Final Results
Renold PLC
25 June 2007
Renold plc
('Renold' or the 'Group')
2007 Preliminary Results
Renold, a leading international supplier of industrial chains and related power
transmission products, today announces its preliminary results for the year
ended 31 March 2007.
FINANCIAL SUMMARY
2007 2006
£m £m
Continuing operations:
Turnover 159.3 155.0
Operating profit 3.9 5.4
Operating profit before exceptional items 9.8 6.8
Profit before tax and exceptional items 7.3 3.2
Profit before tax 1.4 1.8
Other information:
Basic loss per share - Group (18.3)p (19.6)p
Basic earnings per share - continuing operations 1.2p 0.4p
Adjusted earnings per share (adjusting for the after tax effects of
exceptional items) - continuing operations
8.4p 1.7p
Net debt 19.4 20.7
HIGHLIGHTS
• A year that has delivered in line with strategic objectives and one that
positions the Group on a stronger financial platform going forward.
• Disposal of Automotive and Machine Tool operations completed in the year.
• Profit and Cash Enhancement programme on schedule to complete March 2009,
underpinned by the post-year end acquisition of a well established chain
manufacturing business in China.
• ROCE 15%: PACE target > 20%
• Working capital / Sales 17%: PACE target < 20%
• Chain direct labour in LCC now 36% (including post year end acquisition)
PACE target > 40% to be increased to > 60%
• Revenue from continuing operations increased by 6% at constant exchange
rates.
• Continuing businesses' operating profit before exceptional items increased
44%.
• Continuing businesses' adjusted earnings per share increased 4.9 times.
• Reduction in net debt and pension deficit.
Matthew Peacock, Chairman of Renold, said:
'Last year was one of excellent delivery against our strategic objectives with
the prospect of further progress to come. This year has started well and we
look forward, with confidence, to another year of significant improvements
generated by activities which are well underway.'
25 June 2007
Enquiries:
Renold plc 25 June Tel: 020 7457 2020
Bob Davies, Chief Executive Thereafter Tel: 0161 498 4500
Peter Bream, Finance Director
College Hill Tel: 020 7457 2020
Matthew Gregorowski/Nicholas Potter
The results presentation will be available on the Company's website
www.renold.com at 9.30 a.m. on Monday 25 June.
Note to editors:
Renold is a global leader in the manufacture of industrial chains and also
manufactures a range of gears and couplings which are sold throughout the world
to a broad range of original equipment manufacturers and distributors. Its
products are used in a wide variety of industries including manufacturing,
transportation, energy, steel, and mining. Renold has a well deserved reputation
for quality that is recognised worldwide.
The Group has 13 manufacturing plants throughout the world and employs 2,500
staff. It is currently expanding its geographical footprint by increasing its
manufacturing presence in 'low cost countries'.
Further information about Renold can be found on the website www.renold.com
CHAIRMAN'S STATEMENT
Introduction
It is a great pleasure in my first statement to shareholders, as the Chairman of
your Board, to report a year of excellent delivery against our strategic
objectives, and the prospect of further progress in the coming years.
Our strategy has been to focus on our main Industrial Chain business and to give
that business the operating and financial structure it needs to succeed - both
in the mature markets where we are a leader, and in key new developing markets.
We have made significant progress in executing this strategy during the last
year. We have disposed of the Automotive and Machine Tool businesses, reduced
Group borrowings and refinanced them under much more favourable terms. These
steps, combined with improved profit and cash generation, have given the company
its strongest financial position for many years.
At constant exchange rates our sales have grown in all overseas regions where
the company is represented; China, in particular, represented a small but very
fast growing segment.
The Profit and Cash Enhancement (PACE) programme we presented in March 2007 is
on schedule. One third of the Chain direct labour is now in China and other low
cost territories, which is well ahead of the PACE plan target of 40% for March
2009; consequently we are increasing the target to 60%. We opened greenfield
manufacturing facilities in Malaysia and China during the year, and these have
shipped products in time and on budget. In May we announced the acquisition of
a 90% interest in a manufacturing business in China, which significantly
enhances our worldwide capacity, and reduces our capex requirements this year by
£4 million. Further manufacturing volume was transferred to our Polish facility,
which opened the previous year. The PACE programme is already providing
superior returns from our established markets and building a competitive basis
for our growth in developing regions.
Results and dividend
Sales growth, a stronger and more efficient company, and the tangible benefits
of the PACE programme served to boost profit before tax and exceptional items
from continuing operations to £7.3 million an increase of 2.3 times on the
previous year. Part of the focus of PACE is the continued strengthening of the
balance sheet and a reduction in the volatility of earnings. Net debt reduced
slightly in the year to £19.4 million from £20.7 million last year and further
progress is expected. The net pension deficit on UK funded liabilities also fell
from £23.0 million down to £19.7 million with considerable progress having been
made late in the year on the asset management activities and work continuing on
liability management. Arrangements have been made to appropriately hedge
on-going foreign exchange exposure which had some negative impact during the
year and also to manage steel price changes which were relatively benign during
the year.
Bob Davies and his team have stretching targets for PACE in the coming year, and
I am confident they will continue to meet and exceed those targets, as they have
done over the past year.
The Board believe it is prudent to recommend that no dividend be paid this year.
The Board will consider future dividend policy in light of the results from
the business going forward.
Board
Finally, I would also like to welcome David Shearer to the company, he joined
the Board on 1 May 2007 as a non-executive director. David has served as the
senior partner of Deloitte & Touche in Scotland and Northern Ireland and on the
Main Board of HBOS plc. He brings us a wealth of experience from these senior
roles.
Prospects
At Renold, we have always been proud of our leadership in the specialised
industrial markets we serve. We are now also very committed to a strategy that
is both delivering financial results in the short term and building a platform
for long term profitable growth. My Board colleagues and I look forward to
another year of taking this strategy forward with confidence.
CHIEF EXECUTIVE'S REVIEW
Overview
The year was notable for the successful delivery of a number of significant
initiatives. The sale of the Automotive and Machine Tool businesses followed by
refinancing with The Royal Bank of Scotland, enhanced the financial stability of
the Group. The opening of manufacturing facilities in Malaysia and China, and
the increased output from Poland helped drive down the cost base.
The operating profit before exceptional items from continuing operations
improved to £9.8 million, representing a 44% increase over the previous year.
This improvement is despite a weaker US dollar resulting in a £1.2 million
adverse impact compared with the previous year.
This improved operating result from continuing operations reflects sales growth
in all overseas regions where the company is represented with Group sales
increasing 6% at constant exchange rates to £159.3 million. Europe recovered
well from the weaker markets of the past few years. Some softening was seen in
the USA, particularly in the second half. The additional resources in China
have borne fruit, sales doubling again albeit from a relatively low base. This
sales growth, along with numerous cost reduction initiatives, boosted profit
before tax and exceptional items from continuing operations to £7.3 million, a
128% increase on the previous year.
Technology Leadership
The Industrial Chain business provides 70% of Renold's sales. By market share,
we are the number 2 global player operating in over 90 countries with direct
sales teams in 18 of these. Renold maintains a technology leadership in
Industrial Chain. This is evidenced by our Synergy product range, which carries
a significant price premium to all competing brands. Customers are willing to
pay this premium because the product's wear and maintenance characteristics can
significantly lower their cost of ownership. Applications such as the Thames
Barrier, theme park rides and certain continuous process industry applications
demonstrate the high integrity reputation that Renold Chain has. It is our
intention to increasingly invest in engineering and product development to
maintain this technology leadership and reputation.
PACE
The Profit and Cash Enhancement plan, which was presented in March 2007,
encapsulated a number of the cost reduction initiatives into a single coherent
plan. The main thrust of the cost reduction is the migration of product
manufacturing from relatively high cost manufacturing sites in the UK and
Germany, to lower cost sites in Poland and China. The funds required for these
transfers are to be generated by an inventory reduction programme and sales of
surplus property. I am pleased to report that the PACE plan was on schedule at
the year-end and continues to be so.
Renold Hangzhou
In May, we announced the agreement for the acquisition of a 90% interest in the
business of HangZhou ShanShui ('HZSS'), a Chain manufacturer based in Hangzhou,
China 200 kilometres west of Shanghai. This acquisition is consistent with the
PACE plan by providing a well established chain manufacturing facility into
which certain products currently made in the UK and Germany can be relocated.
Renold reviewed over 70 separate Chain companies in China and performed limited
due diligence on 10 of these. HZSS was selected because of the strength of its
engineering resource and its focus on product quality. A good working
relationship at several levels has been developed between existing HZSS and
Renold staff over the past two years. This acquisition will reduce the
execution risk of the PACE programme. Measured by the tonnage of steel used,
Renold Hangzhou is currently larger than the UK facility in Bredbury but smaller
than the German facility in Einbeck.
In addition, Renold Hangzhou will provide a platform for sales growth within
China and other low cost countries. Renold can now offer a product range from
exceptional high performance to products that are cost competitive with those
originating from any part of the world.
Service
In addition to excellence in design and competitive pricing, our customers
demand outstanding levels of service. A number of initiatives are in place to
drive further improvements in meeting customer expectations.
In recognition of the success of these initiatives, I am proud to report that
Renold were awarded 'Supplier of Year' by A.I.T, the second largest Power
Transmission Distributor in the USA and our largest customer. This award was
judged on the level of sales support, quality of the product, technology
innovation and profitability. This award was clearly a team effort but in
particular, I would like to recognise the determination of the efforts of our
Sales Team in the USA, our Manufacturing teams in the UK and Germany and our
Global Engineering team.
Further recognition for our customer service came from Kinecor, the largest
Canadian distributor who identified Renold as a 'Top 5 Supplier'.
OPERATIONS REVIEW
The Group going forward is focused on its Industrial Power Transmission
business, which forms one business segment. The activities of the segment
include the manufacture and sale of chain, gear and coupling products, which are
sold through the Group's worldwide sales operations to a broad range of original
equipment manufacturers and distributors.
The key performance indicators which are used to monitor performance are
financial, including rate of sales growth, margin, material costs (particularly
steel), payroll costs, working capital performance and net debt. The Group's
performance against certain of these key indicators is noted in this Operations
Review and the Financial Review. Other non-financial performance indicators are
used but vary on a business by business basis.
Chain
The Industrial Chain business continued its profit improvement driven by a 6%
growth in sales and continuing cost reductions. Some small increases in steel
prices were seen towards the end of the year, but these were more than
compensated for by price increases and cost reductions.
Europe
Renold maintained its market leadership position in Europe. Sales, which have
been flat for a number of years, increased by 7% at constant exchange rates.
Good growth came from each of the selling companies in Europe except France,
where sales were flat.
The factory in Poland continued to expand and will end this year with a total of
200 employees necessitating a move in June to a new, larger 6,000 sq m facility
where there is the opportunity for further expansion. This new facility is less
than a mile from the existing facility and minimal disruption is expected.
The final phase of the closure of the Burton manufacturing plant was made during
the year. Products have been transferred to Renold factories in Poland,
Malaysia and Manchester. We have a contract to sell the Burton property to a
developer for £6.4 million, subject to planning permission. A second planning
application by developers for the Burton site is expected to be submitted by the
end of June. Renold intend to have a custom built and developed office for the
UK sales team, as part of the redevelopment of the site. This will retain
approximately 40 professional jobs in the Burton area.
The implementation of the European Distribution project made good progress
during the year in improving customer service through the more efficient
management of finished goods stock. A common software platform has been
installed in all our European sales companies (except Switzerland) and direct
shipments from the Distribution Centres to the end customers have started. It
is expected that two of the existing warehouse properties will be available for
sale by the end of this year.
Americas
Sales in local currency of roller transmission chain to distributors and OEMs
increased by 10% with further significant increases to A.I.T. and Motion, the
two largest USA distributors.
The award of 'Supplier of the Year' from A.I.T. affirms the improvements in our
position with the major US distributors. Sales of Synergy, the world's leading
transmission chain and Syno (lubrication free/dry to the touch chain) continued
to grow. Technical innovations such as these helped to gain the Supplier of the
Year award. A further new product development, XXL, directly led to the winning
of a $4.5 million contract from a major OEM, displacing an incumbent competitor.
Initial trials suggest that this new product has 3 to 6 times the life of the
chain it replaced.
Sales of engineering/conveyor chain manufactured in Tennessee were below last
year's level, driven by weak demand from OEMs in the middle of the year. This
resulted in a redundancy of 14 people in Tennessee. Demand recovered strongly
towards the end of the year.
Sales into South America grew by 26% following the addition of dedicated sales
resource. The potential in the region is high but much of the demand is for
lower cost products. The new facility in Hangzhou should provide an appropriate
product for these markets.
Asia Pacific
Sales into China doubled again during the year and orders were up over 60%.
This is a reflection of the increased sales resources within China. A member of
the Group's Executive team is now based in Shanghai to support the continued
growth.
This rate of progress is expected to continue into the new year as the
greenfield Beicai facility starts to increase production and through the
purchase of HZSS. Three years ago, Renold had no employees in China. By the
end of June, China will be second only to the UK by number of Renold employees.
The combination of Renold technology and market knowledge, combined with the low
cost base and manufacturing capability of HZSS, will provide a significant
number of new opportunities within China, elsewhere within the region and
globally.
The new facility in Malaysia started to deliver products to customers in August.
These products had previously been made in Burton and without the move, a
significant part of this business would have been lost on price. During the
year, two new product lines were launched opening up new markets in Malaysia and
Singapore. These products could not have been made competitively in Burton.
Australia, which accounts for nearly 10% of Renold's Chain sales, grew by 18%
during the year and had its most profitable year on record.
Gears
Sales of the Gears business grew by 8% with orders up by 11%. The Loose Gears
product line was relocated from the adjacent Machine Tools and Rotor Division,
prior to the divestment. Following this move, the award of a major contract
from the USA led to the need to double capacity of this manufacturing cell. The
UK Gears business provides engineered solutions for specific customer
challenges. Its major markets are in the UK, USA, China and Germany.
Sales in South Africa grew by 20%, leading to an improvement in profitability.
This growth came from an increase in demand from the mining and metal
industries. The South African facility is predominantly a maintenance and
overhaul facility, but does have a design facility.
Couplings
It was another good year for the Couplings business. Double digit sales growth
and return on sales were achieved during the year. Sales are underpinned by a
multi-year Mass Transit contract with Alstom, which runs until 2008. No new
Mass Transit contract orders were won during the year, but a number of bids are
outstanding. Orders increased by 25%, which will require an increase in
capacity this year. The capital expenditure required to increase capacity is
within the normal annual level of spend. This increased level of orders
positions this business well for another strong year.
FINANCIAL REVIEW
Overview
The financial statements of the Group have been prepared in accordance with
International Financial Reporting Standards (IFRS).
Continuing Operations
Revenue
The revenue of continuing operations increased by 3% to £159.3 million, at
constant exchange rates the increase was 6%. Sales in the second half-year, at
£80.0 million were 1% higher than the first half.
Operating Profit
Operating profit before exceptional items was £9.8 million up 44% on 2005/06.
Return on sales for the year before exceptionals was 6.2% compared with 4.4% for
last year. This demonstrates a continuing recovery in margins, which now extends
for five consecutive half-year periods and we expect to continue.
Exceptional costs were £5.9 million, compared with £1.4 million in 2005/06.
£3.2 million related to redundancy and restructuring costs incurred mainly in
the European chain operations, and £2.7 million related to inventory provisions
precipitated by the reorganisation of distribution facilities under the PACE
project.
Further details of the exceptional costs are given in Note 2 to this statement.
Financing Costs
Total net financing costs reduced to £2.5 million (2005/06 - £3.6 million).
Net bank interest cost rose to £2.4 million (2005/06 - £2.2 million) and there
was no significant fair value gain or loss on derivatives (2005/06 - gain £0.3
million). Costs associated with our re-banking were £0.2 million (2005/06 -
£0.7 million). The net interest cost on pension plan balances and the expected
return on pension plan assets was a credit of £0.1 million (2005/06 - charge
£1.0 million).
This change is principally the result of the increased expected return on the
higher value of plan assets.
Profit before Tax
Profit before tax and before exceptional items was £7.3 million compared with
£3.2 million last year. Profit before tax after exceptional items was £1.4
million compared with a profit of £1.8 million in 2005/06.
Taxation
The tax charge on continuing operations of £0.6 million (2005/06 - £1.5 million)
represented an effective rate of approximately 40%, nearly half the rate
reported in 2005/06.
Discontinued Operations
The Automotive business was divested on 3 August 2006; a loss before tax of £1.3
million was reported for the period and losses on disposal of £6.2 million.
The Machine Tools business was divested on 6 December 2006; a loss of £0.7
million was reported for the period and losses on disposal of £4.6 million.
The results of these businesses are reported as discontinued operations on one
line in the income statement.
Details of the results of the discontinued operations are given in Note 5 to
this statement.
Group results for the Financial Period
The loss for the year was £12.7 million compared with £13.6 million in 2005/06;
the basic loss per share was 18.3p (2005/06 - 19.6p loss) and the diluted loss
per share was 18.1p (2005/06 - 19.6p). The basic adjusted earnings per share
(from continuing operations before exceptional items) was 8.4p (2005/06 - 1.7p).
Balance Sheet
Net assets at 31 March 2007 were £23.9 million (2005/06 - £40.6 million). The
liability for retirement benefit obligations was £48.0 million (2005/06 - £53.9
million) before allowing for a net deferred tax asset of £11.1 million (2005/06
- £12.7 million). Of the £48.0 million obligation, £18.0 million arises in
respect of unfunded schemes which do not require to be prefunded (see pensions
below).
Cash Flow and Borrowings
Cash inflow from continuing operations was £10.3 million (2005/06 - £4.7
million).
Cash outflow from discontinued operations was £4.7 million (2005/06 - £1.7
million inflow).
Payment for purchase of property, plant and equipment was £6.0 million (2005/06
- £6.7 million), of which £1.5 million (2005/06 - £2.9 million) related to
discontinued activities. Proceeds of disposals of property, plant and equipment
were £0.2 million (2005/06 - £3.2 million). Proceeds from disposal of
Automotive and Machine Tools businesses totalled £5.4 million.
Group net borrowings at 31 March 2007 were £19.4 million (2006 - £20.7 million)
comprising cash and cash equivalents £20.3 million (2006 - £17.8 million) and
borrowings, including preference shares, of £39.7 million (2006 - £38.5
million).
Treasury and Financial Instruments
During the year the Group entered into a new syndicated bank facility led by The
Royal Bank of Scotland plc, with Fortis Bank S.A./N.V. as a participant. This
facility is significantly larger and materially less expensive than the
facilities which it replaced.
The Group treasury policy, approved by the directors, is to manage its funding
requirements and treasury risks without undertaking any speculative risks.
The Group maintains a mix of short and medium-term facilities to ensure that it
has sufficient available funds for ongoing operations.
A major exposure of the Group earnings and cash flows relates to currency risk
on its sales and purchases made in foreign (non-functional) currencies, and to
reduce such risks these transactions are covered primarily by forward foreign
exchange contracts. Such commitments generally do not extend more than 12
months beyond the balance sheet date, although exceptions can occur where
longer-term projects are entered into.
To manage foreign currency exchange risk on the translation of net investments,
certain dollar denominated borrowings taken out in the UK to finance US
acquisitions have been designated as a hedge of the net investment in US
subsidiaries, the carrying value of these borrowings at 31 March 2007 was £6.4
million (31 March 2006 - £5.4 million).
Borrowings issued at variable rates expose the Group to cash flow interest rate
risk and borrowings issued at fixed rates expose the Group to fair value
interest rate risk. The Group reviews the mix of fixed and floating debt and
has interest rate swaps to manage part of this exposure.
At 31 March 2007 the Group had 19% (31 March 2006 - 31%) of its gross debt at
fixed interest rates. Cash deposits are placed short-term with banks where
security and liquidity are the primary objectives.
The Group has no significant concentrations of credit risk with sales made to a
wide spread of customers, industries and geographies. Policies are in place to
ensure that credit risk on individual customers is kept to a minimum.
Pensions
The gross pension assets and liabilities and deficits are as follows:
2007 2006
Assets Liabilities Deficit Assets Liabilities Deficit
£m £m £m £m £m £m
UK Schemes - funded 164.4 (192.5) (28.1) 162.7 (195.6) (32.9)
Overseas Schemes
- funded 15.1 (17.0) (1.9) 15.5 (17.9) (2.4)
- unfunded - (18.0) (18.0) - (18.6) (18.6)
179.5 (227.5) (48.0) 178.2 (232.1) (53.9)
Deferred Tax Asset 11.1 12.7
Net (36.9) (41.2)
During the year the assets of the funded schemes rose by £1.3 million. The
funding deficit improved further, however, as liabilities decreased by £4.6
million reflecting actuarial gains due primarily from increased bond rates, with
the rate used for discounting UK liabilities rising from 5.0% to 5.4%.
The overseas deficit comprises £1.9 million in respect of defined benefit
schemes, and £18.0 million relating principally to the unfunded German scheme
which, as is common in Germany, is a 'pay as you go' scheme which does not
require to be pre-funded. There is no obligation for deficit funding payments
for this type of scheme.
There are three UK defined benefit pension schemes, the main scheme which is the
Renold Group Pension Scheme (RGPS), the Renold Supplementary Pension Scheme
(RSPS), and the Jones & Shipman Retirement Benefit Scheme (J&S). The status of
these schemes at 31 March 2007 is summarised below:
As at 31.3.07 RGPS RSPS J&S Total
£m £m £m £m
IAS 19 liabilities 125.2 30.7 36.6 192.5
Market value of assets 104.2 23.9 36.3 164.4
Deficit on IAS 19 basis 21.0 6.8 0.3 28.1
Annual deficit reduction payment (based on
funding valuations)
2.2 0.7 0.2 3.1
Total members (approx) 6,038 119 1,059 7,216
of which active are 472 13 1 486
Annual Report to be published 26 June 2007
Annual General Meeting 26 July 2007
Annual Report: This preliminary announcement does not form the Group's statutory
financial statements but is prepared on the same basis as set out in the
previous year's annual financial statements. The figures shown in this release
have been extracted from the Group's full financial statements which have been
prepared under International Financial Reporting Standards adopted by the
European Union. These financial statements will be delivered to the Registrar
of Companies. The financial statements for the year ended 31 March 2006 have
been delivered to the Registrar of Companies. The 2006 and 2007 financial
statements both carry an unqualified audit report which does not contain an
emphasis of matter reference and does not contain a statement under S237 (2) or
(3) of the Companies Act 1985.
The preliminary announcement was approved by the Board on 25 June 2007.
RENOLD PLC
PRELIMINARY RESULTS
Consolidated Income Statement for the year ended 31 March 2007
Note 2007 2006
£m £m
Continuing operations:
Revenue 1 159.3 155.0
Operating costs (155.4) (149.6)
Operating profit 3.9 5.4
Operating profit before exceptional items 9.8 6.8
Exceptional items 2 (5.9) (1.4)
Operating profit 3.9 5.4
Financial costs (13.9) (14.1)
Financial revenue 11.4 10.5
Net financing costs 3 (2.5) (3.6)
Profit before tax 1.4 1.8
Taxation 4 (0.6) (1.5)
Profit for the financial year from continuing operations 0.8 0.3
Discontinued operations:
(Loss) for the financial year from discontinued operations 5 (13.5) (13.9)
(Loss) for the financial year (12.7) (13.6)
Earnings per share 6
Basic (loss) per share (18.3)p (19.6)p
Diluted (loss) per share (18.1)p (19.6)p
Basic and diluted earnings per share from continuing operations 1.2p 0.4p
Adjusted earnings per share from continuing operations * 8.4p 1.7p
Diluted adjusted earnings per share from continuing operations* 8.3p 1.7p
* Adjusted for the after tax effects of exceptional items
RENOLD PLC
PRELIMINARY RESULTS
Consolidated Statement of Recognised Income and Expense
for the year ended 31 March 2007
2007 2006
£m £m
(Loss) for the year (12.7) (13.6)
Net income/(expense) recognised directly in equity:
Foreign exchange translation differences (4.8) 1.1
Gains on fair value of hedging net investments in foreign 0.9 1.1
operations
Actuarial gains/(losses) on retirement benefit obligations 0.9 (5.3)
Tax on items taken directly to equity (1.2) 1.7
Total expense recognised directly in equity (4.2) (1.4)
Total recognised income and expense for the year (16.9) (15.0)
Change in equity following adoption of IAS 39 - (0.2)
Total recognised income and expense (16.9) (15.2)
RENOLD PLC
PRELIMINARY RESULTS
Consolidated Balance Sheet as at 31 March 2007
2007 2006
£m £m
ASSETS
Non-current assets
Goodwill 15.2 17.1
Other intangible assets 0.6 0.2
Property, plant and equipment 34.0 38.2
Investment property 1.6 -
Other non-current assets 0.4 0.3
Deferred tax assets 17.4 18.4
69.2 74.2
Current assets
Inventories 33.1 36.5
Trade and other receivables 30.1 25.8
Derivative financial instruments - 0.2
Cash and cash equivalents 20.3 17.8
83.5 80.3
Asset held for sale 3.4 3.4
Assets of discontinued operations - 37.1
86.9 120.8
TOTAL ASSETS 156.1 195.0
LIABILITIES
Current liabilities
Borrowings (7.8) (12.4)
Trade and other payables (36.1) (31.3)
Derivative financial instruments (0.1) -
Provisions (5.2) (0.4)
Current tax liabilities (0.6) (0.7)
(49.8) (44.8)
Liabilities directly associated with discontinued operations - (28.1)
(49.8) (72.9)
NET CURRENT ASSETS 37.1 47.9
Non-current liabilities
Borrowings (31.4) (25.6)
Derivative financial instruments - (0.1)
Preference shares (0.5) (0.5)
Trade and other payables (1.2) (0.7)
Deferred tax liabilities (1.3) (0.7)
Retirement benefit obligations (48.0) (53.9)
(82.4) (81.5)
TOTAL LIABILITIES (132.2) (154.4)
NET ASSETS 23.9 40.6
EQUITY
Issued share capital 17.4 17.4
Share premium account 6.1 6.0
Other reserves (1.2) 2.7
Retained earnings 1.6 14.5
TOTAL SHAREHOLDERS' EQUITY (Note 7) 23.9 40.6
RENOLD PLC
PRELIMINARY RESULTS
Consolidated Cash Flow Statement for the year ended 31 March 2007
2007 2006
£m £m
Cash flows from operating activities (Note 8)
Cash generated from operations - continuing 10.3 4.7
Cash (absorbed)/generated by operations - discontinued (4.7) 1.7
5.6 6.4
Income taxes paid (1.4) (1.7)
Net cash from operating activities 4.2 4.7
Cash flows from investing activities
Proceeds from disposal of businesses (net of cash transferred) 5.4 -
Purchase of property, plant and equipment (6.0) (6.7)
Purchase of intangible assets (0.6) (0.2)
Proceeds on disposal of property, plant and equipment 0.2 3.2
Interest received 0.2 -
Net cash from investing activities (0.8) (3.7)
Cash flows from financing activities
Financing costs paid (3.0) (3.3)
Increase in borrowings 6.1 6.9
Issue of ordinary shares 0.1 0.1
Payment of finance lease liabilities (0.4) (0.1)
Net cash from financing activities 2.8 3.6
Net increase in cash and cash equivalents 6.2 4.6
Net cash and cash equivalents at beginning of year 9.6 4.8
Effects of exchange rate changes (0.4) 0.2
Net cash and cash equivalents at end of year 15.4 9.6
RENOLD PLC
PRELIMINARY RESULTS
Notes to the consolidated financial statements
1. Segmental information
Primary reporting format - business segment
The Group's continuing activities are in one class of business, Industrial
Power Transmission. The consolidated income statement for continuing
operations therefore relates wholly to the Industrial Power Transmission
business.
Segment assets and liabilities
Shown below is a summary of the assets and liabilities of Industrial Power
Transmission:
2007 2006
£m £m
Assets
Industrial Power Transmission 113.4 116.6
Unallocated assets (see below) 39.3 37.9
Asset held for sale 3.4 3.4
Assets of discontinued operations - 37.1
Total assets 156.1 195.0
Liabilities
Industrial Power Transmission (90.5) (86.3)
Borrowings (39.7) (38.5)
Derivative financial instruments (0.1) (0.1)
Current and deferred tax (1.9) (1.4)
Liabilities of discontinued operations - (28.1)
(132.2) (154.4)
Secondary reporting format - geographical segments
The operations of the Group are based in five main geographical areas. The UK
is the home country of the parent. The main operations in the principal
territories are as follows:
United Kingdom
Germany
Rest of Europe
United States and Canada
Other countries
The sales analysis in the table below is based on the location of the customer;
the analysis of assets and capital expenditure is based on the location of the
assets:
Revenue Assets Capital expenditure
(Continuing)
2007 2006 2007 2006 2007 2006
£m £m £m £m £m £m
United Kingdom 19.6 20.4 26.6 29.5 2.0 1.6
Germany 14.9 14.6 16.4 19.5 0.6 1.7
Rest of Europe 37.5 35.6 16.8 12.6 0.6 0.2
North America 56.7 57.2 38.3 41.2 0.4 0.8
Other countries 30.6 27.2 15.3 13.8 0.7 0.2
159.3 155.0 113.4 116.6 4.3 4.5
Unallocated assets - - 39.3 37.9 - -
Asset held for sale - - 3.4 3.4 - -
Discontinued operations - - - 37.1 1.5 2.1
159.3 155.0 156.1 195.0 5.8 6.6
Unallocated assets comprise:
Deferred tax asset 17.4 18.4
Cash and cash equivalents 20.3 17.8
Investment property 1.6 -
Property (reclassified in
2007 as an investment property) - 1.7
39.3 37.9
The investment property was transferred from property, plant and
equipment during the year.
2. Exceptional items
2007 2006
£m £m
UK Burton conveyor chain factory restructuring 0.3 0.3
Other redundancy and restructuring charges - 1.1
Profit and cash enhancement restructuring initiatives ('PACE'):
Reorganisation and redundancy costs 2.9 -
Exceptional inventory provision 2.7 -
5.9 1.4
Following the disposal of the Automotive and Machine Tool operations, the PACE
strategic initiative has resulted in exceptional costs associated with the
commencement of the restructuring of the continuing Group's manufacturing and
distribution facilities. The reorganisation and redundancy costs have
originated mainly in the UK (£1.5 million) and Germany (£1.0 million).
Exceptional inventory write-offs have been charged in the UK (£1.4 million),
Germany (£0.9 million), the Rest of Europe (£0.2 million) and other countries
(£0.2 million).
Additional costs were incurred earlier in the year linked to the reorganisation
of the Burton factory. Of the £1.1 million redundancy and restructuring costs
reported in 2006, the principal amounts were incurred in Germany (£0.3 million)
and Rest of Europe (£0.5 million).
3. Net financing costs
2007 2006
£m £m £m £m
Financial costs:
Interest payable on bank loans and
overdrafts (2.6) (2.3)
Interest cost on pension plan balances (11.1) (11.1)
Costs associated with refinancing (0.2) (0.7)
(13.9) (14.1)
Financial revenue:
Interest receivable on bank deposits and
cash equivalents 0.2 0.1
Expected return on pension plan assets 11.2 10.1
Fair value gains on derivative instruments - 0.3
11.4 10.5
Net financing costs (2.5) (3.6)
4. Taxation
Analysis of tax charge in the year
2007 2006
£m £m
United Kingdom
UK corporation tax at 30% (2006 - 30%) 1.0 0.5
Less: double taxation relief (1.0) (0.5)
- -
Overseas taxes
Corporation taxes 1.3 1.3
Total current tax 1.3 1.3
Deferred tax
United Kingdom - origination and reversal of temporary differences - 0.3
Overseas - origination and reversal of temporary differences - (0.4)
Total deferred tax - (0.1)
Tax charge on loss on ordinary activities 1.3 1.2
Analysed as:
Continuing 0.6 1.5
Discontinued 0.7 (0.3)
1.3 1.2
5. Discontinued operations
On 3 August 2006 and 6 December 2006 respectively, the Group announced the
completion of the sale of certain assets and liabilities of the Automotive
and Machine Tools businesses. Both businesses had been treated as
discontinued operations in the financial statements to 31 March 2006 and
had accordingly been classified as held for sale in last year's balance
sheet. It was explained last year that these transactions were in line
with the Board's strategy to focus on the Group's core activity of
manufacture and sale of Industrial Power Transmission products.
The major classes of assets and liabilities sold and the associated
consideration are analysed below:
Assets and liabilities disposed other than cash: Automotive Machine Total
Tools
£m £m £m
Property, plant and equipment 6.2 0.5 6.7
Inventories 7.2 7.8 15.0
Trade and other receivables 6.6 5.3 11.9
Trade and other payables (9.2) (6.1) (15.3)
Provisions (0.5) - (0.5)
Retirement benefit obligations (0.6) - (0.6)
Total net assets disposed 9.7 7.5 17.2
Cash and cash equivalents relating to the disposals:
Net cash consideration 3.4 3.7 7.1
Consideration outstanding (1.0) - (1.0)
Cash transferred with business - (0.7) (0.7)
Net cash inflow relating to disposals 2.4 3.0 5.4
Deferred consideration of £1.5 million on the Machine Tools disposal has not
been recognised in these financial statements and will only be recognised when
there is greater certainty of recovery.
The results attributable to the discontinued operations are set out below. The
operating results for 2006 are for a 12 month period; for 2007 the results are
for the periods up to the respective dates of disposal.
2007 2006
Automotive Machine Total Automotive Machine Total
tools discontinued tools discontinued
£m £m £m £m £m £m
External revenue 16.3 12.8 29.1 49.3 20.8 70.1
Operating profit/(loss) before
exceptional items (2.2) (1.3) (3.5) (1.6) 0.1 (1.5)
Redundancy, restructuring and
other exceptional items 1.0 0.7 1.7 0.7 (0.2) 0.5
Operating (loss) (1.2) (0.6) (1.8) (0.9) (0.1) (1.0)
Bank interest (0.1) (0.1) (0.2) (0.3) (0.1) (0.4)
(Loss) before tax (1.3) (0.7) (2.0) (1.2) (0.2) (1.4)
Taxation - - - 0.5 (0.2) 0.3
(Loss) after tax (1.3) (0.7) (2.0) (0.7) (0.4) (1.1)
Adjustments to fair value less
costs to sell and losses on
disposal (6.2) (4.6) (10.8) (9.1) (3.7) (12.8)
Taxation (0.7) - (0.7) - - -
(6.9) (4.6) (11.5) (9.1) (3.7) (12.8)
(Loss) for the year on
discontinued operations (8.2) (5.3) (13.5) (9.8) (4.1) (13.9)
Discontinued exceptional items:
Within Automotive the exceptional item of £1.0 million represents the release of
provisions that were effectively extinguished as a result of the disposal
transaction. In Machine Tools the £0.7 million represents curtailment gains
attributed to operations in the UK. In the prior year the exceptional amounts
represented the release of surplus provisions and redundancy costs respectively.
The cash flows attributed to discontinued operations comprise:
2007 2006
£m £m
From operating activities (4.7) 1.7
From investing activities (1.7) (2.8)
From financing activities (1.6) (0.5)
6. Earnings per share
Earnings per share is calculated by reference to the earnings for the year and
the weighted average number of shares in issue during the year as follows:
2007 2006
Weighted Weighted
average average
number of Per-share number of Per-share
shares amount shares amount
Earnings Thousands Pence Earnings Thousands Pence
£m £m
Basic EPS
Earnings attributed to ordinary
shareholders (12.7) 69,501 (18.3) (13.6) 69,350 (19.6)
Effect of dilutive securities:
Employee share options - 569 0.2 - 63 -
Diluted EPS (12.7) 70,070 (18.1) (13.6) 69,413 (19.6)
Earnings per share from continuing operations:
Basic EPS (12.7) 69,501 (18.3) (13.6) 69,350 (19.6)
Post tax loss/(profit) from
discontinued operations
(Note 5) 2.0 2.9 1.1 1.6
Adjustments to fair value less
costs to sell and losses on
disposal (Note 5) 11.5 16.6 12.8 18.4
Basic EPS from continuing
operations 0.8 69,501 1.2 0.3 69,350 0.4
Inclusion of the dilutive securities shown above does not change the amount
shown for basic EPS from continuing operations.
Earnings per share from discontinued operations
Basic EPS
Post tax (loss)/profit from
discontinued operations
(Note 5) (2.0) 69,501 (2.9) (1.1) 69,350 (1.6)
Adjustments to fair value less
costs to sell and losses on
disposal (Note 5) (11.5) (16.6) (12.8) (18.4)
Basic EPS from discontinued (13.5) 69,501 (19.5) (13.9) 69,350 (20.0)
operations
Inclusion of the dilutive securities, shown above, changes the amounts shown for
basic EPS for discontinued operations to (19.3p) (2006 - unchanged at (20.0p)).
Adjusted EPS for continuing activities
Basic EPS from continuing
operations 0.8 69,501 1.2 0.3 69,350 0.4
Effect of exceptional items,
after tax:
PACE restructuring initiatives 4.7 6.8
Redundancy and restructuring
costs 0.3 0.4 0.9 1.3
Adjusted EPS 5.8 69,501 8.4 1.2 69,350 1.7
Inclusion of the dilutive securities, shown above, in the calculation of
adjusted EPS changes the amount shown to 8.3p (2006 - unchanged at 1.7p).
The adjusted earnings per share numbers have been provided in order to give
a useful indication of underlying performance by the exclusion of
exceptional items.
7. Analysis of changes in shareholders' equity
Share Share Retained Currency Total equity
capital premium earnings translation
account reserve
£m £m £m £m £m
At 1 April 2005 17.3 6.0 31.5 0.5 55.3
Loss for the year - - (13.6) - (13.6)
Foreign exchange translation difference - - - 1.1 1.1
Actuarial gains and losses - - (5.3) - (5.3)
Gains on fair value of hedging net investments - - - 1.1 1.1
in foreign operations
Tax on items recognised directly in equity - - 1.7 - 1.7
Employee share options:
- value of employee services - - 0.2 - 0.2
- proceeds from shares issued 0.1 - - - 0.1
As at 31 March 2006 17.4 6.0 14.5 2.7 40.6
Loss for the year - - (12.7) - (12.7)
Foreign exchange translation difference - - - (4.8) (4.8)
Actuarial gains and losses - - 0.9 - 0.9
Gains on fair value of hedging net investments - - - 0.9 0.9
in foreign operations
Tax on items recognised directly in equity - - (1.2) - (1.2)
Share premium - 0.1 - - 0.1
Employee share options:
- value of employee services - - 0.1 - 0.1
At 31 March 2007 17.4 6.1 1.6 (1.2) 23.9
8. Additional cash flow information
Reconciliation of profit/(loss) before tax to net cash flows from
operations:
2007 2006
£m £m
Cash generated from operations:
Continuing operations:
Profit before taxation 1.4 1.8
Depreciation and amortisation 4.9 5.4
Loss on plant and equipment disposals 0.1 -
Equity share plans 0.1 0.2
Net finance costs 2.5 3.6
Decrease/(increase) in inventories 1.2 (1.8)
(Increase) in receivables (2.3) (0.4)
Increase in payables 4.1 2.7
Increase/(decrease) in provisions 1.7 (2.7)
Movement on pension plans (3.5) (3.8)
Movement in derivative financial instruments 0.1 (0.3)
Cash generated from continuing operations 10.3 4.7
Discontinued operations
(Loss) before taxation (2.0) (1.4)
Depreciation and amortisation - 3.1
Plant and equipment impairment - 0.8
Loss/(gain) on plant and equipment disposals 0.2 (0.1)
Net finance costs 0.2 0.4
(Increase) in inventories (0.3) (0.6)
Decrease in receivables 2.2 0.2
(Decrease)/increase in payables (2.0) 5.3
(Decrease) in provisions (1.2) (5.7)
Movement on pension plans (1.8) (0.3)
Cash (absorbed)/generated by discontinued operations (4.7) 1.7
Cash generated from operations 5.6 6.4
Reconciliation of net increase in cash and cash equivalents to movement
in net debt:
2007 2006
£m £m
Increase in cash and cash equivalents 6.2 4.6
Change in net debt resulting from cash flows (6.1) (6.9)
Finance lease inception (0.2) -
Foreign currency translation differences 1.4 (0.9)
Change in net debt during the period 1.3 (3.2)
Net debt at start of year (20.7) (17.5)
Net debt at end of year (19.4) (20.7)
Net debt comprises:
Cash and cash equivalents 20.3 17.8
Total borrowings (39.7) (38.5)
(19.4) (20.7)
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