Interim Results
Renold PLC
23 November 2006
23 November 2006
Renold plc
Interim results for the half year to 30 September 2006
Renold plc, a leading international supplier of industrial chains and related
power transmission products, today announces its interim results for the half
year ended 30 September 2006.
Summary
• Results in line with Board's expectations - significant improvement in
operating profit from continuing operations
• Revenue from continuing operations increased by 6% at constant exchange
rates
• Continuing operations' operating profit increased by £2.1 million to
£4.6 million, with operating margin (before exceptional items) up to 6.1%
(2005: 3.4%)
• Continuing operations' profit before tax was £3.6 million (2005: £0.6
million)
• Basic EPS for continuing operations more than doubled to 2.4p (2005:
1.0p). Adjusted EPS 2.7p (2005: 1.2p) (adjusted for the after tax effects
of exceptional items)
• Disposal of Automotive operations completed in the period; discussions
with potential purchasers ongoing for the disposal of Machine Tools
• Strengthened leadership team focused on developing and implementing the
first stages of a profit and cash enhancement plan for presentation to
shareholders early in 2007
Prospects
Matthew Peacock, Chairman of Renold plc, said:
'With the order book higher than at the commencement of the year, increased
sales volumes and continuing actions to reduce costs, the second half year
should see continued performance improvement. '
For further information, please contact:
Renold plc
Bob Davies, Chief Executive 23 November 2006: 020 7067 0700
Peter Bream, 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
23 November 2006
Renold plc
Chairman: Matthew Peacock
Interim Statement for the half year ended 30 September 2006
FINANCIAL SUMMARY
Half year ended 30 September
2006/2007 2005/2006
£m £m
Continuing operations:
Revenue 79.3 75.6
Operating profit 4.6 2.5
Operating profit before exceptional items 4.8 2.6
Profit before tax and exceptional items 3.6 0.7
Profit before tax 3.4 0.6
Discontinued operations:
Loss from discontinued operations (6.4) (2.6)
Other information:
Basic and diluted loss per share - Group (6.8)p (2.8)p
Basic and diluted earnings per share -
continuing operations 2.4p 1.0p
Adjusted earnings per share
(adjusting for the after tax effects of
exceptional items) 2.7p 1.2p
Renold plc
CHAIRMAN'S STATEMENT
The results for the first half to 30 September 2006 are in line with the Board's
expectations with a significant improvement in operating profit for the
continuing operations over the first half of 2005/06.
Continuing Operations
Sales for the first half to 30 September 2006 were £79.3 million (2005/06: £75.6
million). At constant exchange rates sales were 6% ahead of last year.
Operating profit before exceptional items was £4.8 million (2005/06: £2.6
million), a 6.1% (2005/06: 3.4%) return on sales.
Net financing costs of £1.2 million (2005/06: £1.9 million) were lower
principally because of the £0.6 million costs incurred in the renegotiation of
the bank facilities in 2005/06. Financing included a net charge of £0.1 million
(2005/06: £0.4 million) relating to pension plan balances and the fair value
gains on derivatives amounting to £nil million (2005/06: £0.2 million).
The tax charge in the period was £1.7 million (2005/06: credit £0.1 million).
Adjusted earnings per share from continuing operations, before exceptional
items, were 2.7 pence (2005/06: 1.2 pence) and basic earnings per share from
continuing operations were 2.4 pence (2005/06: 1.0 pence).
Cash Flow and Borrowings
Cash generated from continuing operations was £1.1 million (2005/06: outflow
£0.6 million). Capital expenditure amounted to £3.5 million (2005/06: £2.9
million). Net proceeds from the disposal of the Automotive business resulted in
an inflow of £3.8 million in the period.
Net borrowings, including finance lease obligations and preference shares, at 30
September 2006 were £27.0 million compared with £20.7 million at 31 March 2006.
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.
Industrial Power Transmission
The business operated in an environment of stable, albeit relatively high, raw
material prices, but with increased utility and freight costs. At constant
exchange rates sales grew by 6% over the first half of 2005/06 with good growth
in Europe, the USA and China. Margins have been improved through sales price and
volume increases plus continued reductions in the cost base across the business.
The new Polish facility and outsourcing have been contributors to the cost
reductions.
The business has begun to benefit in the last few weeks from new members to the
senior executive team, including Peter Bream as the Finance Director and two new
non-executives of which I am one and Rod Powell the other. The new leadership
team is focused on developing and implementing the first stages of a profit and
cash enhancement plan ('PACE') which will run through to the end of March 2008.
This will accelerate the commitment to our low cost manufacturing sites in
Poland and China, as a principal driver of profitability. Additionally inventory
reduction projects are in progress as part of a general review of our balance
sheet management and cash generation. The PACE plan will enhance return on
capital employed, which has improved to 14% but remains below our expectations.
Discontinued Operations
Automotive
The sale of the automotive business was completed on 3 August. £3.8 million was
received on completion and a further amount is expected to be received subject
to agreement of the net working capital balance. It was announced at the Annual
General Meeting that investigations were ongoing into a potential quality
problem with deliveries of chain for one engine system. The net costs incurred
in relation to this matter are now not expected to be material to the Group.
Machine Tools
Following the Board's rejection of an offer for this business, negotiations are
no longer taking place with VPE/Ferranti. Discussions are however ongoing with
other potential buyers.
Burton Site
The initial planning application for redevelopment of the Burton site was
rejected, but discussions are continuing on a revised submission with a planning
decision expected by fiscal year end.
Pensions
The gross pension deficit shows an increase of £2.5 million from 31 March 2006.
This is principally due to lower than expected asset returns over the period,
particularly in the quarter to June 2006.
Auditors
The Company has appointed Ernst & Young LLP as auditors to the Group for the
year ending 31 March 2007.
Board
I should like to conclude by recording the Company's thanks to my predecessor,
Roger Leverton, and to Mark Smith, for their long service to the Board.
Outlook
With the order book higher than at the commencement of the year, increased sales
volumes and continuing actions to reduce costs, the second half year should see
continued performance improvement.
Release of Interim Statement
The Interim Statement will be posted to shareholders on 29 November 2006. Copies
will be available for the public from that date at the Company's registered
office, Renold House, Styal Road, Wythenshawe, Manchester M22 5WL.
RENOLD PLC
Consolidated Income Statement
for the six months ended 30 September 2006 (unaudited)
First half Full year
2006/07 2005/06 2005/06
£m £m £m
Continuing operations:
Revenue (Note 2) 79.3 75.6 155.0
Operating costs (74.7) (73.1) (149.6)
-------- -------- --------
Operating profit 4.6 2.5 5.4
-------- -------- --------
______________________________________
Operating profit before exceptional | |
items | 4.8 2.6 6.8 |
Exceptional items | (0.2) (0.1) (1.4) |
| -------- -------- -------- |
Operating profit | 4.6 2.5 5.4 |
| -------- -------- -------- |
|______________________________________|
Financial expenses (6.9) (7.4) (14.1)
Financial income 5.7 5.5 10.5
-------- -------- --------
Net financing costs (Note 3) (1.2) (1.9) (3.6)
-------- -------- --------
Profit before tax 3.4 0.6 1.8
Taxation (Note 4) (1.7) 0.1 (1.5)
-------- -------- --------
Profit for the period from continuing
operations 1.7 0.7 0.3
-------- -------- --------
Discontinued operations
Loss for the financial period from
discontinued operations (Note 5) (6.4) (2.6) (13.9)
-------- -------- --------
Loss for the financial period (4.7) (1.9) (13.6)
======== ======== ========
Earnings per share (Note 6)
Basic and diluted loss per share (6.8)p (2.8)p (19.6)p
Basic and diluted earnings per share
from continuing operations 2.4p 1.0p 0.4p
RENOLD PLC
Consolidated Balance Sheet
as at 30 September 2006 (unaudited) At At At
30 September 30 September 31 March
2006 2005 2006
£m £m £m
Assets
Non-current assets
Goodwill 15.9 16.3 17.1
Other intangible fixed assets 0.2 0.6 0.2
Property, plant and equipment 36.9 61.7 38.2
Other non-current assets 0.3 0.3 0.3
Deferred tax assets 18.9 20.1 18.4
---------- ---------- --------
72.2 99.0 74.2
---------- ---------- --------
Current assets
Inventories 37.4 50.0 36.5
Trade and other receivables 26.0 40.2 25.8
Derivative financial instruments 0.2 0.2
Cash and cash equivalents 9.6 22.4 17.8
---------- ---------- --------
73.0 112.8 80.3
Asset held for sale 3.4 3.4
Assets of discontinued operations 13.4 37.1
---------- ---------- --------
89.8 112.8 120.8
---------- ---------- --------
Total assets 162.0 211.8 195.0
---------- ---------- --------
Liabilities
Current liabilities
Borrowings (32.3) (35.7) (12.4)
Derivative financial instruments (0.2) (0.1)
Trade and other payables (27.3) (44.8) (31.3)
Provisions (0.2) (8.5) (0.4)
Current tax liabilities (1.3) (0.8) (0.7)
---------- ---------- --------
(61.3) (89.9) (44.8)
Liabilities directly associated
with discontinued operations (6.9) (28.1)
---------- ---------- --------
(68.2) (89.9) (72.9)
---------- ---------- --------
Net current assets 21.6 22.9 47.9
---------- ---------- --------
Non-current liabilities
Borrowings (3.8) (8.4) (25.6)
Derivative financial instruments (0.4) (0.1)
Preference shares (0.5) (0.5) (0.5)
Trade and other payables (1.3) (1.0) (0.7)
Deferred tax liabilities (0.8) (1.5) (0.7)
Retirement benefit obligations (56.4) (59.7) (53.9)
---------- ---------- --------
(62.8) (71.5) (81.5)
---------- ---------- --------
Total liabilities (131.0) (161.4) (154.4)
---------- ---------- --------
Net assets 31.0 50.4 40.6
========== ========== ========
Equity
Issued share capital 17.4 17.3 17.4
Share premium and other reserves 7.2 6.0 8.7
Retained earnings 6.4 27.1 14.5
---------- ---------- --------
Total shareholders' equity 31.0 50.4 40.6
========== ========== ========
RENOLD PLC
Consolidated Cash Flow Statement
for the six months ended 30 September 2006 (unaudited)
First half Full year
2006/07 2005/06 2005/06
£m £m £m
Cash flows from operating activities
(Note7)
Cash generated/(absorbed) by operations
- continuing 1.1 (0.6) 4.7
Cash (absorbed)/generated by operations
- discontinued (6.3) 0.4 1.7
--------- -------- --------
(5.2) (0.2) 6.4
Income taxes paid (0.6) (0.8) (1.7)
--------- -------- --------
Net cash from operating activities (5.8) (1.0) 4.7
--------- -------- --------
Cash flows from investing activities
Disposal of businesses 3.8
Purchase of property, plant and equipment (3.5) (2.9) (6.7)
Purchase of intangible assets (0.1) (0.2)
Proceeds on disposal of property, plant
and equipment 1.5 3.2
--------- -------- --------
Net cash from investing activities 0.3 (1.5) (3.7)
--------- -------- --------
Cash flows from financing activities
Financing costs paid (1.3) (1.6) (3.3)
(Decrease)/increase in borrowings (0.5) 1.8 6.9
Issue of ordinary shares 0.1
New obligations under finance leases 0.2
Payment of finance lease obligations (0.3) (0.1)
--------- -------- --------
Net cash from financing activities (1.9) 0.2 3.6
--------- -------- --------
Net (decrease)/increase in cash and cash
equivalents (7.4) (2.3) 4.6
Net cash and cash equivalents at beginning
of period 9.6 4.8 4.8
Effects of exchange rate changes (0.3) 0.1 0.2
--------- -------- --------
Net cash and cash equivalents at end of
period 1.9 2.6 9.6
========= ======== ========
In the balance sheet net cash and cash equivalents comprised:
Cash and cash equivalents 9.6 22.4 17.8
Overdrafts (included in borrowings -
Note 7) (7.7) (19.8) (8.2)
--------- -------- --------
1.9 2.6 9.6
========= ======== ========
RENOLD PLC
Statement of recognised income and expense
for the six months ended 30 September 2006 (unaudited)
First half Full year
2006/07 2005/06 2005/06
£m £m £m
Loss for the period (4.7) (1.9) (13.6)
--------- --------- ---------
Net gains/(losses) recognised directly in
equity:
Foreign exchange translation differences (1.5) 1.6 1.1
Gains/(losses) on fair value of hedging net
investments in foreign operations (0.9) 0.1 1.1
Actuarial losses on retirement benefit
obligations (3.5) (6.8) (5.3)
Tax on items taken directly to equity 1.0 2.1 1.7
--------- --------- ---------
Total expense recognised directly in equity (4.9) (3.0) (1.4)
--------- --------- ---------
Total recognised income and expense for the
period (9.6) (4.9) (15.0)
========= ========= =========
Reconciliation of changes in consolidated shareholders' equity
for the six months ended 30 September 2006 (unaudited)
First half Full year
2006/07 2005/06 2005/06
£m £m £m
Shareholders' equity at beginning of the
period 40.6 56.1 56.1
Adoption of IAS 32 and IAS 39 (0.8) (0.8)
--------- --------- ---------
40.6 55.3 55.3
Total recognised income and expense for the
period (9.6) (4.9) (15.0)
Employee share options:
- value of employee services 0.2
- proceeds from shares issued 0.1
--------- --------- ---------
Net reduction in shareholders' equity in the
period (9.6) (4.9) (14.7)
--------- --------- ---------
Shareholders' equity at the end of the period 31.0 50.4 40.6
========= ========= =========
Notes to the Interim Financial Statements
1 Basis of preparation
The unaudited interim financial statements for the six months to 30 September
2006 have been prepared on the basis of the accounting policies set out in the
Group's consolidated financial statements for the year ended 31 March 2006.
These interim financial statements do not constitute statutory accounts of the
Group within the meaning of Section 240 of the Companies Act 1985. The statutory
accounts for the year ended 31 March 2006 have been filed with the Registrar of
Companies. The Auditors' 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 23 November 2006.
2 Segment information
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.
The geographical analysis of revenue by market areas is as follows:
First half Full year
2006/07 2005/06 2005/06
£m £m £m
United Kingdom 10.1 10.5 20.4
Germany 7.8 7.2 14.6
France 3.8 4.2 7.4
Rest of Europe 14.6 13.8 28.2
North and South America 28.9 27.3 57.2
Other countries 14.1 12.6 27.2
--------- -------- ---------
79.3 75.6 155.0
========= ======== =========
3 Net financing costs
First half Full year
2006/07 2005/06 2005/06
£m £m £m
Financial expenses:
Interest payable on bank loans and overdrafts (1.2) (1.1) (2.3)
Interest cost on pension plan balances (5.7) (5.7) (11.1)
Costs associated with refinancing (0.6) (0.7)
--------- -------- ---------
(6.9) (7.4) (14.1)
--------- -------- ---------
Financial income:
Interest receivable on bank deposits and cash
equivalents 0.1 0.1
Expected return on pension plan assets 5.6 5.3 10.1
Fair value gains on derivative instruments 0.2 0.3
--------- -------- ---------
5.7 5.5 10.5
--------- -------- ---------
Net financing costs (1.2) (1.9) (3.6)
========= ======== =========
4 Taxation
First half Full year
2006/07 2005/06 2005/06
£m £m £m
Current tax:
- UK
- Overseas (1.0) (0.5) (1.3)
--------- -------- ---------
(1.0) (0.5) (1.3)
Deferred tax:
- UK 0.8 (0.3)
- Overseas (0.2) (0.2) 0.4
--------- -------- ---------
(0.2) 0.6 0.1
--------- -------- ---------
Income tax expense (1.2) 0.1 (1.2)
========= ======== =========
Attributable to:
- Continuing operations (1.7) 0.1 (1.5)
- Discontinued operations 0.5 0.3
--------- -------- ---------
(1.2) 0.1 (1.2)
========= ======== =========
5 Discontinued operations
First half Full year
2006/07 2005/06 2005/06
£m £m £m
External revenue 24.9 31.3 70.1
========= ======== =========
Operating loss before exceptional items (2.7) (2.4) (1.5)
Exceptional items (0.1) 0.5
--------- -------- ---------
Operating loss (2.7) (2.5) (1.0)
Net financing costs (0.2) (0.1) (0.4)
--------- -------- ---------
Loss before taxation (2.9) (2.6) (1.4)
Taxation 0.5 0.3
--------- -------- ---------
Loss after taxation (2.4) (2.6) (1.1)
Impairment of disposal groups (4.0) (12.8)
--------- -------- ---------
Loss for the period on discontinued
operations (6.4) (2.6) (13.9)
========= ======== =========
In the annual accounts to 31 March 2006 the Automotive and Machine Tools
businesses were treated as discontinued operations, following the Group's stated
intention to dispose of these operations. On 3 August 2006 it was announced that
the sale of certain assets and liabilities of the Automotive business had been
completed on that date. Final Completion Accounts for that disposal are
currently being reviewed in accordance with the terms of the respective Sale and
Purchase contract. The proposed disposal of Machine Tools has been the subject
of continuing negotiation. The additional impairment charges in the half year
financial statements reflect the current status of these negotiations and the
Automotive Completion Accounts .
6 Earnings per share
Basic earnings per share is calculated by dividing the profit for the period by
the weighted average number of shares in issue during the period. Diluted
earnings per share takes into account the dilutive effect of the options and
awards outstanding under the Group's employee share schemes.
First half Full year
2006/07 2005/06 2005/06
Pence per share Pence per share Pence per share
Basic and diluted EPS (6.8) (2.8) (19.6)
Basic and diluted EPS
from continuing
operations 2.4 1.0 0.4
Adjusted EPS from
continuing operations 2.7 1.2 1.7
========= ========= =========
£m £m £m
Continuing operations
Profit for the period 1.7 0.7 0.3
Discontinued operations
Loss from discontinued
operations (6.4) (2.6) (13.9)
--------- --------- ---------
Continuing and discontinued
operations (4.7) (1.9) (13.6)
========= ========= =========
£m £m £m
Profit for calculation
of adjusted EPS for
continuing operations
Profit from
continuing operations 1.7 0.7 0.3
Adjusted for the after
tax effects of
exceptional items:
Redundancy and
restructuring costs 0.2 0.1 0.9
--------- --------- ---------
1.9 0.8 1.2
========= ========= =========
Thousands Thousands Thousands
Weighted average number
of ordinary shares
For calculating basic
earnings per share 69,438 69,335 69,350
Effect of dilutive
securities - employee
share options 109 1 63
--------- --------- ---------
For calculating
diluted earnings per
share 69,547 69,336 69,413
========= ========= =========
7 Cash generated by operations
First half Full year
2006/07 2005/06 2005/06
£m £m £m
Continuing operations:
Profit before taxation 3.4 0.6 1.8
Depreciation and amortisation 2.5 2.7 5.4
Equity share plans 0.2
Net finance costs 1.2 1.9 3.6
(Increase) in inventories (2.7) (1.0) (1.8)
(Increase) in receivables (1.1) (1.3) (0.4)
(Decrease)/increase in payables (1.9) (1.2) 2.7
(Decrease) in provisions (0.2) (3.2) (2.7)
Movement on pension schemes (0.4) (3.8)
Movement on derivative financial instruments 0.3 (0.3)
--------- -------- ---------
Cash generated/(absorbed) by continuing
operations 1.1 (1.5) 4.7
--------- -------- ---------
Discontinued operations:
Loss before taxation (2.9) (2.6) (1.4)
Depreciation and amortisation 1.5 3.1
Plant and equipment impairment 0.8
Gain on plant and equipment disposals (0.1)
Net finance cost 0.2 0.1 0.4
(Increase) in inventories (0.5) (0.9) (0.6)
Decrease in receivables 1.0 3.0 0.2
(Decrease)/increase in payables (3.5) 0.2 5.3
(Decrease) in provisions (0.6) (5.7)
Movement on pension schemes (0.3)
--------- -------- ---------
Cash (absorbed)/generated by discontinued
operations (6.3) 1.3 1.7
--------- -------- ---------
Cash (absorbed)/generated by operations (5.2) (0.2) 6.4
========= ======== =========
Net debt comprised: At At At
30 September 30 September 31 March
2006 2005 2006
Cash and cash equivalents 9.6 22.4 17.8
Borrowings:
Bank overdrafts (7.7) (19.8) (8.2)
Bank loans (28.0) (23.9) (29.3)
Obligations under finance leases (0.4) (0.4) (0.5)
Preference shares (0.5) (0.5) (0.5)
--------- --------- --------
(27.0) (22.2) (20.7)
========= ========= ========
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