26.6
----------------------------------------- ----- -----
Accumulated amortisation and impairment
At 1 April 3.5 3.4
Exchange adjustment 0.1 0.1
----------------------------------------- -----
At 31 March 3.6 3.5
-----------------------------------------
Carrying amount 24.0 23.1
----------------------------------------- ----- -----
Impairment testing
The Group performed its annual impairment test of goodwill at 31
March 2020 which compares the current book value to the recoverable
amount from the continued use or sale of the related business.
The recoverable amount of each Cash Generating Unit (CGU) has
been determined on a value-in-use basis, calculated as the net
present value of cash flows derived from detailed financial plans.
All business units in the Group have submitted a budget for the
financial year ending 31 March 2021 and strategic plan forecasts
for the two financial years ending 31 March 2023. The budget and
strategic forecasts, which are subject to detailed review and
challenge, were approved by the Board in December and October 2019
respectively. The Group prepares cash flow forecasts based on these
projections for the first three years, with years four and five
extrapolated based on known future events, recently observable
trends and management expectations. A terminal value calculation is
used to estimate the cash flows after year five.
For the year ended 31 March 2020, to reflect the changes in the
current trading environment, all short-term business unit forecasts
were updated to include management's best estimate of the impact of
the Covid-19 pandemic for the years ending 31 March 2021 and 2022.
These revised forecasts include a reduced level of sales and
profitability, before trading returns to previous levels based on
budgets and forecasts for the year ending 31 March 2023 and
thereafter, including the terminal value. Sensitivity analysis has
been performed including a reduction in sales and an increase in
the discount rates used (to reflect the increased level of
uncertainty). The forecasts used for the impairment review are
consistent with those used in the Going Concern review.
The key assumptions used in the value-in-use calculations
are:
-- Sales: Forecast sales are built up with reference to expected
sales prices and volumes from individual markets and product
categories based on past performance, projections of developments
in key markets and management's judgement;
-- Margins: Forecast margins reflect historical performance and
management's experience of each CGUs profitability at the forecast
level of sales including the impact of all completed restructuring
projects. The projections do not include the impact of future
restructuring projects to which the Group is not yet committed;
-- Discount rate: Pre-tax discount rates have been calculated
based on the Group's weighted average cost of capital and risks
specific to the CGU being tested; and
-- Long-term growth rates: As required by IAS 36, cash flows
beyond the period of projections are extrapolated using long-term
growth rates published by the Organisation for Economic
Co-operation and Development for the territory in which the CGU is
based. The discount rates applied to the cash flows of each of the
CGUs are based on the risk free rate for long-term bonds issued by
the government in the respective market. This is then adjusted to
reflect both the increased risk of investing in equities and the
systematic risk of the specific CGU (using an average of the betas
of comparable companies). These rates do not reflect the long-term
assumptions used by the Group for investment planning.
The Covid-19 pandemic and its impact on the economy is
unprecedented. The impact on the Group's operations over the coming
months cannot be forecast with reasonable certainty and accordingly
the impairment of non-financial assets is considered a key source
of estimation and uncertainty. While the updated forecasts reflect
a severe a downside scenario, with no resulting impairment, an even
larger reduction in revenue cannot be ruled out. For the Ace Chains
(Australia) and Renold Tooth Chain (Germany) CGUs, the Directors do
not consider that any reasonably possible changes to the key
assumptions would reduce the recoverable amount to its carrying
value. The excess of recoverable amount over the carrying amount of
the Jeffrey Chain (USA) and Renold Chain India CGUs (GBP33.7m and
GBP6.6m respectively) could be reduced to nil as a result of annual
sales growth rates in the first five years of the projections being
reduced by 5% and 10% respectively. No impairment charge has been
recognised in the period for any CGU.
7. Goodwill (continued)
CGU discount
rates
Growth rates (pre-tax) Carrying values
2020 2019 2020 2019 2020 2019
% % % % GBPm GBPm
============================= ======= ====== ======= ====== ======== ========
Jeffrey Chain, USA 1.6 1.4 10.1 17.0 21.2 20.2
Ace Chains, Australia 2.6 2.6 10.1 16.9 0.4 0.5
Renold Chain, India 7.3 7.7 21.0 27.7 1.9 1.9
Renold Tooth Chain, Germany 1.2 1.2 13.1 15.6 0.5 0.5
-----------------------------
24.0 23.1
----------------------------- ------- ------ ------- ------ -------- --------
No impairment charge has been recognised in the period for any
CGU.
8. Intangibles
Customer Customer Technical Computer
orderbook lists know-how software Total
GBPm GBPm GBPm GBPm GBPm
------------------------------ ----------- --------- ---------- ---------- ------
Cost
At 1 April 2018 0.3 4.2 0.2 15.9 20.6
Exchange adjustment - - - (0.2) (0.2)
Additions - - - 1.5 1.5
------------------------------ ----------- --------- ---------- ---------- ------
At 31 March 2019 0.3 4.2 0.2 17.2 21.9
Exchange adjustment - 0.2 - - 0.2
Additions - - - 2.5 2.5
Recategorisation (Note 9) - - - 1.3 1.3
Disposals - - - (0.1) (0.1)
Disposal of subsidiary - - - (0.1) (0.1)
At 31 March 2020 0.3 4.4 0.2 20.8 25.7
------------------------------ ----------- --------- ---------- ---------- ------
Accumulated amortisation and
impairment
At 1 April 2018 0.3 1.8 0.1 10.1 12.3
Exchange adjustment - 0.1 - (0.2) (0.1)
Amortisation charge - 0.8 0.1 2.2 3.1
------------------------------ ----------- --------- ---------- ---------- ------
At 31 March 2019 0.3 2.7 0.2 12.1 15.3
Exchange adjustment - 0.1 - - 0.1
Amortisation charge - 0.9 - 1.9 2.8
Recategorisation (Note 9) - - - (0.3) (0.3)
Disposals - - - (0.1) (0.1)
Disposal of subsidiary - - - (0.1) (0.1)
At 31 March 2020 0.3 3.7 0.2 13.5 17.7
------------------------------ ----------- --------- ---------- ---------- ------
Net book amount
At 31 March 2020 - 0.7 - 7.3 8.0
------------------------------ ----------- --------- ---------- ---------- ------
At 31 March 2019 - 1.5 - 5.1 6.6
------------------------------ ----------- --------- ---------- ---------- ------
The acquisition of the Tooth Chain business in January 2016
brought significant benefit to the Group in terms of new customers,
relationships and technical 'know-how'. These benefits have been
valued under IFRS 3 using estimates of useful lives and discounted
cash flows of expected income. The values are being amortised as
follows:
Customer orderbook
Customer orderbook is amortised when the orderbook at the date
of acquisition has been fulfilled. This is now fully amortised.
Customer lists and technical know-how
Customer lists and technical know-how is being amortised over
five years as the benefits are likely to crystallise over a longer
period. No brand names were acquired as part of the
acquisition.
9. Property, plant and equipment
Land and Plant
buildings and equipment Total
GBPm GBPm GBPm
========================================== =========== =============== ======
Cost
At 1 April 2018 20.6 113.2 133.8
Exchange adjustment 0.7 0.7 1.4
Additions 3.9 9.9 13.8
Disposals - (3.9) (3.9)
------------------------------------------ ----------- --------------- ------
At 31 March 2019 25.2 119.9 145.1
Exchange adjustment 0.3 2.1 2.4
Additions 0.3 6.3 6.6
Disposals - (1.3) (1.3)
Recategorisation (Note 8) 0.1 (1.4) (1.3)
Adoption of IFRS 16 - Transfer (Note 10) (0.7) (0.3) (1.0)
Disposal of subsidiary (0.5) (1.3) (1.8)
At 31 March 2020 24.7 124.0 148.7
------------------------------------------ ----------- --------------- ------
Accumulated depreciation and impairment
At 1 April 2018 4.1 82.4 86.5
Exchange adjustment 0.1 0.5 0.6
Charge for the year 0.4 5.1 5.5
Disposals - (3.0) (3.0)
------------------------------------------ ----------- --------------- ------
At 31 March 2019 4.6 85.0 89.6
Exchange adjustment 0.1 1.7 1.8
Charge for the year 0.7 5.4 6.1
Disposals - (1.2) (1.2)
Recategorisation (Note 8) 1.8 (1.5) 0.3
Adoption of IFRS 16 - Transfer (Note 10) - (0.1) (0.1)
Disposal of subsidiary (0.1) (1.0) (1.1)
At 31 March 2020 7.1 88.3 95.4
------------------------------------------ ----------- --------------- ------
Net book amount
At 31 March 2020 17.6 35.7 53.3
------------------------------------------ ----------- --------------- ------
At 31 March 2019 20.6 34.9 55.5
------------------------------------------ ----------- --------------- ------
The asset recategorisation between plant and equipment, land and
buildings, and computer software has arisen due to the review of
the fixed asset register in Germany as part of the implementation
of a new accounting system. The revised classification is
considered to better represent the nature of the underlying assets
and it is not considered necessary to amend the prior year
comparatives as it is not material or relevant to the users of the
financial statements.
Property, plant and equipment pledged as security for
liabilities amounted to GBP36.6m (2019: GBP36.2m).
Future capital expenditure
At 31 March 2020 capital expenditure contracted for but not
provided for in these accounts amounted to GBP3.3m (2019:
GBP2.2m).
10. Leasing and right-of-use assets
Right-of-use assets
Land and Plant
buildings and equipment Total
GBPm GBPm GBPm
========================================= =========== =============== ======
Cost
At 1 April 2019 - - -
Adoption of IFRS 16 7.0 2.5 9.5
Adoption of IFRS 16 - Transfer (Note 9) 0.7 0.3 1.0
Additions 2.6 0.8 3.4
Disposals (0.1) (0.2) (0.3)
At 31 March 2020 10.2 3.4 13.6
----------------------------------------- ----------- --------------- ------
Accumulated depreciation and impairment
At 1 April 2019 - - -
Adoption of IFRS 16 - Transfer (Note 9) - 0.1 0.1
Charge for the year 1.3 1.2 2.5
Disposals (0.1) (0.2) (0.3)
-----------------------------------------
At 31 March 2020 1.2 1.1 2.3
----------------------------------------- ----------- --------------- ------
Net book amount
At 31 March 2020 9.0 2.3 11.3
----------------------------------------- ----------- --------------- ------
At 31 March 2019 - - -
----------------------------------------- ----------- --------------- ------
An onerous lease provision of GBP2.7m, initially established in
2014 following the closure of the Bredbury manufacturing facility,
was derecognised on 1 April 2019 following the adoption of IFRS 16.
The GBP2.7m was recorded as a reduction to the opening carrying
value of the Bredbury right-of-use property. The lease expires in
May 2030 at a rental cost of GBP0.8m per annum; a significant
proportion of this site is sublet for a term of five years to 2021
for a rent of GBP0.6m per annum. While a range of possible outcomes
exist for the continuation of subletting the property, the extent
of this range is a reduction in right-of-use assets of up to
GBP3.1m (the future net book value of the Bredbury property at the
end of the existing sublet agreement).
An additional onerous lease provision of GBP0.5m, relating to
the Australian Mulgrave facility, was derecognised on adoption of
IFRS 16 at 1 April 2019. The lease expired in March 2020 and the
associated right-of-use asset and lease liability are GBPnil at 31
March 2020.
Lease liabilities
2020
GBPm
================================================ ======
Maturity analysis - contractual undiscounted
cash flows
Less than one year 3.0
One to five years 7.9
More than five years 10.6
Total undiscounted lease liabilities at 31
March 21.5
Less: Interest allocated to future periods (4.4)
-------------------------------------------------- ------
Lease liabilities included in the Consolidated
Balance Sheet 17.1
-------------------------------------------------- ------
Current 3.0
Non-current 14.1
-------------------------------------------------- ------
10. Leasing and right-of-use assets (continued)
Amounts recognised in profit or loss
2020
GBPm
============================================= ======
Interest on lease liabilities (0.5)
Variable lease payments not included in the -
measurement of lease liabilities
Income from sub-leasing right-of-use assets 0.6
Expenses relating to short-term leases and
leases of low-value assets (0.2)
----------------------------------------------- ------
Amounts recognised in the Consolidated Statement of Cash
Flows
2020
GBPm
================================================ =====
Repayment of principal under lease liabilities 3.3
Repayment of interest on lease liabilities 0.5
Cash outflows in relation to short-term leases
and leases of low-value assets 0.2
Total cash outflows for leases 4.0
-------------------------------------------------- -----
11. Inventories
2020 2019
GBPm GBPm
========================================== ===== =====
Raw materials 6.4 6.4
Work in progress 4.6 5.4
Finished products and production tooling 35.1 32.5
46.1 44.3
------------------------------------------ ----- -----
Inventories pledged as security for liabilities amounted to
GBP40.5m (2019: GBP38.5m).
The Group expensed GBP70.0m (2019: GBP74.9m) of inventories
during the period. In the year to 31 March 2020, GBP0.9m (2019:
GBP0.7m) was charged for the write-down of inventory and GBP0.9m
(2019: GBP0.8m) was released from inventory provisions no longer
required.
12. Trade and other receivables
2020 2019
GBPm GBPm
======================== ====== ======
Trade receivables(1) 31.0 32.0
Less: Loss allowance (0.5) (0.5)
------------------------ ------ ------
Trade receivables: net 30.5 31.5
Other receivables(1) 3.4 3.8
Prepayments 1.9 2.2
------------------------
35.8 37.5
------------------------ ------ ------
1. Financial assets carried at amortised cost.
The Group has no significant concentration of credit risk but
does have a concentration of translational and transactional
foreign exchange risk in both US Dollars and Euros; however, the
Group hedges against these risks. The carrying amount of trade and
other receivables approximates their fair value.
Trade receivables are non-interest bearing and are generally on
30-90 days terms. The average credit period on sales of goods is 59
days (2019: 50 days).
The following table details the risk profile of trade
receivables based on the Group's provision matrix. As the Group's
historical credit loss experience does not show significantly
different loss patterns for different customer segments, the
provision for loss allowance based on past due status is not
further analysed:
Trade receivables - days past due
=======================================================
Not past 30-60 60-90
due <30 days days days >90 days Total
At 31 March 2020
Expected credit loss
rate, % 0.0% 0.3% 0.0% 4.6% 35.2% 1.5%
Estimated gross carrying
amount at default, GBPm - - - - 0.4
Lifetime expected credit
loss, GBPm 0.5
-------------------------- --------- --------- ------ ------ --------- ------
The following table shows the movement in the lifetime expected
credit losses; there has been no change in the estimation
techniques or significant assumptions made during the current
reporting period:
2020 2019
Loss allowance GBPm GBPm
====================================== ===== ======
At 1 April 0.5 0.5
Net remeasurement of loss allowance - 0.3
Amounts written off as uncollectable - (0.3)
--------------------------------------
At 31 March 0.5 0.5
-------------------------------------- ----- ------
13. Cash and cash equivalents
In the Group cash flow statement, net cash and cash equivalents
are shown after deducting bank overdrafts as follows:
2020 2019
GBPm GBPm
=============================== ====== ======
Cash and cash equivalents 15.6 17.6
Less: Overdrafts (Note 14) (0.5) (0.2)
Net cash and cash equivalents 15.1 17.4
------------------------------- ------ ------
14. Borrowings
2020 2019
GBPm GBPm
=============================================== ====== ======
Amounts falling due within one year:
Overdrafts(1) (Note 13) 0.5 0.2
Capitalised costs (0.2) (0.2)
Current borrowings 0.3 -
----------------------------------------------- ------ ------
Amounts falling due after more than one year:
Bank loans(1) 51.9 48.1
Capitalised costs (0.5) (0.7)
Non-current borrowings 51.4 47.4
Preference stock(1) 0.5 0.5
51.9 47.9
----------------------------------------------- ------ ------
Total borrowings 52.2 47.9
----------------------------------------------- ------ ------
1. Gross borrowings before deducting capitalised costs
All financial liabilities above are carried at amortised
cost.
Core banking facilities
On 29 March 2019 the Group renewed its GBP61.5m Multi-Currency
Revolving Facility banking facilities with HSBC UK, Allied Irish
Bank (GB), and Citibank. The facility matures in March 2024 and is
fully committed and available until maturity.
At the year end, the undrawn core banking facility was GBP9.7m
(2019: GBP12.5m). The Group also benefits from a UK overdraft and a
number of overseas facilities totalling GBP4.0m (2019: GBP1.4m)
with availability at year end of GBP3.4m. The Group pays interest
at LIBOR plus a variable margin in respect of the core banking
facility. The average rate of interest paid in the year was LIBOR
plus 1.85% for Sterling, Euro and US Dollar denominated facilities
(2019: LIBOR plus 1.95% for Sterling, Euro and US Dollar
denominated facilities).
The core banking facility has been subject to two covenants,
which are tested semi-annually: net debt to EBITDA (leverage) and
EBITDA to net finance charges. In recognition of the current
macroeconomic uncertainty, the Group's banks have amended covenant
test structure, replacing the existing tests with minimum rolling
12-month EBITDA, tested on a quarterly basis for the period to
March 2021, and minimum available liquidity tests. From March 2021,
the tests revert to the previous net debt to EBITDA and EBITDA to
net finance charges, but with greater flexibility (i.e. 3.5 times
net debt to EBITDA versus original 2.5 times) until September 2021
when the original covenant tests resume.
Secured borrowings
Included in Group borrowings are secured borrowings of GBP52.4m
(2019: GBP47.5m). Security is provided by fixed and floating
charges over assets (including certain property, plant and
equipment and inventory) primarily in the UK, USA, Germany and
Australia. Certain Group companies have provided cross-guarantees
in respect of these borrowings.
Preference stock
At 31 March 2020, there were 580,482 units of preference stock
in issue (2019: 580,482).
All payments of dividends on the preference stock have been paid
on the due dates. The preference stock has the following
rights:
i. a fixed cumulative preferential dividend at the rate of 6%
per annum payable half yearly on 1 January and 1 July in each
year;
ii. rank both with regard to dividend (including any arrears on
the commencement of a winding up) and return of capital in priority
to all other stock or shares in the Company, but with no further
right to participate in profits or assets;
iii. no right to attend or vote, either in person or by proxy,
at any general meeting of the Company or to have notice of any such
meeting, unless the dividend on the preference stock is in arrears
for six calendar months; and
iv. no redemption entitlement and no fixed repayment date.
There is no significant difference between the carrying value of
financial liabilities and their equivalent fair value.
15. Trade and other payables
2020 2019
Current Non-current Current Non-current
GBPm GBPm GBPm GBPm
================================== ======== ============ ======== ============
Trade payables(1) 18.1 - 22.6 -
Other tax and social security(1) 2.3 - 2.9 -
Other payables(1) 1.4 5.3 1.0 5.1
Accruals 15.8 - 15.6 0.3
37.6 5.3 42.1 5.4
---------------------------------- -------- ------------ -------- ------------
1. Financial liabilities carried at amortised cost.
Trade payables are non-interest bearing and are normally settled
within 60 day terms. The Group does have a concentration of
translational foreign exchange risk in both US Dollars and Euros;
however, the Group hedges against this risk. The non-current other
payables is the deferred element of the construction costs for the
new Chinese factory in Jintan.
The Group did not operate supplier financing or reverse
factoring programmes during the current or prior financial
year.
The Directors consider that the carrying amount of trade
payables approximates to their fair value.
16. Provisions
Business Onerous Total
restructuring lease provisions
GBPm GBPm GBPm
========================= ============== ======== ===========
At 1 April 2019 0.1 3.2 3.3
Arising during the year 1.5 - 1.5
Utilised in the year (0.9) - (0.9)
Adoption of IFRS 16 - (3.2) (3.2)
At 31 March 2020 0.7 - 0.7
------------------------- -------------- -------- -----------
2020 2019
Allocated as: GBPm GBPm
======================== ===== =====
Current provisions 0.7 0.8
Non-current provisions - 2.5
------------------------
0.7 3.3
------------------------ ----- -----
Business restructuring
During the year ended 31 March 2020, provisions were recognised
in relation to business reorganisation and redundancies in Germany
(GBP1.4m) and site environmental costs in France (GBP0.1m).
All restructuring provisions are expected to be utilised within
12 months.
Onerous lease
An onerous lease provision of GBP2.7m, initially established in
2014 following the closure of the Bredbury manufacturing facility,
was derecognised on 1 April 2019 following the adoption of IFRS 16.
The GBP2.7m was recorded as a reduction to the opening carrying
value of the Bredbury right-of-use property. An additional onerous
lease provision of GBP0.5m, relating to the Australian Mulgrave
facility, was derecognised on adoption of IFRS 16 at 1 April 2019.
See Note 10 for further details.
17. Additional cash flow information
Reconciliation of operating profit to net cash flows from
operations:
2020 2019
GBPm GBPm
==============================================================
Cash generated from operations:
Operating profit from continuing and discontinued operations 9.8 15.2
Depreciation of property, plant and equipment - owned
assets 6.1 5.5
Depreciation of property, plant and equipment - right-of-use 2.5 -
assets
Amortisation of intangible assets 2.8 3.1
Loss on disposals of plant and equipment - 0.9
Equity share plans (0.6) 0.4
Increase in inventories (1.7) (2.6)
Decrease/(increase) in receivables 1.6 (0.8)
(Decrease)/increase in payables (4.4) 1.9
Increase/(decrease) in provisions 0.6 (4.6)
Cash contribution to pension schemes (4.4) (4.5)
Pension current service cost (non-cash) 0.2 -
Pension past service credit (non-cash) - (4.4)
--------------------------------------------------------------
Cash generated from operations 12.5 10.1
-------------------------------------------------------------- ------ ------
Reconciliation of net change in cash and cash equivalents to
movement in net debt:
2020 2019
GBPm GBPm
================================================================
(Decrease)/increase in cash and cash equivalents (Consolidated
Statement of Cash Flows) (2.8) 6.5
Change in net debt resulting from cash flows (3.3) (12.0)
Foreign currency translation differences - (1.4)
Non-cash movement on capitalised finance costs (0.2) 0.9
----------------------------------------------------------------
Change in net debt during the period (6.3) (6.0)
Net debt at start of year (30.3) (24.3)
----------------------------------------------------------------
Net debt at end of year (36.6) (30.3)
---------------------------------------------------------------- ------- -------
Net debt comprises:
Cash and cash equivalents (Note 13) 15.6 17.6
Total borrowings (Note 14) (52.2) (47.9)
----------------------------------------------------------------
(36.6) (30.3)
---------------------------------------------------------------- ------- -------
The table below details changes in the Group's liabilities
arising from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those
for which cash flows were, or future cash flows will be, classified
in the Group's consolidated cash flow statement as cash flows from
financing activities.
Adoption
Opening of IFRS Accrued Financing Other Closing
balance 16 interest cash flows New leases changes(1) balance
2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Total borrowings
(Note 14) 47.9 - 2.1 1.1 - 1.1 52.2
Lease liabilities
(Note 10) - 17.0 0.5 (3.8) 3.4 - 17.1
Total liabilities
from financing
activities 47.9 17.0 2.6 (2.7) 3.4 1.1 69.3
------------------- --------- --------- ---------- ------------ ----------- ------------ ---------
1. Other changes includes the amortisation of capitalised
finance costs and foreign exchange translation.
Opening Accrued Financing Other Closing
balance interest cash flows changes(1) balance
2019 GBPm GBPm GBPm GBPm GBPm
==================================
Total borrowings (Note 14) 38.2 1.9 9.0 (1.2) 47.9
----------------------------------
Total liabilities from financing
activities 38.2 1.9 9.0 (1.2) 47.9
---------------------------------- --------- ---------- ------------ ------------ ---------
1. Other changes includes the amortisation of capitalised
finance costs and foreign exchange translation.
18. Post balance sheet events
There were no significant post balance sheet events to
report.
19. Re-presentation of the income statement
A re-presentation of the comparative income statement for the
year ended 31 March 2019 has been prepared. The revised
presentation has been prepared in order to:
-- separately identify the discontinued element of the Group's
income statement following the sale of Renold Crofts (Pty) Ltd;
and
-- remove pension administration costs and IAS 19 financing
costs as adjusting items from the Group's 'Adjusted' income
statement. In previous years, the pension administration costs and
the IAS 19R finance charges have been treated as adjusting items as
they relate to historical pension schemes which are not indicative
of the underlying performance of the operating businesses. While
this continues to be the case, Renold's treatment of these items
differs from other companies in the peer group, and in order to
assist users of the financial statements, the legacy pension costs
will no longer be treated as adjusting items.
The impact on the Condensed Consolidated Statement of
Comprehensive Income and EBITDA for the year ended 31 March 2019 is
as follows:
Year ended 31 March 2019
Statutory Adjusted(1)
Pension
admin
and IAS
As As 19
previously Discontinued Statutory previously Discontinued financing Adjusted
reported operations (re-presented) reported operations costs (re-presented)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 202.4 (2.8) 199.6 202.4 (2.8) - 199.6
Operating costs (187.2) 3.0 (184.2) (187.0) 3.0 (0.8) (184.8)
Operating profit 15.2 0.2 15.4 15.4 0.2 (0.8) 14.8
Net financing
costs (5.0) - (5.0) (2.2) - (2.4) (4.6)
Profit before
tax 10.2 0.2 10.4 13.2 0.2 (3.2) 10.2
Taxation (3.5) - (3.5) (2.9) - (0.1) (3.0)
Profit/(loss)
for the period
from continuing
operations 6.7 0.2 6.9 10.3 0.2 (3.3) 7.2
Discontinued
operations - (0.2) (0.2) - - - -
Profit/(loss)
for the period 6.7 - 6.7 10.3 0.2 (3.3) 7.2
----------------- ----------- ------------- --------------- ----------- ------------- ---------- ---------------
Total
comprehensive
expense for the
period, net of
tax (0.9) - (0.9)
----------------- ----------- ------------- ---------------
Attributable
to:
Owners of the
parent (1.1) - (1.1)
Non-controlling
interest 0.2 - 0.2
(0.9) - (0.9)
----------------- ----------- ------------- ---------------
1. Adjusted for the after-tax effects of restructuring costs,
changes in the provision discounts and amortisation of acquired
intangible assets.
Year ended 31 March 2019
===============
Statutory Adjusted(1)
Pension
admin
and IAS
As As 19
previously Discontinued Statutory previously Discontinued financing Adjusted
reported operations (re-presented) reported operations costs (re-presented)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Operating
profit 15.2 0.2 15.4 15.4 0.2 (0.8) 14.8
Depreciation
and
amortisation 8.6 - 8.6 7.7 - - 7.7
--------------
EBITDA 23.8 0.2 24.0 23.1 0.2 (0.8) 22.5
-------------- ----------- ------------- --------------- ----------- ------------- ------------ ---------------
20. Alternative performance measures
In order to provide users of the accounts with a clear and
consistent presentation of the performance of the Group's ongoing
trading activity, the Group uses various alternative performance
measures (APMs), including the presentation of the income statement
in a three column format with 'Adjusted' measures shown separately
from statutory items. Amortisation of acquired intangibles,
restructuring costs, discontinued operations and material one-off
items or remeasurements are included in a separate column as
management seek to present a measure of performance which is not
impacted by material non-recurring items or items considered
non-operational. See Note 2 for a breakdown and explanation of the
items excluded from adjusted profit. Performance measures for the
Group's ongoing trading activity are described as 'Adjusted' and
are used to measure and monitor performance as management believe
these measures enable users of the financial statements to better
assess the trading performance of the business. In addition, the
Group reports sales and profit measures at constant exchange rates.
Constant exchange rate metrics exclude the impact of foreign
exchange translation, by retranslating the comparative to current
year exchange rates.
The APMs used by the Group include:
APM Reference Explanation of APM
======================================
-- adjusted operating profit Adjusted measures are used by
the Group as a measure of underlying
business performance, adding
back items that do not relate
A to underlying performance
-- adjusted profit before taxation B
-- adjusted EPS C
-- return on sales D
-- revenue at constant exchange Constant exchange rate metrics
rates adjust for constant foreign
exchange translation and are
used by the Group to better
understand year-on-year changes
E in performance
--------------------------------------
-- adjusted operating profit F
at constant exchange rates
--------------------------------------
-- adjusted operating profit G
margin at constant exchange
rates
----------------------------------- ---------- --------------------------------------
-- EBITDA EBITDA is a widely utilised
measure of profitability, adjusting
to remove non-cash depreciation
H and amortisation charges
--------------------------------------
-- adjusted EBITDA I
----------------------------------- ---------- --------------------------------------
-- net debt Net debt, leverage and gearing
are used to assess the level
of borrowings within the Group
and are widely used in capital
J markets analysis
--------------------------------------
-- leverage ratio K
--------------------------------------
-- gearing ratio L
----------------------------------- ---------- --------------------------------------
-- legacy pension cash costs M The cost of legacy pensions
is used by the Group as a measure
of the cash cost of servicing
legacy pension schemes
----------------------------------- ---------- --------------------------------------
APMs are defined and reconciled to the IFRS statutory measure as
follows:
(A) Adjusted operating profit
2020 2019
GBPm GBPm
====================================== ===== ======
Statutory operating profit from
continuing operations 10.1 15.4
Add back:
Restructuring costs 2.4 2.9
Amortisation of acquired intangible
assets 0.9 0.9
Pension past service credits - (4.4)
Adjusted operating profit 13.4 14.8
----------------------------------------- ----- ------
(B) Adjusted profit before taxation
2020 2019
GBPm GBPm
====================================== ===== ======
Statutory profit before taxation
from continuing operations 4.9 10.4
Add back:
Restructuring costs 2.4 2.9
Amortisation of acquired intangible
assets 0.9 0.9
Pension past service credits - (4.4)
Amortisation of refinancing
costs - 0.3
Discount unwind on provisions - 0.1
Adjusted profit before taxation 8.2 10.2
----------------------------------------- ----- ------
20. Alternative performance measures (continued)
(C) Adjusted earnings per share
Adjusted EPS is reconciled to statutory EPS in Note 5.
(D) Return on sales
2020 2019
GBPm GBPm
=========================== ====== ======
Adjusted operating profit 13.4 14.8
Revenue 189.4 199.6
Return on sales % 7.1% 7.4%
------------------------------ ------ ------
(E) Revenue at constant exchange rates
Year ended 31 March 2019
=============
Head office
Torque costs
Chain Transmission and eliminations Consolidated
GBPm GBPm GBPm GBPm
================================== ====== ============== ================== =============
External revenue from continuing
operations 163.9 35.7 - 199.6
Foreign exchange retranslation 1.8 0.5 - 2.3
Revenue at constant exchange
rates 165.7 36.2 - 201.9
----------------------------------- ------ -------------- ------------------ -------------
(G) Adjusted operating profit margin at constant exchange
rates
2020 2019
GBPm GBPm
======================================================= ====== ======
Adjusted operating profit at constant exchange rates 13.4 15.0
Revenue at constant exchange rates 189.4 201.9
-------------------------------------------------------
Adjusted operating profit margin at constant exchange
rates % 7.1% 7.4%
------------------------------------------------------- ------ ------
(H & I) EBITDA and adjusted EBITDA (earnings before
interest, taxation, depreciation and amortisation)
2020 2019
GBPm GBPm
======================================================= ===== ======
Statutory operating profit from continuing operations 10.1 15.4
Depreciation and amortisation - owned assets 8.9 8.6
------------------------------------------------------- ------
EBITDA 19.0 24.0
Add back:
Restructuring costs 2.4 2.9
Pension past service credits - (4.4)
-------------------------------------------------------
Adjusted EBITDA 21.4 22.5
------------------------------------------------------- ----- ------
(J) Net debt
Net debt is reconciled to the statutory balance sheet in Note
17.
(K) Leverage ratio
2020 2019
GBPm GBPm
======================== ===== =====
Net debt (see Note 17) 36.6 30.3
Adjusted EBITDA 21.4 22.5
------------------------
Leverage ratio 1.7x 1.3x
------------------------ ----- -----
20. Alternative performance measures (continued)
(L) Gearing ratio
2020 2019
GBPm GBPm GBPm GBPm
================================ ====== ===== ====== =====
Net debt (see Note 17) 36.6 30.3
Equity attributable to equity
holders of the parent (0.4) (3.1)
Net debt (see Note 17) 36.6 30.3
Total capital plus net debt 36.2 27.2
--------------------------------- ------ ----- ------ -----
Gearing ratio % 101% 111%
--------------------------------- ------ ----- ------ -----
(M) Legacy pension cash costs
2020 2019
GBPm GBPm
================================================= ===== =====
Cash contributions to pension schemes 3.2 3.3
Pension payments in respect of unfunded schemes 1.2 1.4
Scheme administration costs 0.8 0.8
-------------------------------------------------
5.2 5.5
------------------------------------------------- ----- -----
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contact rns@lseg.com or visit www.rns.com.
END
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