Interim Results
Renold PLC
12 December 2005
12 December 2005
RENOLD plc
Interim results for the half year ended 30 September 2005
Precision engineering group, Renold plc, a leading international manufacturer
and supplier of industrial chains and related power transmission products,
automotive cam drive systems and machine tools and rotors, today announces its
interim results for the half year ended 30 September 2005.
Summary
• Results in line with Board's expectations reflecting impact of continuing high
raw material prices and increased utility costs
• Turnover increased by 12% to £106.9 million (2004: £95.3 million)
• Operating profit, before exceptional items, was marginally ahead of previous
six months at £0.2 million
• Loss before tax was £2.0 million (2004: £2.1 million profit)
• Strong forward order book
• Actions to reduce costs on going
- Further shift of manufacturing to lower cost countries
• Sale of Burton site contracted for at least £7.7 million (£3.5 million
carrying value).
Outlook
Roger Leverton, Chairman of Renold plc, said today:
'With the order book substantially higher than at the commencement of the year,
and with the actions taken to mitigate cost increases, the second half
performance should see an improvement. However, any further significant
escalation of raw material and energy costs will continue to depress results.'
12 December 2005
RENOLD plc
Chairman: Roger Leverton
Interim Statement for the half year ended 30 September 2005
FINANCIAL SUMMARY
Half year ended 30 September
2005/06 2004/05
£m (restated)
£m
Revenue 106.9 95.3
Operating profit before exceptional items 0.2 3.8
(Loss)/profit before tax and exceptional items (1.8) 2.4
(Loss)/profit before tax (2.0) 2.1
Earnings per ordinary share
- basic and diluted (loss)/earnings per share (2.8)p 2.2p
- adjusted (loss)/earnings per share (adjusting
for the after tax effects of exceptional items) (2.6)p 2.4p
Net debt (22.3) (26.9)
Chairman's Statement
The results for the first half to 30 September 2005 are in line with the Board's
expectations with a marginal improvement in operating profit before exceptional
items over the second half of 2004/05, in the face of continuing high raw
material prices, coupled with increased utility costs.
Group results
This is the first time Renold has published results in accordance with the
recognition and measurement criteria of International Financial Reporting
Standards (IFRS) and hence comparative numbers have been restated as
appropriate. A full reconciliation of the changes from UK GAAP to IFRS is
available on the Group's website at www.renold.com. The most significant change
is the increase in Shareholders' Equity as at 31 March 2005 of £15.8 million
which is principally due to the revaluation of freehold properties.
Sales for the half year to 30 September 2005 were £106.9 million (2004/05: £95.3
million). This includes a £3.4 million contribution from Renold SAF which was
acquired in March 2005. At constant exchange rates, on a like for like basis,
sales were 7% ahead of last year.
Operating profit before exceptional items was £0.2 million (2004/05: £3.8
million profit). Loss before tax was £2.0 million (2004/05: £2.1 million
profit).
Net financing costs of £2.0 million (2004/05: £1.4 million) included costs
associated with the renegotiation of banking facilities of £0.6 million,
interest expense relating to pension plan balances of £0.4 million (2004/05:
£0.2 million) and the fair value gains on derivatives amounting to £0.2 million.
The tax credit in the period was £0.1 million (2004/05: £0.6 million charge).
Adjusted (loss)/earnings per share, before exceptional items, were (2.6) pence
(2004/05: 2.4 pence) and basic (loss)/earnings per share were (2.8) pence (2004/
05: 2.2 pence).
Cash flow and borrowings
Operating cash flow, net of capital spending and disposal proceeds was an
outflow of £4.1 million (2004/05: £5.4 million outflow). This included an
outflow of £3.2 million relating to the restructuring of Renold SAF, the
conversion of the Burton chain factory to a service centre and an inventory
increase particularly, in the Machine Tool and Rotor business, as a result of
the large order intake during the first half.
Net borrowings, including finance leases, at 30 September 2005 were £21.7
million compared with £17.0 million at 31 March 2005 (before the inclusion of
£0.6m preference shares under IFRS). Gearing was 43% of total equity compared
with 47% a year ago.
As announced in October 2005, the Group has entered into a contract for the sale
of the Burton site for gross proceeds of at least £7.7 million with a potential
of up to £8.65 million subject to satisfactory site survey and planning
permission being obtained. The carrying value of the site at 30 September 2005
is £3.5 million and it is the intention that the net proceeds will be used to
reduce Group borrowings.
Dividend
The Board has decided to recommend that no interim dividend be paid but it will
consider the payment of a dividend in the light of results for the year as a
whole.
Comment
Industrial Power Transmission
The division's performance in the first half continued to reflect similar
trading conditions to those experienced during the second half of last year. Raw
material prices have remained high and utility and freight costs have shown
substantial increases during the last few months. As much as possible, price
increases have been introduced to offset higher input costs but this is taking
time to flow through into the results. Actions to reduce costs have been
implemented throughout the business including the restructuring of the Burton
activities. These initiatives gave rise to an increase in operating profit
compared with the second half of last year, although margins have yet to recover
to the levels of the first half of 2004/05.
North American orders for chain products were strong with double digit increases
in distribution and OEM orders. European orders increased overall, reflecting
price increases with stable volumes. China continued to develop with good demand
for gear products. Orders for coupling products remained strong.
Further actions to reduce costs, including the establishment of a factory in
Poland and increased outsourcing of components, should increasingly benefit the
division's performance going forward. Negotiations continue over the
establishment of manufacturing operations in China.
Automotive Systems
Sales were 40% higher than the first half of last year including the Renold SAF
business acquired in March 2005. On a like for like basis, at constant exchange
rates, sales were 18% higher driven by a new programme at Peugeot and growth in
demand from other manufacturers. The US facility has commenced assembly of
chain; the restructuring of the acquired Renold SAF operation, which recorded a
breakeven at the operating level, is virtually complete.
Higher steel prices and increased freight and utility costs, with little
consequent increase in customer pricing, continue to impact the performance of
the Calais operation. Efficiency improvements were achieved by improved tool
life, single-piece flow and automated test equipment but these only partially
offset the cost increases and as a result there was an operating loss for the
period of £1.7 million compared with a loss of £1.4 million in the second half
of 2004/05.
The recent strengthening of the US dollar against the Euro will, if maintained,
provide benefit in the second half year, as should continuing efficiency
improvements.
Machine Tool and Rotor
As indicated in the Annual Report, machine tool orders were weak in the second
half of 2004/05. As a result sales, were 19% lower than the first half of last
year at constant exchange rates. However, machine tool orders have recovered
strongly in recent months and the order book has more than doubled since March
2005. This should underpin second half performance. As a result of the lower
shipments in the first half, the division reported an operating loss of £0.6
million compared with a profit of £0.3 million in each half of 2004/05.
Outlook
With the order book substantially higher than at the commencement of the year,
and with the actions taken to mitigate cost increases, the second half
performance should see an improvement. However, any further significant
escalation of raw material and energy costs will continue to depress results.
Release of Interim Statement
The Interim Statement will be posted to shareholders on 16 December 2005. 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
Bob Davies, Chief Executive 12 December 2005: 020 7067 0700
Tony Brown, Finance Director Thereafter: 0161 498 4500
Issued by:
Weber Shandwick Square Mile
Terry Garrett/Stephanie Badjonat Telephone: 020 7067 0700
This announcement and the Analysts' Presentation can also be viewed on the
website http://www.renold.com
Consolidated Income Statement
for the six months ended 30 September 2005 (unaudited)
Half year ended 30 September Full year
2005/06 2004/05 2004/05
(restated) (restated)
£m £m £m
Revenue 106.9 95.3 197.0
Operating costs (excluding
exceptional items) (106.7) (91.5) (193.6)
---------- ---------- ---------
Operating profit before exceptional
items 0.2 3.8 3.4
Exceptional items (Note 2) (0.2) (0.3) (2.4)
---------- ---------- ---------
Operating profit 3.5 1.0
---------- ---------- ---------
Net interest expense on loans and
overdrafts (1.2) (1.2) (2.2)
Costs associated with refinancing (0.6)
Net (interest expense)/finance
income arising on pension plan
balances (0.4) (0.2) (0.4)
Fair value gains on derivative
instruments 0.2
---------- ---------- ---------
Net financing cost (2.0) (1.4) (2.6)
---------- ---------- ---------
(Loss)/profit before tax (2.0) 2.1 (1.6)
---------- ---------- ---------
Tax UK 0.8 (0.2) 1.6
Overseas (0.7) (0.4) (0.1)
---------- ---------- ---------
(Loss)/profit for the financial
period (1.9) 1.5 (0.1)
---------- ---------- ---------
Earnings per share
Basic and diluted (loss)/earnings
per share (2.8)p 2.2p (0.2)p
Consolidated Balance Sheet
as at 30 September 2005 (unaudited)
Half year Full year
2005/06 2004/05 2004/05
(restated) (restated)
£m £m £m
ASSETS
Non-current assets
Goodwill 16.3 18.9 15.7
Other intangible fixed assets 0.6 0.4 0.3
Property, plant and equipment 61.7 62.0 64.4
Other non-current assets 1.0 0.9 1.1
Deferred tax assets 20.1 15.5 17.0
---------- ---------- ---------
Total non-current assets 99.7 97.7 98.5
---------- ---------- ---------
Current assets
Inventories 50.0 49.3 47.3
Trade and other receivables 40.3 36.1 41.8
Financial instruments 0.2
Cash and cash equivalents 22.4 12.1 24.5
---------- ---------- ---------
Total current assets 112.9 97.5 113.6
---------- ---------- ---------
TOTAL ASSETS 212.6 195.2 212.1
---------- ---------- ---------
LIABILITIES
Current liabilities
Bank and other loans (35.6) (21.7) 28.4)
Financial instruments (0.1)
Trade and other payables (45.0) (36.5) (45.7)
Current tax (0.8) (1.0) (1.0)
Provisions (8.5) (11.7)
---------- ---------- ---------
Total current liabilities (90.0) (59.2) (86.8)
---------- ---------- ---------
NET CURRENT ASSETS 22.9 38.3 26.8
---------- ---------- ---------
Non-current liabilities
Bank and other loans (8.1) (16.8) (12.7)
Financial instruments (0.4)
Preference shares (0.6)
Trade and other payables (1.6) (1.6) (1.6)
Deferred tax liabilities (1.5) (1.3) (1.4)
Retirement benefit obligations (60.0) (59.0) (53.5)
---------- ---------- ---------
Total non-current liabilities (72.2) (78.7) (69.2)
---------- ---------- ---------
TOTAL LIABILITIES (162.2) (137.9) (156.0)
---------- ---------- ---------
NET ASSETS 50.4 57.3 56.1
========== ========== =========
EQUITY
Shareholders' equity
Issued share capital 17.3 17.9 17.9
Share premium 6.1 6.0 6.1
Retained earnings and other reserves 27.0 33.4 32.1
---------- ---------- ---------
TOTAL EQUITY 50.4 57.3 56.1
========== ========== =========
Consolidated Cash Flow Statement
for the six months ended 30 September 2005 (unaudited)
Half year ended 30 September Full year
2005/06 2004/05 2004/05
(restated) (restated)
£m £m £m
Cash flows from operations (Note 3) (0.2) 0.1 6.6
Financing costs paid (1.6) (1.1) (2.2)
Income taxes paid (0.8) (0.5) (1.0)
---------- ---------- ---------
Net cash (outflow)/inflow from
operating activities (2.6) (1.5) 3.4
---------- ---------- ---------
Cash flows from investing activities
Purchase of property, plant and
equipment (2.9) (3.9) (8.0)
Purchase of intangible assets (0.1)
Proceeds on disposal of property,
plant and equipment 1.5
Purchase of subsidiary (0.1)
Cash acquired on purchase of
subsidiary 9.7
Interest received 0.1
---------- ---------- ---------
Net cash (outflow)/inflow from
investing activities (1.5) (3.9) 1.7
---------- ---------- ---------
Cash flows from financing activities
Increase in borrowings 1.8 4.6 2.4
Payment of finance lease liabilities (0.1)
Equity dividends paid (2.1) (3.2)
---------- ---------- ---------
Net cash inflow/(outflow) from
financing activities 1.8 2.5 (0.9)
---------- ---------- ---------
Effects of exchange rate changes 0.1
---------- ---------- ---------
Net (decrease)/increase in cash and
cash equivalents (2.2) (2.9) 4.2
Net cash and cash equivalents at
beginning of period 4.8 0.6 0.6
---------- ---------- ---------
Net cash and cash equivalents at
end of period 2.6 (2.3) 4.8
========== ========== =========
In the balance sheet net cash and
cash equivalents comprised:
Cash and cash equivalents 22.4 12.1 24.5
Overdrafts (included in bank and
other loans) (19.8) (14.4) (19.7)
--------- --------- --------
2.6 (2.3) 4.8
========= ========= ========
Reconciliation of movement in net cash and cash equivalents to movement in net
debt:
(Decrease)/increase in net cash and cash
equivalents (2.2) (2.9) 4.2
(Increase) in debt and lease financing (1.8) (4.6) (2.3)
Other non-cash movements (0.1)
Foreign currency translation differences (0.7) (0.2) 0.4
--------- --------- --------
(4.7) (7.7) 2.2
Net debt at the beginning of the period (17.0) (19.2) (19.2)
Restatement for reclassification of
preference shares following adoption
of IAS 32 (0.6)
---------
Net debt at the beginning of the
period (restated) (17.6)
--------- --------- --------
Net debt at the end of the period (22.3) (26.9) (17.0)
========== ========== =========
Net debt comprised:
Cash and cash equivalents 22.4 12.1 24.5
Bank overdrafts (19.8) (14.4) (19.7)
Bank loans (23.9) (24.1) (21.4)
Obligations under finance leases (0.4) (0.5) (0.4)
Preference shares (0.6)
--------- --------- --------
(22.3) (26.9) (17.0)
========= ========= ========
Consolidated Statement of Recognised Income and Expense
for the six months ended 30 September 2005 (unaudited)
Half year ended 30 September Full year
2005/06 2004/05 2004/05
(restated) (restated)
£m £m £m
Foreign exchange translation
differences 1.7 0.7
Gains on cash flow hedges 0.1
Actuarial (losses)/gains on
retirement benefit obligations (6.8) (19.1) (15.9)
Tax on items taken directly to
equity 2.1 5.7 4.6
--------- --------- --------
Expense recognised directly in
equity (2.9) (12.7) (11.3)
(Loss)/profit for the period (1.9) 1.5 (0.1)
--------- --------- --------
Total recognised income and expense
for the period (4.8) (11.2) (11.4)
========= ========= ========
Consolidated Statement of Changes in Equity
for the six months ended 30 September 2005 (unaudited)
Half year ended 30 September Full year
2005/06 2004/05 2004/05
(restated) (restated)
£m £m £m
At 1 April (as previously reported
under UK GAAP) 57.9 57.9
At 1 April (as restated under IFRS) 56.1
Adjustments on adoption of IFRS
from 1 April 2004 12.7 12.7
Adjustments arising on adoption of
IAS 32 and IAS 39 from 1 April 2005 (0.9)
--------- --------- --------
At 1 April (restated) 55.2 70.6 70.6
Recognised income and expense for
the period (4.8) (11.2) (11.4)
Dividends paid (2.1) (3.2)
Share premium - equity settled
share plans 0.1
--------- --------- --------
At period end 50.4 57.3 56.1
========== ========== =========
Notes to the Interim Financial Statements
1. Basis of preparation and transition to International Financial Reporting
Standards ('IFRS')
The unaudited financial statements for the six months ended 30 September 2005
have been prepared for the first time in accordance with the recognition and
measurement criteria of IFRS. Renold's transition date for the adoption of IFRS
was 4 April 2004. The Group has prepared and published the reconciliations that
fulfil the requirements of IFRS 1 (First-time adoption of International
Financial Reporting Standards), explaining the adjustments made to the
comparative financial statements, arising from the transition from UK GAAP to
IFRS. This announcement was made to the London Stock Exchange on 23 November
2005 and a copy is available on the Group's website (www.renold.com).
Alternatively a copy is obtainable from the Company Secretary at the Company's
registered address.
In view of the separate announcement, the detailed financial information
explaining the effects of the transition to IFRS is not repeated in this interim
statement. However, it is noted that the International Standards on financial
instruments, IAS 32 and 39, were only adopted from 1 April 2005, as permitted
under the relevant transitional arrangements. Therefore, comparative information
in respect of financial instruments, for periods prior to 1 April 2005, remains
presented in accordance with UK GAAP. In all other respects the financial
information within the interim statement is presented on a consistent basis for
all periods shown, following the recognition and measurement criteria of IFRS.
The financial statements have been prepared in accordance with accounting
policies that the Board expects to apply in the financial statements for the
year ending 31 March 2006. (A full statement of these accounting policies is
contained in the Group's announcement to the London Stock Exchange referred to
above). Therefore, the interim financial statements have been prepared
recognising the Standards in issue that either are endorsed by the EU and
effective for 31 March 2006 or are expected to be endorsed and effective by 31
March 2006. It should be appreciated that the International Standards currently
in issue and adopted by the EU are subject to interpretation issued from time to
time by the International Financial Reporting Interpretations Committee (IFRIC).
Further standards may be issued by the International Standards Board that will
be adopted for financial years ending on or after 31 March 2006. Additionally,
IFRS is currently being applied in the United Kingdom and in a large number of
countries simultaneously for the first time. In an environment of new and
revised Standards, included within the body of the Standards that comprise IFRS,
there is not yet a significant body of established practice on which to draw in
forming options regarding interpretation and application. Accordingly, practice
as it will be applied and reported on in the Group's first IFRS Financial
Statements for the year ending 31 March 2006, may be subject to change.
These interim financial statements do not constitute statutory accounts of the
Group within the meaning of Section 240 of the Companies Act 1985. Statutory
accounts for the year ended 31 March 2005, which were prepared under accounting
practices generally accepted in the UK, have been filed with the Registrar of
Companies. The auditor's report on those accounts was unqualified and did not
contain any statement under Section 237 of the Companies Act 1985. The interim
financial statements were approved by the Board on 12 December 2005.
Notes to the Interim Financial Statements
2. Segment reporting
The Group is organised on a world wide basis into three business segments as set
out below:
Half year 2005/06 Half year 2004/05 Full year 2004/05
Revenue Operating Revenue Operating Revenue Operating
profit profit profit
£m £m £m £m £m £m
Industrial power
transmission 75.9 68.7 142.9
Less: Inter-segment
revenues (0.3) (0.3)
-------- -------- --------
75.6 2.8 68.7 3.9 142.6 4.9
Machine tool
and rotors 8.5 10.5 21.7
Less: Inter-segment
revenues (1.1) (1.0) (2.0)
-------- -------- --------
7.4 (0.6) 9.5 0.3 19.7 0.6
Automotive 23.9 17.1 34.8
Less: Inter-segment
revenues (0.1)
-------- -------- --------
23.9 (1.7) 17.1 (0.1) 34.7 (1.5)
-------- -------- --------
Total external
revenue 106.9 95.3 197.0
======== ======== ========
Central costs
not allocated
to segments (0.3) (0.3) (0.6)
-------- -------- --------
Operating profit
before exceptional
items 0.2 3.8 3.4
Exceptional items (0.2) (0.3) (2.4)
-------- -------- --------
Operating profit 3.5 1.0
======== ======== ========
Central corporate costs that can be attributed to segments are reallocated
accordingly. However, central costs that cannot be attributed to segment
activities remain unallocated.
Exceptional items Half year Half year Full year
2005/06 2004/05 2004/05
£m £m £m
Impairment of goodwill (2.6)
Redundancy and restructuring costs
- continuing operations (0.2) (0.3) (4.3)
- acquisition (6.8)
Negative goodwill on acquisition 11.3
------- ------- --------
Total exceptional items (0.2) (0.3) (2.4)
======= ======= ========
The exceptional items are attributed to segments as follows:
Industrial power transmission:
Redundancy and restructuring -
continuing operations (0.1) (4.2)
------- ------- --------
Machine tool and rotor:
Impairment of goodwill (2.6)
Redundancy and restructuring -
continuing operations (0.1)
------- ------- --------
(0.1) (2.6)
------- ------- --------
Automotive:
Redundancy and restructuring -
continuing operations (0.3) (0.1)
Redundancy and restructuring -
acquisition (6.8)
Negative goodwill on acquisition 11.3
------- ------- --------
(0.3) 4.4
------- ------- --------
------- ------- --------
Total exceptional items (0.2) (0.3) (2.4)
======= ======= ========
In the year to 31 March 2005 an impairment charge of £2.6 million was made in
respect of goodwill related to the Jones & Shipman acquisition. In March 2005
the Group acquired Sachs Automotive France SAS ('SAF'). Following this
transaction a post-acquisition restructuring and integration provision was
charged of £6.8 million. Negative goodwill arising on the acquisition of SAF
(£11.3 million) was credited to the income statement.
Geographical analysis of external turnover by market area:
First half year Full year
2005/06 2004/05 2004/05
£m £m £m
United Kingdom 12.4 12.9 25.9
Germany 14.7 12.0 25.1
France 6.7 4.7 10.0
Rest of Europe 18.7 16.7 34.4
North and South America 38.4 34.7 70.9
Other countries 16.0 14.3 30.7
------- ------- --------
106.9 95.3 197.0
======= ======= ========
3. Note to the consolidated cash flow statement
First half year Full year
2005/06 2004/05 2004/05
(restated) (restated)
£m £m £m
(Loss)/profit before taxation (2.0) 2.1 (1.6)
Depreciation and amortisation 4.2 4.3 8.8
Goodwill impairment 2.6
Negative goodwill release (11.3)
Equity share plans 0.1
Net finance cost 2.0 1.4 2.6
--------- --------- ---------
Operating cash flows before changes in
working capital and provisions 4.2 7.8 1.2
Increase in inventories (1.9) (1.6)
Decrease/(increase) in trade and other
receivables 1.7 (1.2) (5.9)
(Decrease)/increase in trade and other
payables (1.0) (4.8) 3.7
(Decrease)/increase in provisions (3.2) 11.7
Movement on pension schemes (0.1) (4.1)
--------- --------- ---------
Cash flows from operations (0.2) 0.1 6.6
========= ========= =========
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