Interim Results

Renold PLC 12 November 2001 12 November 2001 RENOLD PLC 2001 Interim Results Precision engineering group, Renold plc, the leading international manufacturer and supplier of chains, gears, couplings, machine tools and rotors, today announces its interim results. The results for the period to 29 September 2001 reflect the sentiment of the Group's trading statement issued on 25 September 2001. Markets in North America have experienced growing weakness over the period and, in particular, this has been evident in the downturn in demand for the Group's machine tool and rotor products. Against tough market conditions, the management team has taken a number of actions to strengthen and reposition the Group going into the second half. These actions include addressing underperforming operations, reducing the cost base, and refocusing the ongoing businesses on core markets and customers. Summary * Turnover: £97.6 million (2000/2001: £106.6 million) * Profit before tax, goodwill amortisation and exceptional items: £2.0 million (2000/2001: £5.1 million) * Adjusted earnings per share: 2.0p (2000/2001: 4.7p) * Interim dividend per ordinary share: 1.5p (2000/2001: 3.1p) Outlook Roger Leverton, Chairman of Renold plc, said: 'The short term outlook for manufacturing industries in the key North American and European markets in which the Group operates is more difficult now than it has been for some considerable time. The disruption following the tragic events of 11 September has undoubtedly delayed any recovery, although some sectors in which the Group operates are expected to perform better, for example mass transit, power generation and infrastructure projects. 'Following the Chief Executive's review of the Group's activities and the restructuring undertaken in the period, the focus on core markets and customers has increased. Assuming no further deterioration in the markets for the Group's products, the actions taken to reduce the Group's cost base and to close loss-making operations will benefit the second half.' 12 November 2001 RENOLD PLC Chairman: Roger Leverton Interim Statement for the half year ended 29 September 2001 Financial Summary First half year 2001/2002 2000/2001 as restated £m £m Turnover 97.6 106.6 Trading profit before goodwill amortisation and exceptional items 3.8 7.2 Profit before tax, goodwill amortisation and exceptional items 2.0 5.1 Total exceptional items (6.4) (0.1) (Loss)/profit before tax (5.1) 4.3 Earnings per ordinary share - based on adjusted earnings 2.0 p 4.7 p - based on reported earnings (5.7) p 3.9 p Interim dividend per ordinary share 1.5 p 3.1 p Capital expenditure 3.8 5.6 Gearing (net borrowings to shareholders' funds) 42% 46% CHAIRMAN'S STATEMENT The results for the period to 29 September 2001 reflect the sentiment of the Group's trading statement issued on 25 September 2001. Markets in North America have experienced growing weakness over the period and, in particular, this has been evident in the downturn in demand for the Group's machine tool and rotor products. Against tough market conditions, the management team has taken a number of actions to strengthen and reposition the Group going into the second half. These actions include addressing underperforming operations, reducing the cost base, and refocusing the ongoing businesses on core markets and customers. Group results Sales for the half year to 29 September 2001 were £97.6 million (2000/2001 £106.6 million), a reduction of 9% at constant exchange rates. Profit before tax (and before goodwill amortisation and exceptional items) was £2.0 million (2000/2001 £5.1 million). Redundancy and restructuring costs of £1.8 million were charged in the period (2000/2001 £0.1 million), in addition there was a charge of £4.6 million for the closure of the Manifold Indexer operation of which £1.6 million related to goodwill previously written off to reserves. A tax credit of £1.2 million arose in the period (2000/2001 tax charge £1.6 million). Tax has been accounted for in accordance with FRS 19 - Deferred Tax which has been adopted with effect from 1 April 2001, the prior period accounts have been restated to reflect the impact of the new Standard. Adjusted earnings per share, before goodwill amortisation and exceptional items, were 2.0 pence (2000/2001 - 4.7 pence). Cash flow and borrowings There was a net cash outflow in the first half year of £8.8 million, compared with £4.5 million outflow last year. Cash outflow on capital expenditure was substantially below last year's level as spending has been curtailed in the light of market conditions, however cash flow from operating activities was lower due principally to reduced customer machine tool deposits and to inventory containment. Borrowings at 29 September were £36.0 million compared with £28.3 million at year end, and gearing was 42% of shareholders' funds compared with 32% at year end. Dividend In light of current trading conditions the Board have declared an interim dividend of 1.5 pence (3.1 pence last year). The dividend will be paid on 25 January 2002 to shareholders on the register on 4 January 2002. Power transmission Overall the core chain businesses performed satisfactorily in the first half year, although weakening North American demand through the period had an adverse effect as distributors continued to reduce inventory levels, and as equipment manufacturers, particularly in the materials handling sector, cut back production. Sales of chain produced in Germany and the UK into the US market through Jeffrey Chain, one of the key synergies from the acquisition, continued to grow partially offsetting the weaker market conditions. In North America, Jeffrey Chain was successful in maintaining sales of locally produced engineering chain in a difficult market. However, overall demand for transmission chain products was lower and profits were down. The UK and German chain manufacturing operations experienced weaker markets, including lower sales of fork lift truck chain. Automotive Systems orders continued to grow and sales increased; in spite of this, manufacturing performance did not match the improved efficiency achieved last year as the one-off impact of the shorter working week at the Calais site was absorbed, and the result was marginally lower. European sales operations maintained last year's good performance and in Australia and New Zealand order intake improved in the second quarter, with some recovery being seen in the Australian agricultural market. Malaysia and Singapore performed satisfactorily although not matching last year's record results. The gear and coupling businesses in the UK have been substantially restructured during the period. As announced in March the Bradford site has been closed, and the profitable Carter Variator product range successfully transferred to the Milnrow Gear factory. Further cost reduction action has been taken and overall results were close to last year's level in a difficult market environment. The focus in these businesses is now on those products which complement the Group chain products and enhance the power transmission portfolio from a lower cost base. Renold Ajax, the US large coupling business, fell below last year's record performance as a result of weaker demand from steel mills for its spindle couplings; in contrast, good new orders were obtained for mass transit couplings. As has been announced previously, the Manifold Indexer operation is to be closed and the cost of this, £4.6 million including £1.6 million of previously written off goodwill, has been charged in the period. Manifold has suffered poor trading conditions for some time and recorded an operating loss of £0.7 million in the first half year, after a loss of £0.6 million in the corresponding period last year. The power transmission businesses' results were lower than last year with much of the reduction caused by reduced demand in North American markets. Action has been taken to reduce costs and to rationalise the under-performing businesses in the gear and coupling area. Manning levels in the power transmission businesses overall have been reduced by 8% as a result of these actions. Going forward, the power transmission businesses are well placed to benefit when market conditions improve. Machine tool and rotor The machine tool and rotor business operates in a capital goods sector which deteriorated markedly in the period and, against this background of weak demand, the business fell back into loss. Holroyd suffered a sharp reduction in customer requirements for precision rotors used in the air-conditioning and refrigeration industry, driven by lower US demand. Jones & Shipman precision grinding machine sales were well down, as were sales of Edgetek superabrasive machine tools. However, sales of Holroyd machine tools held up better against orders taken last year and new order prospects, outside North America, are encouraging. As announced in the September trading statement, the Edgetek US manufacturing facility is to be closed and the production of Edgetek products transferred to the Holroyd factory in the UK; the costs associated with this have been charged in the first half. In addition, costs have been reduced at Holroyd and at Jones & Shipman where, at the Leicester site, a substantial redundancy programme took place in September. The machine tool and rotor business now operates with a small unified management team reporting direct to the Chief Executive. Manufacturing activities are being consolidated on the two UK sites and employee numbers have been reduced by 20% as a result of the actions taken. Outlook The short term outlook for manufacturing industries in the key North American and European markets in which the Group operates is more difficult now than it has been for some considerable time. The disruption following the tragic events of 11 September has undoubtedly delayed any recovery, although some sectors in which the Group operates are expected to perform better, for example mass transit, power generation and infrastructure projects. Following the Chief Executive's review of the Group's activities and the restructuring undertaken in the period, the focus on core markets and customers has increased. Assuming no further deterioration in the markets for the Group's products, the actions taken to reduce the Group's cost base and to close loss-making operations will benefit the second half. RELEASE OF INTERIM STATEMENT The Interim Statement will be posted to shareholders on 16 November 2001. Copies will be available for the public from that date at the Company's registered office, Renold House, Styal Road, Wythenshawe, Manchester M22 5WL. For further information, please contact: Renold plc Ian Trotter, Chief Executive : 12 November 2001 - 020 7329 0096 Tony Brown, Finance Director : Thereafter - 0161 498 4500 Issued by: Weber Shandwick Worldwide Ben Padovan/James Gordon : Telephone - 020 7329 0096 Group Profit and Loss Account -------------------------------------------------------------------------------- for the half year ended 29 September 2001 (unaudited) First half year Full year 2001/2002 2000/2001 2000/2001 as restated as restated £m £m £m Turnover 97.6 106.6 216.7 Trading costs - normal operating costs (93.8) (99.4) (200.6) - goodwill amortisation (0.7) (0.7) (1.4) - exceptional redundancy and (1.8) (0.1) (2.4) restructuring costs - exceptional gain on disposal of - - 2.7 asset held for sale ------------ ------------ ------------ (96.3) (100.2) (201.7) ------------ ------------ ------------ Trading profit 1.3 6.4 15.0 Exceptional loss on termination of (4.6) - - operation Interest payable (1.8) (2.1) (3.9) ------------ ------------ ------------ (Loss)/profit on ordinary activities (5.1) 4.3 11.1 before tax ------------ ------------ ------------ Tax: UK 1.4 - - Overseas (0.2) (1.6) (3.7) ------------ ------------ ------------ 1.2 (1.6) (3.7) ------------ ------------ ------------ (Loss)/profit for the period (3.9) 2.7 7.4 Dividends (including non-equity) (1.1) (2.2) (6.5) ------------ ------------ ------------ Retained (loss)/profit for the (5.0) 0.5 0.9 period ------------ ------------ ------------ Adjusted earnings per ordinary share - based on reported earnings adjusted for goodwill amortisation and exceptional items after tax relief 2.0p 4.7p 11.5p ------------ ------------ ------------ Basic and diluted earnings per ordinary share - based on reported earnings (5.7)p 3.9p 10.7p ------------ ------------ ------------ Dividends per ordinary share 1.5p 3.1p 9.25p ------------ ------------ ------------ Group Balance Sheet -------------------------------------------------------------------------------- as at 29 September 2001 (unaudited) At At At 29 September 30 September 31 March 2001 2000 2001 as restated as restated £m £m £m Fixed assets Intangible asset - goodwill 26.2 27.3 27.7 Tangible assets 57.2 58.6 59.2 ------------ ------------ ------------ 83.4 85.9 86.9 ------------ ------------ ------------ Current assets Stocks 51.9 51.8 52.0 Debtors 38.6 45.4 43.5 Cash and short term deposits 5.5 6.6 7.1 ------------ ------------ ------------ 96.0 103.8 102.6 ------------ ------------ ------------ Creditors - due within one year Loans and overdrafts (16.4) (8.3) (7.1) Other creditors (38.5) (42.2) (51.8) ------------ ------------ ------------ (54.9) (50.5) (58.9) ------------ ------------ ------------ Net current assets 41.1 53.3 43.7 ------------ ------------ ------------ Total assets less current liabilities 124.5 139.2 130.6 Creditors - due after one year Loans (25.0) (38.4) (28.2) Other creditors (0.3) (0.2) (0.4) Provisions for liabilities and charges (14.2) (12.9) (12.7) ------------ ------------ ------------ Net assets 85.0 87.7 89.3 ------------ ------------ ------------ Capital and reserves (including non-equity interests) Called up share capital 17.9 17.9 17.9 Share premium 6.0 6.0 6.0 Other reserves 61.1 63.8 65.4 ------------ ------------ ------------ Shareholders' funds 85.0 87.7 89.3 ------------ ------------ ------------ Summarised Group Cash Flow Statement -------------------------------------------------------------------------------- for the half year ended 29 September 2001 (unaudited) First half year Full year 2001/2002 2000/2001 2000/2001 £m £m £m Cash flow from operating activities Trading profit 1.3 6.4 15.0 Depreciation 4.6 4.8 10.4 Goodwill amortisation 0.7 0.7 1.4 (Increase)/decrease in working (3.7) (1.3) 1.8 capital Exceptional gain on disposal of - - (2.7) asset held for sale Other 0.3 0.3 (0.4) ------------ ------------ ------------ 3.2 10.9 25.5 Servicing of finance (1.7) (2.9) (4.2) Taxation (2.2) (1.7) (2.5) Capital expenditure and financial investment - purchase of tangible fixed assets (3.8) (5.6) (10.4) - proceeds from disposal of asset - - 7.7 held for sale Acquisition - purchase consideration including - (0.9) (0.9) costs Equity dividends paid (4.3) (4.3) (6.5) ------------ ------------ ------------ Cash (outflow)/inflow before use of liquid resources and financing (8.8) (4.5) 8.7 Management of liquid resources - transfers from short term deposits 0.5 1.8 1.8 Financing - (decrease)/increase in debt and (2.0) 4.2 (9.6) lease financing ------------ ------------ ------------ (Decrease)/increase in cash in the (10.3) 1.5 0.9 period ------------ ------------ ------------ Reconciliation of net cash flow to movement in net debt (Decrease)/increase in cash in the (10.3) 1.5 0.9 period Cash flow from decrease/(increase) in debt and lease financing 2.0 (4.2) 9.6 Cash flow from decrease in liquid (0.5) (1.8) (1.8) resources ------------ ------------ ------------ Change in net debt resulting from (8.8) (4.5) 8.7 cash flows Exchange translation difference 1.1 (2.3) (3.5) ------------ ------------ ------------ Movement in net debt in the period (7.7) (6.8) 5.2 Net debt at beginning of period (28.3) (33.5) (33.5) ------------ ------------ ------------ Net debt at end of period (36.0) (40.3) (28.3) ------------ ------------ ------------ Other Group Statements -------------------------------------------------------------------------------- Statement of total recognised gains and losses First half year Full year 2001/2002 2000/2001 2000/2001 as restated as restated £m £m £m (Loss)/profit for the period (3.9) 2.7 7.4 Exchange translation differences on foreign currency net investments (0.9) 1.0 2.2 ------------ ------------ ------------ Total recognised gains and losses (4.8) 3.7 9.6 ------------ ------------ Prior period adjustment (note 3) (0.2) ------------ Total gains and losses recognised since last annual report (5.0) ------------ Reconciliation of movements in shareholders' funds First half year Full year 2001/2002 2000/2001 2000/2001 as restated as restated £m £m £m (Loss)/profit for the period (3.9) 2.7 7.4 Dividends (1.1) (2.2) (6.5) Retained (loss)/profit for the (5.0) 0.5 0.9 period Exchange translation differences on foreign currency net investments (0.9) 1.0 2.2 Goodwill resurrected on termination 1.6 - - ------------ ------------ ------------ Net (reduction in)/addition to (4.3) 1.5 3.1 shareholders' funds Opening shareholders' funds (including non-equity) (originally £89.5m before deducting 89.3 86.2 86.2 prior year adjustment of £0.2m) ------------ ------------ ------------ Closing shareholders' funds 85.0 87.7 89.3 (including non-equity) ------------ ------------ ------------ Notes to the Interim Statement -------------------------------------------------------------------------------- 1. Accounting policies and basis of preparation The interim accounts are unaudited and do not constitute statutory accounts. They have been prepared under the historical cost convention (but include some past revaluations of properties and equipment) and in accordance with applicable accounting standards, using the accounting policies set out in the Annual Report for the year ended 31 March 2001, with the exception of the matters noted below. There is no material difference between the result in the profit and loss account and the result on an unmodified historical cost basis. The Board approved the Interim Statement on 12 November 2001. Adoption of new Financial Reporting Standards For the financial year beginning 1 April 2001, the Group has adopted the Financial Reporting Standards listed below, following the transitional arrangements where applicable: FRS 17 - Retirement Benefits FRS 18 - Accounting Policies FRS 19 - Deferred Tax The comparative figures for the year 2000/2001 have been restated to reflect the impact of FRS 19 (see note 3 - 'Prior period adjustment'). There have been no changes to the financial information disclosed in the Interim Statement as a consequence of adopting FRS 17 and 18. 2. Analysis of activities Activities classified by business segment: First half year Full year 2001/2002 2000/2001 2000/2001 £m £m £m Turnover Power transmission 85.9 90.4 182.1 Machine tool and rotor 12.5 17.0 36.7 ------------ ------------ ------------ 98.4 107.4 218.8 Less: Inter activity sales (0.8) (0.8) (2.1) ------------ ------------ ------------ 97.6 106.6 216.7 ------------ ------------ ------------ Activities of terminated operation included in power transmission above 2.3 2.8 5.9 ------------ ------------ ------------ Trading Profit Power transmission 5.5 7.2 15.2 Machine tool and rotor (1.7) 0.9 ------------ ------------ ------------ 3.8 7.2 16.1 Less: Goodwill amortisation (0.7) (0.7) (1.4) Exceptional redundancy and (1.8) (0.1) (2.4) restructuring costs Add: Exceptional gain on disposal 2.7 of asset held for sale ------------ ------------ ------------ 1.3 6.4 15.0 ------------ ------------ ------------ Activities of terminated operation included in power transmission above (0.7) (0.6) (1.3) ------------ ------------ ------------ Trading Assets Power transmission 89.7 88.6 87.7 Machine tool and rotor 19.7 21.7 20.2 ------------ ------------ ------------ 109.4 110.3 107.9 ------------ ------------ ------------ The profit and loss account includes a non-trading exceptional charge of £4.6 million, representing the cost of the announced closure of the loss-making Manifold indexer business, the recent activities of which are shown above. The charge includes goodwill of £1.6 million, previously written off direct to reserves. The impact on the tax charge for the period is a credit of £0.9 million. First half year Full year Activities classified by 2001/2002 2000/2001 2000/2001 geographical region of operation: £m £m £m Turnover United Kingdom 39.9 45.7 91.9 Germany 15.4 16.1 33.7 France 17.3 16.5 34.3 Rest of Europe 8.3 7.7 16.5 North America 28.5 34.2 68.3 Other countries 8.1 8.7 17.4 ------------ ------------ ------------ 117.5 128.9 262.1 Less: Intra Group sales (19.9) (22.3) (45.4) ------------ ------------ ------------ 97.6 106.6 216.7 ------------ ------------ ------------ Turnover by geographical region includes intra group sales as follows: United Kingdom 14.1 15.6 30.2 Germany 4.3 5.0 10.8 France 1.1 1.1 2.3 Trading Profit United Kingdom (0.4) 1.0 2.5 Germany 1.8 1.9 4.8 France 0.9 1.2 2.5 Rest of Europe 0.5 0.5 1.3 North America 0.9 2.4 4.5 Other countries 0.1 0.2 0.5 ---------- ------------ ------------ 3.8 7.2 16.1 Less: Goodwill amortisation (0.7) (0.7) (1.4) Exceptional redundancy and (1.8) (0.1) (2.4) restructuring costs Add: Exceptional gain on disposal of 2.7 asset held for sale ---------- ------------ ------------ 1.3 6.4 15.0 ---------- ------------ ------------ Trading Assets United Kingdom 51.3 53.6 49.8 Germany 13.7 11.4 11.3 France 11.0 10.3 11.2 Rest of Europe 3.9 3.6 4.4 North America 23.5 25.1 25.0 Other countries 6.0 6.3 6.2 ---------- ------------ ------------ 109.4 110.3 107.9 ---------- ------------ ------------ Trading assets comprise fixed assets, current assets less creditors but exclude goodwill, cash, borrowings, dividends, current and deferred corporate tax, finance lease obligations and provisions for liabilities and charges. First half year Full year 2001/2002 2000/2001 2000/2001 £m £m £m Geographical analysis of external turnover by market area: United Kingdom 15.2 18.4 36.0 Germany 12.7 12.9 26.7 France 5.3 5.7 12.0 Rest of Europe 16.2 16.1 33.6 North and South America 35.2 41.5 83.1 Other countries 13.0 12.0 25.3 ------------ ------------ ------------ 97.6 106.6 216.7 ------------ ------------ ------------ 3. Prior period adjustment The prior period adjustment represents the effect of a change in the accounting policy for deferred tax. This follows the issue in December 2000 of FRS 19 - Deferred Tax. The new standard essentially requires full provision to be made for timing differences between the recognition of gains and losses in the accounts and their recognition in the related tax computations. This is in contrast with the partial provision basis previously followed, under the former standard, SSAP 15 - Accounting for Deferred Tax. The prior period adjustment is a cumulative debit adjustment to reserves of £0.2 million, all of which relates to the year ended 1 April 2000 and prior periods. The comparative amounts for 2000/2001 have been restated in accordance with the new policy. The impact on the results in the six months to 30 September 2000, and for the full year to 31 March 2001, was immaterial. Had the new policy not been adopted in the current period the net tax credit of £1.2 million would have been a tax charge of £0.5 million and the loss for the financial period would have been £5.6 million.

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